FATF: Pakistan’s tough test in June 2021

Huzaima Bukhari, Dr. Ikramul Haq & Abdul Rauf Shakoori

“Pakistan is determined to act against money laundering and terror financing. We have made considerable progress on the remaining three points, which will also be completed by June to completely get the country out of the FATF’s grey list”—Minister for Industries and Production Hammad Azhar

Hammad Azhar, while speaking at a press conference in Islamabad, a day after the Financial Action Task Force (FATF) on February 25, 2021, announced that “it will keep Pakistan on its grey list for another four months”, expressed the optimism to complete its full action plan before its next plenary to be held from June 20-25, 2021. He claimed that it was “good news” for Pakistan as the FATF “acknowledged the country’s progress on the action plan”.

According to a Press report, Mr. Hammad Azhar said:  “As you have seen, today the FATF itself is saying that we are 90 per cent close to achieving this goal”. He claimed that the remaining three points on the FATF’s action plan will be completed soon as “a lot of work has been done on the three points in which we are partially complaint”. The Minister admitted that “Pakistan is perhaps the only country in the world that is under the FATF’s dual scrutiny”. 

The FATF while keeping Pakistan in grey list decided that it “will remain under dual scrutiny because the MER [Mutual Evaluation Report] process is also ongoing simultaneously”. On this, Mr. Hammad Azhar commented: “So, in parallel our government and departments have also been working day and night on the completion of this process.”

All said and done, Pakistan will continue to stay on the FATF’s grey list for another four months, because of failure to meet three out of 27 action plan targets on anti-money laundering and combating financing terror (AML/CFT). Dr. Marcus Pleyer, President of FATF, while appreciating that Pakistan had made significant progress on all aspects of AML/CFT action plan clearly said, “but severe deficiencies still remain relating” to terror financing. He “strongly urged Pakistan” to complete the action plan at the earliest”.

Responding to a question, Dr. Marcus Pleyer said “a fully completed action plan including three outstanding areas will be verified in the next meeting and then FATF members will test Pakistan’s sustainability and suggest future steps”.

The FATF asked Pakistan to continue to work on implementing the three remaining items in its action plan to address its strategically important deficiencies. These include:

• demonstrating that TF investigations and prosecutions target persons and entities acting on behalf or at the directive of the designated persons or entities;
• demonstrating that TF prosecutions result in effective, proportionate and dissuasive sanctions; and
• demonstrating effective implementation of targeted financial sanctions against all 1,267 and 1,373 designated terrorists, and those acting for them or on their behalf.

It is clear from looking at the FATF recommendations on the three areas remain not fully complied that we were to designate criminal investigation to pursue money laundering and terrorist financing (ML/TF) offenses. However, as we mentioned in earlier articles (see details below), the Government of Pakistan Tehreek-i-Insaf (PTI) failed to fully comply with these recommendations.

Another key factor is lack of trained officials to deal with the investigation of terrorist financing related matters. This fact was also highlighted in Asia Pacific Mutual Evaluation Report (MER) [“the Report”] released in October 2019 wherein, it was clearly stated: “Deficiencies noted included: no evidence of standalone ML or TF investigations; insufficient understanding of investigative powers across investigative agencies; insufficient FMU resources; and ineffective use of LEA powers for ML and TF”.

The above deficiencies, highlighted in the Report issued in October 2019, still exist and the PTI Government cannot plead discrimination or any other excuse, as Mr. Hammad Azhar, claimed in his Press conference on February 26, 2021, “Pakistan is perhaps the only country in the world that is under the FATF’s dual scrutiny“. It shows the ignorance or incompetence, or both, of the head of our team to comply with FATF’s recommendations. As we mentioned in FATF & Pakistan’s progress, Surkhyian, February 24, 2021, as under:

“The complete roadmap to come out of the existing quagmire of FATF and achieve capability to take effective measures against ML/CFT, has been provided in the book, coauthored by us, Pakistan Tackling FATF: Challenges and Solutions. As expected, the Pakistan’s FATF Secretariat did not even bother to read the book what to speak of removing critical shortcomings highlighted in laws and their enforcement to counter all kinds of financial crimes.  Even after providing a pragmatic model for not only coming out of the grey list of FATF but for our own economic survival and progress, the Government of PTI has failed in countering all the threats against our national security and economic viability”. 

It is an undeniable fact that the financial monitoring units (FMUs) have insufficient resources and there is ineffective use of powers by law enforcement agencies (LEAs) to counter money laundering (ML) and terrorist financing (TF) as noted in Para 554 in the Report in October 2019 that states:

“AMLA [Anti Money Laundering Act, 2010] does not provide for parallel ML/TF investigations when a predicate crime is investigated. Pakistan did not provide laws, evidence or a general directive that LEAs which investigate predicate offences can refer cases to a different authority for parallel investigations regardless of where the predicate offence occurred. There are no clear directives by way of statutory provision or other instruments providing individual LEAs with guidance on clear cross working and referral processes relating to parallel investigations”.

Para 559 of the Report says that Recommendation 30 [Responsibilities of law enforcement and investigative authorities] “is rated partially compliant”. The worthy Chairman of FATF Coordination Committee and his team at National FATF Secretariat did not bother to read the Report, our articles and book, co-authored by us, Pakistan Tackling FATF: Challenges and Solutions. The result is before the nation. The National FATF Secretariat, part of Ministry of Finance, has no separate website where its efforts, research and remedial measures taken so far are available for the public and experts to evaluate and give their input.

Prime Minister, Imran Khan, it may be recalled, established on August 25, 2019, a high-powered 12-member National Financial Action Task Force (FATF) Coordination Committee to ensure execution of all FATF-related tasks till Dec 1, 2019. Led by then Minister for Economic Affairs Division Hammad Azhar (now Minister for Industries and Production), the committee comprises federal secretaries of finance, foreign affairs and interior, besides heads of all the institutions and regulators concerned with money laundering and terror financing. They include the Governor of the State Bank of Pakistan (SBP), Chairman of Securities and Exchange Commission of Pakistan (SECP), Director General of the Federal Investigation Agency (FIA), Member (customs) of the Federal Board of Revenue (FBR) and DG of the Financial Monitoring Unit (FMU). The committee also has three senior officials from the military’s General Headquarters (GHQ).

The FATF in its communiqué of February 25, 2021 observed that since June 2018, when Pakistan made a high-level political commitment to work with it and the Asia Pacific Group (AGP) to strengthen its AML/CFT regime and to “address its strategic counterterrorist financing-related deficiencies, it continued political commitment had led to significant progress across a comprehensive CFT action plan”. Besides Pakistan, the FATF also added four more jurisdictions to the increased monitoring list that included Burkina Faso, the Cayman Islands, Morocco and Senegal.

Many analysts in Pakistan have declared the decision of FATF “politically motivated” and a “conspiracy against a nuclear Islamic State by US-Indian-Israeli nexus”. They need to read the Report, our book, Pakistan Tackling FATF: Challenges and Solutions and the following articles:

1. FATF & Pakistan’s progress, Surkhyian, February 24, 2021
2. FATF—Pakistan: Real Estate Sector in Focus, Surkhyian, January 30, 2021
3. FATF & Pakistan’s faulty plan, Surkhyian, January 21, 2021
4. FATF, Pakistan and TBML, TNS, [Political Economy] The News, January 3, 2020
5. FATF: challenges & solutions—II, Business Recorder, January 9, 2020
6. FATF: challenges & solutions—I, Business Recorder, January 8, 2020

The International Convention for the Suppression of the Financing of Terrorism (1999), Security Council resolution 1373 (2001), calls on States to prevent and suppress the financing of terrorism, inter alia, by criminalizing the collection and provision of funds for terrorist purposes, and urges them to set up effective mechanisms for freezing funds and other financial assets of those involved in or associated with terrorism, as well as to prevent those funds from being made available to terrorists.

Pakistan, like other member states of the United Nations is liable to comply with the international conventions for the Suppression of the Financing of Terrorism (1999). It is a reality that despite Pakistan’s sacrifices and front-line ally in the war against terror, global community is not giving Pakistan the due credit that it deserves. The United States Department of State in its country report on terrorism 2019 released on June 24, 2020 alleged that Pakistan continued to serve as a haven for certain regionally focused terrorist groups. The reports states as under:

“Pakistan continued to serve as a safe haven for certain regionally focused terrorist groups.  It allowed groups targeting Afghanistan, including the Afghan Taliban and affiliated HQN, as well as groups targeting India, including LeT and its affiliated front organizations, and JeM, to operate from its territory.

Pakistan took modest steps in 2019 to counter terror financing and to restrain some India-focused militant groups following the February attack on a security convoy in the Indian state of Jammu and Kashmir claimed by Pakistan-based JeM.  Thus far, however, Islamabad has yet to take decisive actions against Indian- and Afghanistan-focused militants who would undermine their operational capability.  The Pakistani government also played a constructive role in U.S.-Taliban talks in 2019.  Pakistan’s progress on the most difficult aspects of its 2015 National Action Plan to counter terrorism remains unfulfilled – specifically its pledge to dismantle all terrorist organizations without delay and discrimination.  While Pakistani authorities indicted LeT co-founder Hafiz Saeed and 12 of his associates on December 11, they have made no effort to use domestic authorities to prosecute other terrorist leaders such as JeM founder Masood Azhar and Sajid Mir, the mastermind of LeT’s 2008 Mumbai attacks, both of whom are widely believed to reside in Pakistan under the protection of the state, despite government denials.

Pakistan experienced significant terrorist threats in 2019, although the number of attacks and casualties was lower than in 2018, continuing an overall year-on-year decline.  Major terrorist groups focused on conducting attacks in Pakistan included Tehrik-e-Taliban Pakistan (TTP or Pakistani Taliban) and ISIS-K.  Separatist militant groups conducted terrorist attacks against varied targets in Balochistan and Sindh provinces.  Terrorists used a range of tactics to attack individuals, markets, police checkpoints, and places of worship, including IEDs, VBIEDs, suicide bombings, and targeted assassinations.

In June 2018, the FATF placed Pakistan on its “gray list” and issued an Action Plan directing Pakistan to take specific steps by September 2019 to address strategic deficiencies in its CFT efforts.  The FATF expressed serious concern at its October 2019 plenary about Pakistan’s continued deficiencies but noted it had made some progress and extended the deadline for full Action Plan implementation to February 2020.

In 2018, Pakistan was designated as a “Country of Particular Concern” (CPC) under the International Religious Freedom Act of 1998. It was re-designated as a CPC in 2019.

2019 Terrorist Incidents:  Pakistan experienced numerous terrorist attacks in 2019.  The following examples include some of the more destructive and high-profile attacks and demonstrate a variety of methods, targets, and perpetrators:

• On May 8, a suicide bomber killed at least 10 (including police officers and security guards) and wounded at least 24 others in an attack at Lahore’s Data Darbar Sufi shrine. Hizbul Ahrar, a faction of TTP, claimed responsibility for the attack, specifying that the target was law enforcement officers and not civilians.
• On May 11, three militants killed five (including a Pakistani Navy officer) and injured six in an attack on the Pearl Continental Hotel in Gwadar. The Balochistan Liberation Army claimed responsibility for the attack, stating the targets were Chinese and other foreign investors.
• On July 21, two back-to-back attacks in Dera Ismail Khan, Khyber-Pakhtunkhwa, killed 10 and injured 30. Unidentified gunmen on motorbikes opened fire on a police checkpoint killing two police officers.  A suicide bomber later detonated an explosive device at the hospital where first responders transported victims of the first attack.  TTP claimed responsibility for the attack.
• On August 16, a timed explosive at Quetta’s Al-Haj mosque detonated, killing four (including the brother of Afghan Taliban chief Mullah Haybatullah) and injuring 25 others. No group has claimed responsibility for the attack.

Legislation, Law Enforcement, and Border Security:  The Pakistani government continued to implement the Antiterrorism Act of 1997, the National Counterterrorism Authority (NACTA) Act, the 2014 Investigation for Fair Trial Act, and 2014 amendments to the Antiterrorism Act (ATA), all of which give law enforcement, prosecutors, and courts enhanced powers in terrorism cases.

Military, paramilitary, and civilian security forces conducted CT operations throughout Pakistan against anti-state militants.  Pakistani law allows for preventive detention, permits the death penalty for terrorism offenses, and authorizes special Anti-Terrorism Courts to try terrorism cases.  Military courts established in 2015 under the National Action Plan to try civilians accused of terrorism ceased operation March 31.

Pakistan collects biometric information at land crossings through its International Border Management Security System.  Authorities had limited ability to detect smuggling by air travel.  The Customs Service attempted to enforce anti-money laundering laws and foreign exchange regulations at all major airports, in coordination with other agencies.  Customs managed the entry of dual-use chemicals for legitimate purposes through end-use verification, while also attempting to prevent their diversion for use in IEDs.  Consistent with UNSCR 2178, returning FTFs may be prosecuted under Pakistani law.  NACTA is responsible for compiling and verifying data on these individuals.

Countering the Financing of Terrorism:  Pakistan is a member of the APG.  Since June 2018, FATF has identified Pakistan as a jurisdiction with strategic deficiencies in its CFT system.  In 2019, Pakistan made some progress toward meeting the action plan requirements for the FATF, allowing it to avoid being blacklisted, but did not complete all action plan items.  In early 2019, Pakistan issued, inter alia, a statutory regulatory ordinance directing immediate implementation of sanctions against individuals and entities designated under UNSCR 1267.  In October 2019, APG published a Mutual Evaluation Report that reviewed Pakistan’s compliance with FATF standards and the effectiveness of Pakistan’s AML/CFT system.

Countering Violent Extremism:  The government operated five de-radicalization camps offering “corrective religious education,” vocational training, counseling, and therapy.  A Pakistani NGO administered the juvenile-focused Sabaoon Rehabilitation Center in Swat Valley, which it founded in partnership with the Pakistani military.

Some madrassas reportedly continued to teach “extremist” doctrine.  The National Action Plan directs increased government supervision of madrassas, and there was evidence of continued government efforts to increase regulation.  Security analysts and madrassa reform proponents observed, however, that many madrassas failed to register with the government or provide documentation of their sources of funding or to limit their acceptance of foreign students to those with valid visas, a background check, and the consent of their governments, as required by law.

The Pakistani cities of Nowshera, Peshawar, and Quetta are members of the SCN.

International and Regional Cooperation:  Pakistan participated in several multilateral fora where CT cooperation was discussed, including the GCTF, the Heart of Asia-Istanbul Process, and the ASEAN Regional Forum.  Pakistan has been slated to host the next summit of the South Asian Association for Regional Cooperation (SAARC) and the first since 2016, when all other SAARC member states boycotted the planned Islamabad summit following terrorist attacks on Indian security personnel committed by Pakistani groups”.

As evident from the above report, Pakistan has allegedly failed to meet the assigned targets as “progress on the most difficult aspects of its 2014 National Action Plan (NAP) to counter terrorism remains unfulfilled, especially its pledge to dismantle all terrorist organizations without delay and discrimination”. It is obvious that due to inefficiency in implementation of NAP, FATF in 2018 marked us among the list of jurisdictions with increased monitoring commonly known as grey list. Further FATF assigned us with a new action plan and directed us to address strategic deficiencies in ML-CFT latest by September 2019. However, despite lapse over two years, we have failed to satisfy the concerns of FATF!

It is pertinent to mention that in October 2020 plenary meeting FATF gave us final deadline to comply with its mandates by the February 2021, however, we have again failed to comply with the deadline. The President of FATF, Dr Marcus Pleyer, on the video link brief, while recognizing Pakistan’s counterterrorism efforts, observed: “There are still some serious deficiencies that the country needs to address”.

It reflects our impractical attitude towards addressing this important issue to tackle the concerns of global watchdog. MER also highlighted about shortcomings in prosecuting the target persons due to ineffective use of investigative tools, delays at the trial stage and the low level of awareness as to the element of AML offence by the judiciary the factors consolidate to form main grounds for the disproportion among the figures of investigation, prosecution and conviction as well as not achieving a reasonable conviction rate.

The recent press briefing specifically mentions that we must implement U.N resolution 1267 and 1373. It is pertinent to mention that National Counter Terrorism Authority (NACTA) has issued guidelines on these at its website. These resolutions require: targeted sanctions as well as criminalization for terrorist financing, ensuring border security and actions against arms trafficking, freezing of terrorist assets without delay, effective regulations for money or value transfer services to stop hawala transactions, effective control on cash couriers, and checks on raising funds through non-profit organizations (NPOs), meaning thereby that global community wants us to do more; mere conviction of Hafiz Saeed is not enough and we have to improve our policies concerning raising of funds through NPO’s and action against alternative remittance systems. SECP in consultation with NACTA issued Guidelines on Prevention of Money laundering (ML) and Terrorist Financing (TF) for Non-Profit Organizations (NPOs). These guidelines have been issued to create awareness for Terror Financing risks associated with NPOs sector. However, the follow-up actions and the oversight of their implementations are not made public by SECP and NACTA. The Pakistan Post (AML/CFT) Supervisory Board also issued guidelines on October 1, 2020.

The FATF concerns related to U.N resolution need to be addressed on priority basis and we must improve our counter-terrorism laws bringing them at par which on one hand address the concerns of terrorist financing related investigations and accommodate parallel investigations and on the other, properly address the concerns raised in Mutual Evaluation Report, 2019 regarding unnecessary delays in trials and execution of militants. Similarly, to improve the customs and border controls, we need to work on improving our extradition laws, the transportation security and the most important element which requires immediate attention of the government is to provide the training of our law enforcement officials including judiciary for identification, investigation and execution of the criminals engaged in terrorist financing activities.

Our NPO sector is being exploited by the militants to fund their criminal activities such as raising of funds using religious and humanity card and then movement of those funds for criminal motives, getting logistical support and recruitment of terrorists. These are huge challenges and can only be addressed with preventive education, comprehensive regulations, actions against the person and organizations that fund or support terrorist activities. These actions must be taken against the militants indiscriminately by law enforcement agencies.

Roadmap for our journey to the FATF maintained whitelist is not easy, according to the President of FATF. After addressing the 27 action items, their expert will verify our level of compliance. As per the consolidated table of assessment rating, our technical compliance rating needs to improve, as per the table, we are partially compliant for 25, largely compliant for nine and non-compliant for four whereas compliant with two recommendations. However, our efforts are rated on a scale of high, substantial, medium, and low levels of effectiveness based on eleven immediate outcomes (IOs). Pakistan’s level of effectiveness is rated low on ten and medium for one immediate outcome (IOs), which relates to international co-operation. Unfortunately, Pakistan has so far failed to secure a single substantial or high level of effectiveness rating. Now with this level of compliance, it would be difficult for us to get a favourable outcome of our verification of compliance with FATF mandates in June 2021 unless suggestions made above and earlier are implemented in letter and spirit. In the end, it is important to raise the issue that Pakistani journalist, Adeela Khan, did posing a question asking FATF President Marcus Pleyer “why India is not in grey or black list even after financing proxies in Afghanistan, using its soil to send terrorism in Pakistan and violating human rights in J&K”. This question should have been raised by Pakistani team during the session and internationally through its embassies and missions as well as top leadership with all the members of FATF. Pakistan needs to move motion with the help of China and Turkey against India for sponsoring terrorist activities in Pakistan and neighboring countries. 

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Ms. Huzaima Bukhari, Advocate High Court and Visiting Faculty at Lahore University of Management Sciences (LUMS), is author of numerous books and articles on Pakistani tax laws. She is editor of Taxation and partner of Huzaima & Ikram, a leading law firm of Pakistan. From 1984 to 2003, she was associated with Civil Services of Pakistan. Since 1989, she has been teaching tax laws at various institutions including government-run training institutes in Lahore. She specializes in the areas of international tax laws, corporate and commercial laws. She is review editor for many publications of Amsterdam-based International Bureau of Fiscal Documentation (IBFD) and contributes regularly to their journals. She has to her credit over 1500 articles on issues of public importance, printed in various journals, magazines and newspapers at home and abroad.

She has coauthored with Dr. Ikramul Haq many books that include  Tax Reforms in Pakistan: Historic & Critical Review, Towards Flat, Low-rate, Broad and Predictable Taxes (revised & Expanded Edition, Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes, Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary andMaster Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).

The recent publication, coauthored with Abdul Rauf Shakoori and Dr. Ikramul Haq, is Pakistan Tackling FATF: Challenges & Solutions

available at:  https://www.amazon.com/dp/B08RXH8W46

She regularly writes columns for Pakistani newspapers and has contributed over 1500 articles on issues of public finance, taxation, economy and on various social issues in various journals, magazines and newspapers at home and abroad.

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Dr. Ikramul Haq, Advocate Supreme Court, specialises in constitutional, corporate and tax laws. He established Huzaima & Ikram in 1996 and is presently its chief partner as well as partner in Huzaima Ikram & Ijaz. He studied journalism, English literature and law. He is Chief Editor of Taxation andVisiting Faculty at Lahore University of Management Sciences (LUMS).

He has coauthored with Huzaima Bukhari many books that include Tax Reforms in Pakistan: Historic & Critical Review, Towards Flat, Low-rate, Broad and Predictable Taxes (revised & Expanded Edition,  Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes, Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary andMaster Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).

The recent publication, coauthored with Abdul Rauf Shakoori and Huzaima Bukhari is Pakistan Tackling FATF: Challenges & Solutions

available at:  https://www.amazon.com/dp/B08RXH8W46

He is author of Commentary on Avoidance of Double Taxation Agreements signed by Pakistan, Pakistan: From Hash to Heroin, its sequelPakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax. He regularly writes columns for many Pakistani newspapers and international journals and has contributed over 2500 articles on a variety of issues of public interest, printed in various journals, magazines and newspapers at home and abroad.

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Abdul Rauf Shakoori, Advocate High Court, is a subject-matter expert on AML-CFT, Compliance, Cyber Crime and Risk Management. He has been providing AML-CFT advisory and training services to financial institutions (banks, DNFBPs, Investment companies, Money Service Businesses, insurance companies and securities),, government institutions including law enforcement agencies located in North America (USA & CANADA), Middle East and Pakistan. His areas of expertise include legal, strategic planning, cross border transactions including but not limited to joint ventures (JVs), mergers & acquisitions (M&A), takeovers, privatizations, overseas expansions, USA Patriot Act, Banking Secrecy Act, Office of Foreign Assets Control (OFAC). Over his career he has demonstrated excellent leadership, communication, analytical, and problem-solving skills and have also developed and delivered training courses in the areas of AML/CFT, Compliance, Fraud & Financial Crime Risk Management, Bank Secrecy, Cyber Crimes & Internet Threats against Banks, E – Channels Fraud Prevention, Security and Investigation of Financial Crimes. The courses have been delivered as practical workshops with case study driven scenarios and exams to insure knowledge transfer. His notable publications are; Rauf’s Compilation of Corporate Laws of Pakistan, Rauf’s Company Law and Practice of Pakistan, Rauf’s Research on Labour Laws and Income Tax Etc. His articles includes; Revenue collection: Contemporary targets vs. orthodox approach, It is time to say goodbye to our past, US double standards., Was Due Process Flouted While Convicting Nawaz Sharif?, FATF and unjustly grey listed Pakistan, Corruption is no excuse for Incompetence, Next step for Pakistan,, Pakistan’s compliance with FATF mandates, a work in progress, Pakistan’s strategy to address FATF Mandates was Inadequate, Pakistan’s Evolving FATF Compliance, Transparency Curtails Corruption, Pakistan’s Long Road towards FATF Compliance, Pakistan’s Archaic Approach to Addressing FATF Mandates. The recent book, coauthored with Huzaima Bukhari & Dr. Ikramul Haq is Pakistan Tackling FATF: Challenges & Solutions

available at:  https://www.amazon.com/dp/B08RXH8W46