Huzaima Bukhari, Dr. Ikramul Haq & Abdul Rauf Shakoori
The world has evolved into a global village due to technological advancements, connectivity and integration with each other—all these increasing by each passing day. Though it is making life much easier, but is exposing it to higher risks and challenges. A small violation on the part of any jurisdiction or an institution can compromise the integrity of the entire financial system posing higher risks to the world. To address these challenges, the Financial Action Task Force (FATF) has been actively working to ensure that each member state of its global network espouses its resolve to implement FATF’s international standards of Anti-Money Laundering and Combating Financing of Terrorism (AML-CFT). The implementation of these standards curtails illicit activities of the criminals and financers of terrorism.
The jurisdictions that lack the performance and need improvement are either marked as High-Risk Jurisdictions subject to a Call for Action or Jurisdictions under Increased Monitoring, commonly-known as “Blacklist” and “Grey List”, respectively. This public disclosure of countries marked “grey” or “blacklisted” is a powerful tool in preventing criminals and terrorists from abusing their financial systems and providing information to other countries as this works as a caveat so that potential business partners, financial institutions can take necessary precautions.
Since June 2018 Pakistan is listed among jurisdictions with increased monitoring and this listing requires us to swiftly resolve the identified strategic deficiencies within the timeframes agreed with the FATF. However, we have missed all the deadlines assigned to address these concerns. It is interesting to note that since June 2018, Asia Pacific Group (APG) completed our four assessments, one mutual evaluation, and three follow-up reports. However, the APG’s reports indicate that though we have improved our technical compliance level, yet no improvement is witnessed in effectiveness level on eleven immediate outcomes.
The recent consolidated rating assigned to Pakistan, based on the 3rd follow-up report, has marked Pakistan as fully compliant on 8 recommendations, partially compliant or with moderate shortcomings on 3, largely compliant on 27 with minor shortcomings, and non-compliant or with major shortcomings on 2 recommendations, respectively. The same report further states that Pakistan’s effectiveness measures were rated on a scale of high, substantial, medium, and low levels of effectiveness, based on eleven immediate outcomes (IOs). Pakistan’s levels of effectiveness were rated low on 10 and medium for one IO, which relates to international cooperation. The recent consolidating rating, released in February 2022, shows that no progress in compliance level was noted since the previous plenary meeting held in October 2021.
In the last FATF’s meeting, the global watchdog insisted that Pakistan needs to address the outstanding items by demonstrating terrorist financing investigations and prosecutions against senior leaders and commanders of UN-designated terrorist groups. It also required to actively work for the enhancement of the impact of sanctions beyond its jurisdiction by nominating additional individuals and entities for designation at the United Nations.
Unfortunately, these demands are not new from the global watchdog as well as other institutions including the United States. Pakistan needs to revisit the results of Mutual Evaluation Report 2019 and should focus on the anomalies highlighted in the report regarding terrorist financing investigation. In the Mutual Evaluation Report, the data given by our authorities to the APG team shows that Pakistan has 66 proscribed organizations and approximately 7,600 individuals under the Anti-Terrorism Act in compliance with an obligation under United Nations Security Council Resolution 1373. The report further highlighted that both government agencies and the private sector need fundamental improvement because lack of basic understanding regarding terrorist financing risk is affecting ability of Pakistan’s operational agencies, particularly at the federal level to target terrorist financing investigation and prosecution.
Now if we compare these findings with the statements of our Finance Ministers and Foreign Ministers in the Senate, wherein Mr. Shaukat Tarin while responding to a supplementary question as reported in the “The News” said that Pakistan had fulfilled 27 out of 28 conditions put forward by the Financial Action Task Force, but the countries having a position in the FATF are not our friends. Subsequently, Minister for Foreign Affairs Shah Mahmood Qureshi said a similar thing and told the House that there were no reasons for keeping Pakistan on the grey list. He further highlighted that we have complied with all the major conditions and fulfilled 26 conditions out of 27 and working on the second list. He assured the house that “our case is strong” on technical compliance fronts but if there are political considerations, nothing can be stated with firm authority.
Unfortunately, both the finance minister and foreign ministers are not aware of the exact number of action items assigned to Pakistan by the FATF. While answering questions in the Senate Tarin mentioned 28 action items whereas Qureshi mentioned 27. It is a fact that the initial action plan agreed with Pakistan consisted of 27 action items whereas Pakistan addressed 26. However, in June 2021, FATF included further six action items in the original action plan. President of FATF, in his Press conference after October 2021 meeting, pointed out that out of 34 items agreed in two action plans assigned to Pakistan, it has so far complied with 30 action items. The new action plan focused on money laundering deficiencies. Unfortunately, both our federal ministers one, responsible for the implementation of the action plan and the other responsible for assuring the global community regarding Pakistan’s compliance level and seeking their support for placing us back on the whitelist are ignorant of the exact number of action items but both ministers are blaming FATF for pursuing a political agenda against Pakistan.
For argument’s sake, agreed that FATF is driving political agenda against Pakistan, then responsibility lies with the Interior Minister to explain about the steps, if any, taken against the 66 proscribed organizations identified in the Mutual Evaluation Report 2019. The Interior Minister should also inform the nation about actions taken against 7,600 individuals involved in terrorist financing. Pakistani authorities should also tell the public of any action taken to improve government agencies and private sectors’ understanding of terrorist financing.
We must realise that we are dealing with the international community in FATF, and every member state is sensitive about its integrity. Maligning them for driving political motives will not serve any useful purpose. Pakistan needs to improve its regulatory and supervisory framework and must equip the law enforcement agencies with modern tools providing them advanced training.
Pakistan must revisit its existing AML-CFT framework making it compliant with international best practices. This would help our law enforcement agencies in preventing criminals from injecting illicit money into our financial system. The recent consolidated assessment has noted no improvement in our rating, both on technical compliance and in their effectiveness levels, thus, indicating that coming out of the grey list in the upcoming meeting will again be a big challenge for Pakistan.
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