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Dr. Ikramul Haq & Abdul Rauf Shakoori
The Asia Pacific Group (APG), an inter-governmental organization, consisting of 41-member jurisdictions has recently issued 4th Follow-up Report (FUR) on the Mutual Evaluation of Pakistan. Such publications by AGP are assessments as to whether member countries of Financial Action Task Force (FATF) and its Regional Style Bodies (FRSBs) are effectively implementing the international standards against money laundering, terrorist financing, and proliferation financing. FUR analyzes the progress made by Pakistan while addressing the technical compliance deficiencies identified in Pakistan’s Mutual Evaluation Report of 2019.
FUR states that Pakistan requested for re-assessment of compliance with Recommendations: 28, 33 37, and 38. Regulations 28 and 33 were earlier rated as partially compliant, meaning thereby that there are moderate shortcomings whereas regulations 37 and 38 were rated as “Non-Compliant”, indicating there were major shortcomings.
Over the period the government’s different institutes have been working hard to comply with FATF mandates so that Pakistan should be elevated as a cooperative state. However, there has been no success since 2018. Although there is considerable progress in compliance level, the ultimate goal is yet to be achieved.
The recently-published FUR by APG appreciates Pakistan’s progress for improvement in compliance with R.28, R.33, R.37, and R.38. As a result of this progress, Pakistan has been re-rated as follows: Compliant with R.33, Largely Compliant with R.28 and R.37, and Partially Compliant with R.38.
Recommendation 28 pertains to the regulation and supervision of designated non-financial businesses and professions (DNFBPs). It requires that countries should ensure that DNFBPs are subject to compliance with AML-CFT (Anti-Money Laundering & Combating the Financing of Terrorism) requirements and a designated competent authority or self-regulatory body (SRB) should be tasked to monitor compliance, to ensure effective monitoring.
The SRBs must have adequate powers to perform their functions and must take requisite measures to eliminate the role of criminals from being connected with a DNFBP.
The recent FUR notes that Pakistan has taken steps to address shortcomings in DNFBP supervision, including the establishment of an AML-CFT supervisory framework. However, there are some deficiencies/anomalies that exist in the system related to DNFBPs monitoring which requires a comprehensive application of a risk-based approach.
The Ministry of Law and Justice is empowered as the oversight body for the Self-Regulatory Body (SRB) of lawyers. The Anti-Money Laundering Act of 2010 was amended to designate Pakistan Bar Council, Provincial Bar Councils, and Islamabad Bar Council as Self-Regulatory Bodies for lawyers. Moreover, the Ministry of Law & Justice issued regulations on SRBs’ AML-CFT and published the AML-CFT guidance for lawyers.
In order to stop the involvement of criminals in dealing with DNFBPs or holding any interest in being part of their senior management, the Federal Board of Revenue (FBR) through Statutory Regulatory Order (SRO) 128(1)/2022 imposed a complete ban on a person with a criminal background. Additionally, the scope of these regulations was extended to real estate agents and dealers in precious metals and stones including accountants which are not members of the Institute of Chartered Accountants of Pakistan (ICAP) and Institute of Cost and Management Accountants (ICMAP). Though the current FUR also acknowledged progress made by the professionals supervised by the ICMAP and ICAP, yet it noted minor deficiencies and re-rated recommendation 28 as largely compliant.
Regulation 33 requires that countries should maintain comprehensive statistics on matters relevant to the effectiveness and efficiency of their AML-CFT systems. This includes statistics related to suspicious transaction reports received and disseminated; money laundering and terrorist financing investigations, prosecutions, and convictions; on property frozen, and confiscated, etc.
Moreover, the MER 2019 for Pakistan found deficiencies in statistics maintained on matters relevant to the effectiveness and efficacy of AML-CFT systems. After the MER 2019, Pakistan implemented a comprehensive data collection and management mechanism. The authorities are also working on a central data management system. The regulatory framework was amended to empower National Executive Committee to monitor collection of statistics and the overall outcomes from Financial Monitoring Unit (FMU), law Enforcement agencies, and other AML-CFT authorities including matters about policies and legislation.
The FMU upgraded its financial intelligence software and online reporting system and maintains comprehensive statistics on reports regarding “Suspicious Transactions”. The same is shared with law enforcement agencies quarterly. The overall progress on recommendation 33 is now re-rated to Compliant.
Regulation 37 related to Mutual legal Assistance (MLA) requires rapid and effective mutual legal assistance regarding money laundering, associated predicate offenses, and terrorist financing investigations, prosecutions, and related proceedings. The member nations must have corroborating and facilitating legal frameworks to enhance cooperation.
A central authority, equipped with the required legal apparatus and human resources can be pivotal in complying with this requirement. Timely execution of mutual legal assistance requests can also help in curbing the menace of money laundering and terror financing.
The designated competent authority must have the powers required for generation and collection of connected information, documents, or evidence from financial institutions, individuals, Association of Persons (AOP), or corporate entities.
As per the MER 2019, Pakistan was unable to provide MLA to foreign countries in the absence of a treaty for money laundering offenses, and law enforcement agencies lacked powers to execute MLA requests.
Pakistan has amended its regulatory framework and Secretary to the Ministry of Interior is the Central Authority. The International Cooperation Wing of this Ministry handles all the international incoming and outgoing requests as per given timelines. Additionally, it acts as a secretariat on behalf of the Central Authority to handle requests on its own under the direct supervision of the Secretary, Ministry of Interior.
Though some major corrections have been made, yet the FUR mentions deficiencies in the scheme for assistance to obtain restraint orders ex-parte. Further, a minor deficiency relating to the coverage of predicate offenses remains outstanding. Recommendation 37 is now re-rated upwards as Largely Compliant from the previous status of Non-Compliant.
The current FUR ranked our compliance level with FATF 40 recommendation as we are so far compliant of 9, largely compliant of 29, and partially compliant of 2 recommendations. There are no major shortcomings noted while assessing the technical compliance of our progress made to address FATF concerns. Despite addressing most of the concerns of FATF on the technical side, we still have to satisfy the watchdog on the effectiveness of our compliance. As per MER 2019, the effectiveness of our compliance system was rated on eleven immediate outcomes and ranked our level of compliance as low for 10 immediate outcomes whereas moderate for one immediate outcome.
According to a report, a 15-mmber APG team visited Pakistan from August 29, 2022 to September 2, 2022 during which it was accorded state guest level protocol. The report claims that “the FATF expressed satisfaction with the measures taken by the FBR”. The team visited the Federal Investigation Agency’s Headquarters and the Anti-Money Laundering (AML) Directorate where they were given a briefing on the implementation of the action plan. The FATF delegation held meetings with the relevant authorities and verified the steps Pakistan had taken to fulfil the requirement of the financial watchdog on money laundering and terror financing.
The findings of FATF team about effectiveness of our compliance would be discussed and reviewed in the next meeting scheduled in Paris in October. The entire process depends on the personal judgment of the team members. Therefore, apart from improving effectiveness of compliance level with FATF mandates, we have to adopt a proactive approach to streamline our foreign policy. We have already paid a huge price due to passive foreign policy that not only impacted our foreign relations but also the economy. In the current scenario where inflation has made it tough for ordinary citizens to meet their daily needs, any delay in streamlining our issues about FATF and foreign policy will cost us heavily.
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Dr. Ikramul Haq, Advocate Supreme Court, specialises in constitutional, corporate, media, ML/CFT related laws, IT, intellectual property, arbitration and international tax laws. He is country editor and correspondent of International Bureau of Fiscal Documentation (IBFD) and member of International Fiscal Association (IFA). He isVisiting Faculty at Lahore University of Management Sciences (LUMS) and member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE).
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).
The recent publication, coauthored by these writes with Huzaima Bukhari, is: