FATF’s listing & Pakistan


Syed Qamar Afzal Rizvi

PAKISTAN has submitted its compliance report on FATF’s 27-point action and in this upcoming face-to-face meeting held in Bangkok September 8-13, the FATF Board will scrutinize the country’s performance before taking place of final review meeting that is scheduled for next month in Paris. Understandably, Pakistan needs to allay the fears of the FATF to ensure that it is not placed on the list. It will inflict far-reaching reputational and economic damage on the country. Merely stating that we can weather out the storm is nothing more than a hallucination. The world has changed and the regional situation is evolving rapidly, and FATF needs to adopt a forward-looking approach toward Pakistan while Islamabad has to be cognizant of the FATF’s listing dynamics.
Though the organization responsible for setting international standards on anti-money laundering and countering the financing of terrorism (AML/CFT), the Financial Action Task Force (FATF) has encouraged countries to design measures that protect the integrity of the financial system and support financial inclusion. But it has also received criticism that poor implementation of its standards can undermine financial access. One of the FATF’s main tools for compelling effective use of its standards is the mutual evaluation process, which relies on peer reviews to assess countries’ level of compliance with the FATF Recommendations.
In 2011, following a multi-year review process, the FATF published guidance that recognized financial inclusion and financial integrity as mutually reinforcing objectives. A year later, the organization revised its standards to strengthen and emphasize the risk-based approach (RBA) as the essential foundation of a country’s AML/CFT framework. Crucially for financial inclusion, the RBA allows financial institutions to use simplified Customer Due Diligence (CDD) or simplified due diligence (SDD) measures for customers that present a lower risk profile, which reduces the cost of bringing them into the formal financial sector. In terms of reforms, Islamabad‘s Parliament‘s enacted this stand-alone legislation’ on Anti-Money Laundering (AML) to tackle all three stages of money laundering from “placement” (in banks and related accounts) to “layering” (moving through several banks and jurisdictions) through to “integration” into the wider financial markets (reinforced via additional transactions). The 2010 AML Act is a monumental legal. As for the FATF listing, Pakistan was included in the grey list for the first time in 2012 and remained in it till 2015. On 29 June 2018 FATF Grey listed Pakistan for the second time. The process began in February 2018 when FATF approved the nomination of Pakistan for monitoring under its International Cooperation Review Group (ICRG) commonly known as ‘grey list’. At the time, on 11 effectiveness parameters, Pakistan was adjudged to be low on 10. In order to get its name removed from this grey list, Pakistan submitted a compliance report on its 27-point action plan to the FATF — the global watchdog for terror financing and money laundering — since as per the procedure, three separate evaluations would ultimately determine the country’s possible exit from the grey list by October 2019 – APG’s evaluation being one of these three.
The FATF identifies jurisdictions with weak measures to combat money laundering and terrorist financing (AML/CFT) in the two FATF public documents that are issued three times a year.The continued grey-listing on the part of Financial Action Task Force, the anti-money laundering and counter-terror financing global watchdog, has emerged as a major source of concern for the policymakers of Pakistan as the constant threat of blacklisting with potentially terrible financial and economic consequences continues to haunt the incumbent government. Now that the recent plenary meeting of FATF, held at Orlando, USA, from 16 to 21 June has shown deep reservations on the degree of technical, administrative and legal compliance of FATF recommendations and action plan shown by Pakistan, it will be fruitful to have some basic understanding about FATF so as to suggest some legal, political, diplomatic and administrative remedies to remove once for all the Sword of Damocles ever hanging on the head of Pakistan. Traditionally, the FATF’s exclusive emphasis has been fixed on measures the state has practised and implemented for freezing the assets of banned organizations; curbing the financing of banned outfits; and legislation for restricting money laundering. Accordingly, a report will also be reviewed on steps taken by the country for monitoring all welfare organisations at the federal and provincial levels by the Securities and Exchange Commission of Pakistan (SECP). Furthermore, welfare organisations’ assets will be analysed by the FATF. The FATF had also asked Pakistan to ensure registration of businesses of gold, other jewelry and precious stones, and the condition of holding National Identity Card (NIC) has been termed “must” for doing such business activities.
Pakistan on last Monday submitted detailed answers to 125 questions posed by the Financial Action Task Force (FATF) on moves taken by it to strengthen anti-money laundering and combat financing of terrorism, as Islamabad seeks to move out of the FATF Greylist. The FATF will decide whether Pakistan continues to feature in the Greylist or is put on the Blacklist, during the FATF meeting in Paris on October 16-18. It is somehow believed that out of 27 points Pakistan has to yet show compliance in 10 points while 11 are in-process.
Pakistan promulgated a comprehensive AML/CFT regime which, de jure, should be satisfying the FATF body, but as it appears de facto, it does not because power politics are at play. To whimsically label that Pakistan is not serious enough to combat AML/CFT is factually incorrect. In today‘s Pakistan, AML constitutes a comprehensive new regime of criminal liability and prosecution bearing wide-ranging application. Pakistan encountered monumental obstacles in evolving a globally acceptable and palatable AML-CFT regime, yet its efforts are often met with thanklessness. In this tense geopolitical atmosphere in South Asia where Kashmir issue dominates the global headlines, any FATF move likely to be taken next month to blacklist Pakistan will be tantamount to double down the impression that APG’s policy swings towards the Indian side which is certainly not a good departure for FATF’s credibility.
—The writer, an independent ‘IR’ researcher-cum-analyst based in Pakistan, is member of European Consortium for Political Research Standing Group on IR, Critical Peace & Conflict Studies, also a member of Washington Foreign Law Society and European Society of International Law.

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