Abdul Rauf Shakoori & Dr. Ikramul Haq
President of the Financial Action Task Force (FATF), while speaking at the Fourth G20 Finance Ministers and Central Bank Governors meeting on October 13, 2021, touched on three issues or concerns. He apprised the participants about the FATF Roadmap on cross-border payments in various ways concerning Anti-Money Laundering (AML) aspects, shared FATF’s work on virtual currency assets including implementation of the so-called travel rule, which ensures that data is shared on who sends and receives a virtual asset. He further highlighted that failure to implement the rules has real consequences, giving criminals and terrorists the green light to use virtual assets to launder illegal profits, knowing that they will get away with it. He urged G20 countries to implement the FATF Standards, including travel rule requirements, as soon as possible. Effective AML rules are crucial to ensure proper oversight of globally stable coins. In addition, FATF President also raised the matter of Pandora Papers and how they accentuated the need for action.
It is a fact that FATF is doing amazing work in countering the illicit flow of funds. It stresses upon implementation of Recommendation 16 that aims at help resolving the issues that pertain to cross-border payments. It will not only help in tracing the transactions but also minimize the risk of financing terrorism. The collection of personal data to fulfill the requirements of Know Your Customer (KYC) will help to locate transactions from origination to end destination. Moreover, the implementation of the ultimate beneficial ownership rule will further strengthen the standard of transparency and will discourage the use of funds by money launderers.
In the wake of these measures, Pakistan’s handling of these important issues needs to be as per global best practices. As the hybrid plenary meeting of FATF is in session, where member states will review our progress concerning the original as well as the new action plan agreed upon by us in June 2021. Pakistan made significant progress regarding deficiencies highlighted in the Mutual Evaluation Report 2019. Despite that Pakistan was handed over a new six-point action plan in June 2021 which requires, enhancing international cooperation, implementation of UNSCR resolution 1373, addressing risks related to Designated Non-Financial Businesses and Professions (DNFBP) and implementation of sanctions thereof, applying sanctions to all legal persons, and legal arrangements for non-compliance with beneficial ownership requirements, increase in money-laundering investigations and prosecution as well as freezing and confiscating of assets; and monitoring of DNFBPs regarding proliferation of financing. Pakistan was asked to implement the new action plan by June 2022.
From an historic perspective with the first warning of FATF in June 2016, about the consequences of not addressing strategic deficiencies related to money laundering, especially combating the financing of terrorism (CFT), the then Prime Minister Nawaz Sharif directed the security agencies to take stern action against rogue elements else Pakistan would face global isolation. This assignment of task allegedly resulted into a discord between the Government and the military leadership. After this, the political landscape of Pakistan changed rapidly, and the mil-establishment purportedly was more focused on settling scores with political leaders than any other matter. This tension had a heavy cost for Pakistan—in June 2018 FATF placed us on the “Grey list”. Since then, it has been almost five years and we have failed to address all the concerns of FATF. Following the listing in the grey list, FATF issued a detailed mutual evaluation report on Pakistan in 2019, and subsequently, follow-up reports were also published on the progress made by Pakistan. Our progress about technical compliance and its effectiveness could not meet the standards of compliance set by the global watchdog.
The recent consolidated rating assigned to us based on the third follow-up report, Pakistan was fully compliant on eight recommendations, partially compliant on three with moderate shortcomings, largely compliant on 27 with minor shortcomings, and non-compliant on two recommendations with major shortcomings respectively. Though Pakistan’s effectiveness measures were rated on a scale of high, substantial, medium, and low levels of effectiveness based on eleven immediate outcomes (IOs), our levels of effectiveness were rated low on ten and medium for one immediate outcome (IOs), which relates to international cooperation.
The question is that why we could not address the strategic deficiencies and still are part of the jurisdiction with increased monitoring? The straightforward answer to this issue is that Pakistan needs to change its priorities. We must streamline our internal as well as external issues. Our internal ones related to AML–CFT cannot be addressed without incorporating the fundamental principles of countering illicit flow of funds in our legislation. Though we have amended our Anti-Money Laundering Act, 2010 various times, however, most of its provisions are questionable and do not meet international standards. Similarly, various regulations issued by the State Bank, Securities, and Exchange Commission of Pakistan, and Federal Board of Revenue do not address most of the issues. Similarly, no comprehensive sector-specific guidelines are available to educate the professionals of the relevant industry.
We must improve our legal system as well as equip our law enforcement agencies with advanced training, techniques, and tools to detect, arrest and prosecute criminals.
In external issues, Pakistan needs to reconsider its foreign policy. The recent political development in neighboring country Afghanistan completely exposed us. Despite being a victim, Pakistan failed to convey its grievances to the international community. Pakistan failed to claim its fair share in the U.S and Taliban peace deal and an unsolicited visit by Pakistan’s premier intelligence agency chief to Kabul at a time when the U.S was under severe criticism offered a bailout package to the Biden administration. Our celebrations to welcome the Taliban proved the points the United States and other countries made in a motion moved in FATF to list Pakistan as a financier of terrorism. Despite knowing that FATF in its new action plan asked us to implement the UNSCR resolution 1373(2001) which requires 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 and without realizing the consequences, our unconditional support for those who are the reason for introducing this resolution can have a severe impact on us.
It is time that Pakistan needs to improve its mechanism of detecting potential terrorist financing-related threats posed through cross-border transactions and implement guidelines to monitor the main drivers of cross-border terrorist financing risks posed through an alternative remittance system. Our financial institutions need to ensure that their Suspicious Transaction Reports and Cash Transaction Reports are aligned with their risk profiles and addresses the concerns raised in the recent Mutual Evaluation Report.
It’s an unfortunate observation that highly technical matters like ML and CFT are left at the mercy of politically motivated and below-par performing bodies like the Federal Investigation Agency and the National Accountability Bureau. Though their adventures for time being created thrill in the country to benefit the ruling class, however, their politically derived motives have caused huge reputational damage to the country. Moreover, every few weeks their performance is questioned and exposed, their fabricated investigations-cum-fictional storytelling are torn into pieces when tested at higher judicial forums.
Though we have time to implement the new action plan by June 2022, it is time for us to invest resources in training and forming a separate institution to deal with all types of financial crimes, including timely detection of illicit flow of funds, raising red flags against suspicious activities, issuance of sector-specific guidelines, seeking mutual legal assistance, coordinating with the law enforcement agencies, aiding the courts as well as dealing with technical issues. The way forward should not only be moving out of the grey list but at the same time, we must strive to upscale our financial and corporate system which should not allow any miscreant to use it as a vehicle in its illicit activities.
Abdul Rauf Shakoori is a corporate lawyer based in the USA and an expert in ‘White Collar Crimes and Sanctions Compliance’. Dr. Ikramul Haq, Advocate Supreme Court, is Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellows of Pakistan Institute of Development Economics (PIDE). They have recently coauthored a book, Pakistan Tackling FATF: Challenges and Solutions, with Huzaima Bukhari.