Pakistan: Crucial FATF hearing

Huzaima Bukhari, Dr. Ikramul Haq & Abdul Rauf Shakoori

The last meeting of the FATF in February 2021 concluded on a mix note for Pakistan. FATF acknowledged significant progress made by Pakistan on the entire action plan where Pakistan successfully made progress across all action plan items and largely addressed 24 of the 27 action items. However, on the flip side it explicitly stated that all action plan deadlines have expired strongly urged Pakistan to swiftly complete its full action plan before June 2021. The details are available in our earlier articles as under:

FATF grey listing caused ‘$34bn losses’: Myth or reality, Surkhyian, March 10, 2021

FATF: Pakistan’s tough test in June 2021, Surkhyian, February 27, 2021

FATF & Pakistan’s progress, Surkhyian, February 24, 2021

FATF & Pakistan’s faulty plan, Surkhyian, January 21, 2021

FATF grey listing caused ‘$34bn losses’: Myth or reality, Surkhyian, March 10, 2021

Pakistan is currently part of the list of Jurisdictions subject to increased monitoring” (Grey List) maintained by the Financial Action Task Force (FATF). During the last decade Pakistan has been in and out from this list. The recent grey listing of Pakistan was assigned in June 2018. Subsequently in October 2019, a regional grouping of the FATF, the Asia Pacific Group stated in its Mutual Evaluation Report (MER) that Pakistan was ‘Compliant’ for 1 and ‘Largely Compliant’ for 9 of the FATF Recommendations. The meeting concluded with long of “things to do before next meeting in Feb-2020 and also going a step further FATF  warned Pakistan of consequences if action plan is not complied with in stipulated time, which could include the FATF calling on its members and urging all jurisdictions to advise their Financial Institutions to give special attention to business relations and transactions with Pakistan.

In Feb 2020, FATF acknowledged our notable improvements, however it reiterated its concerns given Pakistan’s failure to complete its action plan in line with the agreed timelines. The FATF strongly urged Pakistan to swiftly complete its full action plan by June 2020. Otherwise, should significant and sustainable progress especially in prosecuting and penalizing Terrorist Financing not be made by the next Plenary meeting, the FATF will take action, which could include the FATF calling on its members and urging all jurisdiction to advise their Financial Institutions to give special attention to business relations and transactions with Pakistan.

The planned meeting reviews got disrupted due to Covid-19-related restrictions and Pakistan got an additional time to comply. In the meanwhile, Pakistan made significant progress on outstanding points numerous laws have been introduced and new regulatory bodies have been formed in order to adhere with the FATF recommendation. These developments were also reflected in FATF press release after meeting in Feb-2021, it acknowledged significant progress made by Pakistan on the entire action plan as we have largely addressed 24 of the 27 action items. However, once again, global watchdog warned us “to complete full action plan before June 2021”.

These efforts and continuous progress is reflected in Pakistan’s second follow-up report (FUR) by Asia Pacific Group (APG) which has been prepared in accordance with the APG Third Round of Mutual Evaluation Procedures 2021. The FUR was considered by the APG Mutual Evaluation Committee on 29th April 2021, before being adopted by APG members without objection on 7th May 2021.  In its report APG welcomes the steps that Pakistan has taken to improve its technical compliance and now Pakistan has been re-rated on most of the Recommendations (R) and now R14, R19, R20, R21 and R27 have been re-rated to compliant, and recommendations R1, R6, R7, R8, R12, R17, R22, R23, R24, R25, R30, R31, R32, R35 and R40 to largely compliant. R28 has been re-rated as partially compliant. Insufficient progress has been made to re-rate R38 whereas compliance level with R37 has been downgraded to non-compliant.

The Current status of Pakistan vis-à-vis technical compliance is as following

Code	Description	Published Rating June-2021	Published Rating Feb-2021
C	Compliant	7	2
LC	Largely compliant – There are only minor shortcomings.	24	9
PC	Partially compliant – There are moderate shortcomings.	7	25
NC	Non-compliant – There are major shortcomings.	2	4
		40	40

The regulation 37 and 38 relates to international cooperation and sets out guidance for Mutual legal assistance (MLA) and Mutual legal assistance for freezing and confiscation related matters. Despite the fact that Pakistan has taken multiple steps in enacting the new regulations, the restrictive condition imposed on the provision of MLA through the new requirement to inform the subject of the request, is a significant deficiency noting the risk and context of Pakistan. 

Procedures have not been developed to support timely handling of requests. There are limitations with respect to non-conviction based orders. Pakistan’s compliance with R.38 is significantly compromised by the restrictive conditions including the requirement that the subject of any request to restrain or confiscate assets be notified of that request before the action can be taken, which prevents Pakistan from maintaining the confidentiality of requests and undermines its ability to act expeditiously.

Pakistan is still lagging behind on the effectiveness of these ratings which reflect the extent to which a country’s measures are fruitful. There is no change noted in effectiveness of our compliance which is rated on eleven immediate outcomes. Despite improvement on technical side their effectiveness still graded low for ten immediate outcomes whereas one immediate outcome rated as medium. The below chart shows the current rating of effectiveness of our compliance:

Code	Description	Jun 2021	Feb-2021
SE	Substantial level of effectiveness – The Immediate Outcome is achieved to a large extent. Moderate improvements needed.	0	0
ME	Moderate level of effectiveness – The Immediate Outcome is achieved to some extent. Major improvements needed.	1	1
LE	Low level of effectiveness – The Immediate Outcome is not achieved or achieved to a negligible extent. Fundamental improvements needed.	10	10
		11	11

FATF will review our compliance with remaining action items during its ongoing meeting, held in Paris (21-25 June 2021) and this recent adoption of FUR by APG is a welcome move.

The 2021 International Narcotics Control Strategy Report (INCSR, Vol. II), annual report by the US Department of State to Congress, mentions: “Operation of an unlicensedMoney Service Business (MSB) is illegal but, despite government efforts to curtail their activity, the public’s use of these entities remains prevalent due to poor governmental oversight and limited penalties. Many MSB transactions are for legitimate purposes due to a lack of access to the formal banking sector (more than 85 percent of Pakistanis do not hold bank accounts). Significant informal financial activity occurs along the largely unregulated Pakistan-Afghanistan border, and to a lesser extent, Pakistan’s borders with China and Iran. Border areas see illicit financial activity by terrorist and insurgent groups.”

As a nation we hope and pray that this time Pakistan finally convinces the international community and secure removal out the list of “jurisdictions with increased monitoring”. 

Pakistan’s economy is at a critical juncture and the government cannot afford to further tarnish our global image and diplomatic relations. Our key institutions need to consolidate and act in a harmonized manner to ensure this long awaited exit from “Grey List”. It’s about time that effectiveness of these regulations is also manifested through actions and their implémentation must be ensured to gain the status of responsible nation as highlighted in the book coauthored by us, Pakistan Tackling FATF: Challenges & Solutions, and various article mentioned above.

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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