Huzaima Bukhari, Dr. Ikramul Haq & Abdul Rauf Shakoori
The mere claims of authorities dealing with Financial Action Task Force (FATF) and Asian Pacific Group (APG) for complying with 26 out of 27 action items agreed in June 2018 not only failed to yield the desired results but were handed over with a further six-point action plan which is required to be completed by June 2022. Though the new action plan is continuation of the existing objectives agreed, to address the strategic deficiencies, however, it emphasizes on addressing the concerns raised by international community related to terrorist financing and prosecuting the heads of banned outfits as well as streamlining the avenues considered high risk for money laundering.
It is time that the coalition Government of Pakistan Tehreek-i-Insaf (PTI) and the independent analysts having indepth knowledge of FATF/AGP related challenges must evaluate as to why after lapse of three years Pakistan could not address concerns of FATF/APG and as to why once again the international community felt the need to put emphasis on the same points initially agreed by Pakistan in 2018.
It is obvious that the PTI Government after assuming power on August 18, 2018 never realised the consequences of non-compliance of money laundering (ML) and combating financing of terrorism (CFT) with international standards. It may be recalled that Pakistan opted to become a member of APG in 2000 and being a member of APG was supposed to enact, implement laws and regulations related to ML/CFT. However, the successive governments in Pakistan remained indifferent as no progress was made to fulfill the responsibilities of being a member state with reference to AML-CFT. As a result of warnings by APG team in 2007, our authorities paid some heed and finally Anti-Money Laundering Ordinance, 2007 was promulgated with regulations issued as late as in 2009. This Ordinance of 2007, issued hurriedly and with a heavy heart by the concerned authorities did not bother to implement it. Parliament also failed to enact a comprehensive legislation, therefore, FATF raised objections on this Ordinance which was not at par with global standards. After the negative observations by AGP, the Anti-Money Laundering Act, 2010 [AML, 2010] was passed by Parliament. This time again FATF/APG identified areas of improvements and some of those still remain unaddressed in 2021.
After regime change in 2013, the then Finance Minister Muhammad Ishaq Dar, now fugitive but once considered de facto Premier for close familial ties with Nawaz Sharif (in London now on “medical grounds” after being convicted in Avenfield Case and appeals dismissed for non-appearance by Islamabad High Court), amended AML-CFT laws, rules, regulations and guidelines as per requirements of FATF/APG for financial institutions. The application of the AML, 2010 made with few exceptions relating to suspicious transactions report. The amendments in Income Tax Ordinance, 2001, Federal Excise Act, 2005 and Sales Tax Act, 1990 were amended to address the concerns of FATF. However, various areas were not touched, and their status remained unaddressed. Resultantly, Pakistan with assurance to FATF/APG for implementing full action plan came out of the grey list in 2015 but within a year FATF conveyed its concerns regarding strategic deficiencies.
In 2018, Pakistan was reverted back to grey list and was handed over with a 27-point agenda to address strategic deficiencies. After a lapse of three years, progress made by the Pakistani authorities could not get recognition as the effectiveness of the compliance rated low. Although we have amended various laws, including Anti-Money Laundering Act, 2010, Anti-Terrorism Act, 1997, Trust Act, 1882 etc. even these amending laws lack requirements to address all the concerns of FATF. Many arbitrary provisions were introduced in Anti-Money Laundering (Second Amendment) Act, 2020, as well as in other laws. These amendments were contrary to the international standards highlighted by us in the Pakistan Tackling FATF: Challenges and Solutions coauthored and in various articles written jointly and individually.
It is strange to note that the ‘Mutual Evaluation Report Pakistan October 2019’ highlights the deficiencies, drawbacks, and suggests the areas of improvement and implementation strategy as well. Despite this, the PTI Government failed to introduce laws, develop framework, and execute strategy to address the concerns of global community. Our AML-CFT policy, coordination among the law enforcement agencies, their operations and approach to mitigate the potential risks, are not aligned with global best practices.
We have failed to remove the concerns of the global community regarding detection of proceeds of crimes generated within Pakistan and their use to support cross-border terrorism as our suspicious transactions reporting does not match with our risk profile as concerned public and private institutions are still unaware about AML-CFT threats. Resultantly, despite lapses of three years, we remain incapable to counter the potential ML/CFT threats, punishing the criminals and confiscating their assets.
It is late but not too late for the PTI Government to reform the existing AML-CFT framework which should focus on addressing domestic issues as well as global concerns. It is more than two decades since we have opted to be a member of APG but so far have failed to develop an effective AML-CFT framework. Contrary to us, our hostile neighboring country has not only secured a full-fledged membership of FATF but is now becoming a leading market in bringing innovation through use of modern technology to address AML-CFT concerns.
On the other hand, our confused approach is proving counterproductive as we could not assign a proper role to the concerned departments. Though we have created different committees to address the AML concerns, yet the formation and role of the committees do not match with the FATF guidelines issued to follow the risk-based approach. Job of a similar nature is being performed by the committees and National FATF Secretariat that is just waste of resources rather than contributing anything productive in implementation of AML-CFT standards. It is not understandable why we have created so much mess to deal with this strategic issue.
Both National FATF Secretariat and Financial Monitoring Unit (FMU) claim the roles of coordination, implementation and guiding the relevant sectors in implementing AML-CFT related policies and procedures, but on visiting their websites it seems that they are clueless about the AML-CFT best practices. The website of National FATF Secretariat is mostly inoperative and contents make no sense. Similarly, FMU’s website has posted the laws that are not updated. The regulations placed on website are repetitive and create confusion. Amendments made in Anti-Money Laundering Act, 2010 from time to time are placed separately rather than having single updated version to avoid any confusion. There are multiple entries of a single law, many not accessible e.g. updated version of National Accountability Bureau Ordinance of 1999.
Ideally, the FMU’s website should also have a reporting portal where those subject to regulations can submit reports and must have sector-wise categorisation/grouping. For each sector data/resources may be arranged as following
- Sector specific laws
- Sector specific regulations/guidelines
- Reporting forms
- Reporting portal link
The websites of National FATF Secretariat and FMU must be linked directly to national/international sources of information and should provide option where people can search for designated people/proscribed/listed entities or those with criminal records. This will help to make risk assessments beforehand and in an efficient manner and in order to facilitate general public and business concerns a helpdesk link and live chat option needs to be added where people can raise their queries.
This casual behavior of regulators and bodies formed for ML/CFT is a matter of great anxiety. We are living in an era of technology and without effective use of these platforms and tools we cannot achieve desired output. If this situation persists then we should not expect any positive outcome in the near future. We, as responsible and concerned citizens, have been raising alarm bells since long but these have fallen on deaf ears. Now through this article, we are again raising flags about deficient areas and also at the same time suggesting the way forward and solutions in this regard. We hope that responsible functionaries will go through these considerations and will steer Pakistan out of grey list and satisfy the world community that it has unshakable will to counter threats related to ML/CFT.
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.