FATF & Pakistan’s Progress

Huzaima Bukhari, Dr. Ikramul Haq & Abdul Rauf Shakoori

“As a three-day virtual meeting of the Financial Action Task Force (FATF) will begin today, February 22, during which the steps taken by Pakistan against money laundering and terror financing will be reviewed, Pakistani officials say that if decisions are based on merit, then the country’s name will be likely removed from the FATF’s grey list”—The News, February 22, 2021

Younus Khan, a senior Pakistani journalist based in Paris, told Dawn on WhatsApp that some European countries, especially the host France, had recommended to FATF to continue to keep Pakistan on the grey list and had taken the position that not all points had been fully implemented by Islamabad. Other European countries are also supporting France—Pakistan optimistic about exciting FATF grey list, Dawn, February 21, 2021

February 25, 2021 has significant importance for Pakistan as announcement of review of its progress complying with the remaining six action items under anti-money laundering and combatting financing of terrorism [AML-CFT] mandates, agreed to by with Financial Action Task Force (FATF) plenary meeting held in June 2018, is expected. The official and non-official quarters are expressing the hope that Pakistan will be removed from the grey list after a long ordeal started since June 27, 2018.

The FATF in its communique of October 23, 2020 [Jurisdictions under Increased Monitoring–23 October 2020, Financial Action Task Force], took note of the “significant progress made on a number of action plan items. To date, Pakistan has made progress across all action plan items and has now largely addressed 21 of the 27 action items. As all action plan deadlines have expired, the FATF strongly urges Pakistan to swiftly complete its full action plan by February 2021”.

The Press release of FATF of October 23, 2020, as quoted by Press Information Department (PID) of Pakistan, reads as under:

“Financial Action Task Force (FATF) has reviewed Pakistan’s progress on FATF action plan in its Plenary meeting on 23rd October 2020, and has acknowledged that Pakistan has made progress across all action plan items and has now “largely addressed”21 of the 27 action items. The FATF has taken note of the significant progress made by Pakistan on a number of action plan items. Recognizing Pakistan’s sustained and irreversible efforts on implementation of FATF Action Plan, the FATF has upgraded overall 9 Action Plan items in its October 2020 Plenary. There is no item remaining in the incomplete” category. It is pertinent to mention here, prior to this plenary, Pakistan had addressed 14 out of 27 items and now FATF reviewed compliance of remaining 13 Action Plan Items during current plenary. The action plan items that have been addressed by Pakistan include highly important areas of Financial Sector, illegal Hawala/Hundi, cross-border currency regime, international cooperation in terrorist financing cases, amendments to the Anti-Terrorism Act, implementation of targeted financial sanctions by financial institutions, applying sanctions for AML/CFT violations, and controlling facilities and services owned or controlled by designated persons and entities. This is indicative of the confidence of FATF on the efforts of Pakistani Government. However, in view of the 6 items in “Partially Addressed” category, the plenary meeting decided to maintain status quo with respect to classification of Pakistan, for the time being. Considerable work has already been carried-out on these six items. Pakistan shall continue to make efforts to complete the remaining items in line with its strategy by February 2021. FATF will undertake the next review of Pakistan’s Progress in February 2021. The Plenary meetings of FATF were held virtually from 18-23 October 2020, where its members discussed a variety of topics including Pakistan’s progress. The Pakistan team led by Mr. Muhammad Hammad Azhar, Federal Minister of Industries and Production, attended these virtual meetings. Pakistan presented its case in an effective manner and also reaffirmed its political commitment to continue with the efforts to complete the Action Plan”.

The words of appreciation by the President of FATF regarding our progress on October 23, 2020 after the conclusion of virtual Plenary session (18-23 October 2020) with reference to Pakistan’s high-level political commitment, according to official quarters, “has given us hope that we are on right track and trying to address the concerns of FATF and its organ Asia Pacific Group (APG) in strengthening our Anti-Money Laundering and Combating Financing of Terrorism (AML-CFT) standards”.

It may be recalled that despite the appreciation of our progress with FATF mandates, at the same time it was also emphasised that “Pakistan should continue to work on implementing its action plan to address its strategic deficiencies which inter alia includes:

• demonstrating that law enforcement agencies (LEAs) are identifying and investigating the widest range of terror financing activity, which target designated persons and entities, and those who act on the behalf/direction of the designated persons or entities;
• demonstrating that terror financing prosecutions result in effective, proportionate and dissuasive sanctions;
• demonstrating effective implementation of targeted financial sanctions against all 1267 and 1373 designated terrorists and those acting for or on their behalf;
• preventing the raising and moving of funds including in relation to non-profit organisations;
• identifying and freezing assets; and prohibiting access to funds and financial services; and
• demonstrating enforcement against violation of terror financing sanctions, including in relation to NPOs, of administrative and criminal penalties and provincial and federal authorities cooperating on enforcement cases.

The coalition government of Pakistan Tehreek-i-Insaf (PTI), despite being cognizant of the adverse consequences of non-compliance, has not taken adequate steps in dealing with critical issues/threats of money laundering and combating financing of terrorism (ML/CFT). It is obvious from the shortcomings in the recent regulations regarding Designated Non-Financial Businesses and Professions (DNFBPs), especially related to real estate sector. It is one of the grey areas, highlighted by the Asia Pacific Group (APG), in their Mutual Evaluation Report published about Pakistan in October 2019. This sector was subsequently termed as non-compliant in a Follow-up Report (FUR) published by the APG.

According to the updated FATF consolidated assessment of Pakistan’s compliance with reference to its recommendations, we are partially compliant for 25, largely compliant for on nine and non-compliant for four whereas compliant with two recommendations.  However, our evaluation in the ongoing plenary meeting of FATF [22-24 February 2021] would be based on the compliance of twenty-seven action items which includes the compliance of all recommendations.

Shockingly, Pakistan, despites lapse of more than four years from FATF initial warning in 2016, to grey listing in 2018, the PTI Government is still struggling to satisfy the global watchdog. Though we have taken some steps to address the implementation of remaining objective agreed like, we completed the trial of Hafiz Saeed. However, Pakistan still needs to work on the remaining objective and the most important is actions to prevent and raising of funds by the militants and their organisations.

It is essential for our government to address the FATF mandates wholeheartedly to counter the powerful Indian lobby working against us. We must address the grey areas which help and/or facilitate the criminals to move their illicit funds. The criminals transfer huge chunk of money from developing countries due to their weak governance and resources. In most countries movement of dirty money acquired by the criminal through corruption, smuggling, tax evasion and money laundering screw their economy which ultimately impact their spending in development expenditures and curtail their investment activities, which ultimately impact their social sectors which include deteriorate in their health, education and standard of living.

It is a fact that we suffered huge cost, more than US$100 billion in the war against terror and lost more than 80,000 lives. It is, however, an admitted fact that even after suffering economically and sacrificing precious human lives, our controls are still weak. The above-quoted Press release of FATF demanded strict actions against the terrorist and their sympathisers. It is high time that the Government of PTI equips our law enforcement agencies with modern technological tools and train them to employ effective techniques. These steps are necessary for their countering the ML/CFT challenges timely and effectively. The critical areas are movement of illicit funds, money laundering, cross border illegal financial transactions, arms-drugs trafficking, identifying and freezing of assets of all terrorist networks. These actions must not be delayed. The most vital area is cutting the financial life-line of the terrorists, provided by many so-called charity organisations have covert and even open links with terrorist. We all know the elements that have been openly supporting them in what the call holy war against the infidels occupying Afghanistan. The presence of terrorist networks inside Pakistan is not a secret.

In our earlier article, FATF & Pakistan’s faulty plan, Surkhyian, January 21, 2021, it was highlighted that the powers conferred under the amended Anti-Money Laundering Act, 2010 to the Federal Board of Revenue (FBR) needs reconsideration. The FBR issued generic regulation through SRO 924(1)2020 on September 29, 2020 to regulate important sectors. The anomalies in the regulation regarding monitoring of jewelers, dealers in precious metals and stones were pointed out in the above-mentioned article, but no remedial measures were taken. The crux of the matter, as emphasized, was that the “generic regulations would not serve the purpose for which detailed guidelines are available by FACTA”. It was also suggested that for addressing FATF’s concerns, issuance of industry specific regulations “is the only way forward”. Our suggestions were ignored before going to the FATF ongoing session. Resultantly, the global watchdog has once again expressed concern over illicit flow of funds infecting our financial system.

In our second article, FATF—Pakistan: Real Estate Sector in Focus, Surkhyian, January 30, 2021, we made the following observations:

However, the definition of a real estate agent is limited to builders, real estate developers, property brokers and dealers while other persons attached with this industry are totally ignored.

These rules should be industry specific, covering all elements linked with any real estate business to properly expose suspicious transactions. RBA GUIDANCE FOR REAL ESTATE AGENTS of June 17, 2007 by FATF have not been fully comprehended by our agencies as evident from ‘Guidelines for Real Estate Agents AML & CFT Guidelines, 2018’ issued by FMU of Pakistan and just gave the link to the  Guidance on the Risk-Based Approach to combat Money Laundering and Terrorist Financing that was developed by the FATF in close consultation with representatives of the real estate. No such effort is made to engage the local representative of real estate. Their data is not centralized anywhere. They neither need any license or registration. The vast majority even does not file income tax returns and statements with provincial revenue bodies.

This guidance is presented in a way that is focused and relevant for real estate agents when they act for buyers or sellers. The roles and therefore risks of the different DNFBP sectors are usually separate. However, in some business areas, there are inter-relationships between different DNFBP sectors, and between the DNFBPs and financial institutions. For example, real estate transactions often involve financial institution lenders, as well as lawyers or notaries, and real estate agents.

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 shortcoming 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.  

Pakistan also needs to revisit laws and remove the arbitrary provision which is not in accordance with the international standards and FAFT’s requirements. It is also important that these regulations should negate the element of political maneuvering against opponents, the three-time amended Anti-Money Laundering Act of 2010 gives unrestricted powers to conduct undercover operations, interception of communication etc. It violates the fundamental rights of the citizens like freedom of movement and the ability to conduct unimpeded commerce. The amendments made in this law gives the right to relevant professional bodies to act regulatory body and/or appellate authority for its own members, which is against the principles of independence and amounts to conflicts of interest.

Our government also needs to focus on developing innovative solutions that may improve regulators abilities to conduct due diligence on customers and to the suspicious financial activities more effectively. In this era, we cannot ignore the power and utility of technology. It helps identify the potential risk exposed to various sectors more efficiently and provided sophisticated tools to monitor the movement of funds, from its origination to its final beneficiary by ensuring transparency for regulators and financial transitions. The use of technology will enable the law enforcement agencies and financial institutions to work confidently and efficiently in detecting higher risk and even lower revenue targets which ultimately benefits Pakistan in fight against AML-CFT. It will certainly benefit Pakistan and the same time satisfy the global community about seriousness of our commitment to uproot the menaces of money laundering and financing of terrorism.

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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