Huzaima Bukhari, Dr. Ikramul Haq & Abdul Rauf Shakoori
Pakistan’s high-level commitment to work with Financial Action Task Force (FATF) and Asia Pacific Group (APG) to strengthen its AML-CFT Regime and to address its strategic and counter-terrorist financing deficiencies took another turn when in June 2021 plenary meeting, Pakistan was assigned with an additional six-point action plan.
This requires addressing issues related to international cooperation through Mutual Legal Assistance, implementation of United Nations Security Council Resolution 1373, addressing Risk associated with DNFBP’s and implementation of sanctions, application of sanctions for non-compliance of beneficial ownership, aligning Money Laundering (ML) prosecution, and investigation with risk profile including tracing, freezing and confiscating of assets with collaborating foreign counterparts. The new action plan specifically requires monitoring for compliance of Designated Non-Financial Businesses and Professions (DNFBPs) and imposition of sanction in case of violations.
Pakistan was also asked to investigate, and prosecution targeted senior leaders and commanders of UN designated terrorist groups as well. However, because of rapid changes in the affairs of our neighboring country Afghanistan where a walkover has been given to the Taliban by the U.S and its coalition partners, a situation that has taken an interesting turn for Pakistan.
Pakistan has a long history of involvement in Afghanistan, both “on field” and “off field” with our political leadership and mil-establishment being involved in different roles sometimes as friends to Taliban and sometimes as adversaries. This perplexity has created lots of problems for Pakistan, both at domestic as well as international levels. In the most recent wake of events, though Pakistan was not given due importance in the entire process of “peace deal” and evacuation but it is again gearing up to play its cards smartly to restore its influence and confidence over the new regime in Afghanistan.
In this entire situation, the next plenary of the FATF is approaching and Pakistan is also working with AGP and FATF to address the new action plan. Though, the new development has changed the entire scenario. The agreement executed between both the parties transpires that the United States (US) and coalition partners will refrain from using threats or force against them. Moreover, US agreed to release prisoners of the Taliban. Similarly, the US will also collaborate with members of the United Nations (UN) Security Council and Afghanistan to remove the names of Taliban from the sanctions list.
Whereas the FATF recommends each country implement the targeted financial sanctions regimes and to comply with the United Nations Security Council resolutions (UNSCRs or resolutions) relating to the prevention and suppression of terrorist financing. UNSCRs relating to the prevention and suppression of terrorism and terrorist financing e.g. UNSCR 1267(1999) and its successor resolutions (the Al-Qaida/Taliban sanctions regimes) and UNSCR 1373(2001); require countries to freeze, without delay, the funds or other assets of, and to ensure that no funds or other assets are made available, directly or indirectly, to or for the benefit of, any person or entity designated by, UNSC under Chapter VII of the Charter of the United Nations. To date, Pakistan has made a substantial effort to address deficiencies identified in the MER regarding its UNSCR 1267/1989 and 1988 and UNSCR 1373 designations framework. The targeted financial sanctions are implemented without delay, and the scope of freezing obligations and prohibitions are aligned with FATF requirements. Financial institutions and mostly DNFBPs are required to promptly report any assets frozen or actions taken to comply with the prohibition requirements of the relevant UNSCRs, including attempted transactions.
Considering the recent developments, it is widely reported in media that Afghanistan wants to be a part of the landmark project China-Pakistan Economic Corridor (CPEC) and Belt and Road Initiative (BRI), earlier called “One Belt, One Road (OBOR)” Initiative. Although it may sound music to some ears, however, at the same time, we must be very cautious while developing any trade ties with Afghanistan because neither they have developed institutions nor are they competent (or even respectful) towards such global best practices. The carbon prints of any illegal activity can have their footprints on Pakistan’s financial and corporate framework. Hence, we must be aware of our risk profile and appetite.
After the peace agreement and US withdrawal from Afghanistan, what will be the reaction of the global community regarding treatment of the Taliban once considered terrorists or threat to global peace? Particularly when the second phase of the implementation of the agreement requires that the US will collaborate with the U.N Security Council members to remove their names from the sanctions list. If the U.N Security Council considers removing the names of Taliban from the sanctions list, the objectivity and need of the action plan assigned to Pakistan might not remain valid as it was earlier. The next plenary meeting of the FATF will clear most of the doubts regarding its action plan. However, as a responsible state, we should keep working on addressing the risk related to terrorist financing. We should keep in mind that our institutions, both public and private sectors should design their framework which not only detects threats and secures them from being vulnerable to and exploited by criminals to facilitate their activities, but also educates our financial institutions and DNFBPs and our law enforcement agencies about the terrorist financing methodologies so that they could identify the potential terrorist financing risk which includes gathering of information such as funding needs and role of the non-profit organization operating in the conflict zones.
Moreover, we should continue to monitor terrorist financing-related threats even in the absence of potential threats on our western borders. Pakistan needs to improve its mechanism of detecting potential terrorist financing-related threats posed through cross-border transactions. The main drivers of cross-border terrorist financing risks are the financial institutions and money and value transfer services sectors. The exploitation of natural resources is one of them as well including cross-border smuggling, movement of funds, illegal trade, including material support by offering training, recruitment, and facilitation.
The only way forward is for us to revisit our currency transactions reporting requirements and align them with our national risk profile. Moreover, we should devise a system of monitoring large amounts as well as the low volume transactions which are comparatively hard to detect by the transaction monitoring system. Our financial institutions need to make sure that their suspicious transactions reporting is aligned with the mandates set by the financial monitoring unit as addresses all the concerns raised in the recent Mutual Evaluation Report. Though we are trying to regulate DNFBP’s but they are still unaware of the reporting requirements. Financial Monitoring Unit ensures issuance of proper guidance and offers training related to the potential threats exposed to this sector. The Financial Institutions, Money, or Value Transfers Services, as well as DNFBPs, need to be closely monitored about their reporting regimes to minimize the potential risks. Though we got one year for implementation of the new action plan, however, the recent development in our neighboring country is more challenging for us. Therefore, we must implement the risk-based approach for assessing potential threats and mitigation strategies to reduce cross-border and sector-specific terrorist financing risks.
Huzaima Bukhari & Dr. Ikramul Haq, lawyers and partners of Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS), members Advisory Board and Visiting Senior Fellows of Pakistan Institute of Development Economics (PIDE). Abdul Rauf Shakoori is a corporate lawyer based in the USA and an expert in ‘White Collar Crimes and Sanctions Compliance’. They have recently coauthored a book, Pakistan Tackling FATF: Challenges and Solutions