Getting out of FATF trap


Iqbal Khan
YES! We were pushed into Financial Action Task
Force (FATF) trap through an Indo-US conspiracy
by circumventing the then in-vogue procedures. Even then, wailing about it is not likely to come to our rescue. There is need for a multidisciplinary professional approach to unshackle out of FATF trap. Before every key meeting of FATF or its affiliates, a hype is created at domestic level that during upcoming session Pakistan would tear apart FATF straightjacket due to its performance. The result has so far been to the contrary. The government must understand that task in this context in not fooling the domestic audience, but to outsmart the FATF experts. Same orchestra is in play now in anticipation to upcoming FATF plenary in February.
Government hopes to win a “largely-compliant” rating from the FATF on the implementation of its 27 action points, which might help the government get more time for full compliance. For the February plenary meeting of the FATF “our target is to be largely complaint on most of the action points”, Director General of Financial Monitoring Unit (FMU) Mansoor Siddiqui told a parliamentary panel during a meeting of the Senate Standing Committee on Finance, which was convened to approve amendments to the Anti-Money Laundering (AML) Act and the Foreign Exchange Regulations Act. This statement came two days before the submission of Pakistan’s last progress report on the implementation of the FATF Action Plan to the Joint Group of the FATF. Pakistan and the Joint Group will meet in Beijing on Jan 21 and 22, followed by an FATF plenary next month.
“In the past six months, we have won the support of a number of countries and also made significant progress in implementing the Action Plan,” Siddiqui added. In January last year, Siddiqui said, “we were largely compliant only on one action item” but by October “we were largely complaint on five action points”. In the Feb 2020 report, Pakistan will still be “partially” compliant on some of the points but most action points will be largely addressed. Let’s hope so. For exiting the grey list, Pakistan needs to show full compliance on all the action points by Feb 2020, according to the FATF statement issued in October last year. According to government officials they were hopeful because Pakistan had made “major progress” by completing national risk assessment report, developing an effective interagency coordination framework and conducting a review of the risk-based supervisory policies by the regulators and the law-enforcement agencies. He said decisive actions had been taken against the entities concerned and mapping and supervision of non-profit organisations had been completed.
Pakistan continues to be included in the FATF’s list of jurisdictions with serious AML/CFT deficiencies. The Asia Pacific Group on money laundering also discussed Pakistan’s Mutual Evaluation Report, noting that existing efforts were “inconsistent with the level of risks and greater effectiveness needs to be demonstrated”. DG FATF’s Action Plan focuses on curbing terror financing through terror financing risk assessment and supervisory actions, terror financing risk in cash couriers and countering actions, terror financing inquiry and investigations and application of targeted financial sanctions.
In 2018 and 2019 the UN Security Council had passed resolutions that made implementation of the FATF recommendations binding and in case of deficiencies, sanctions could be imposed that may carry economic cost. Five laws are being amended, which are at various stages of approval at present. The Anti-Money Laundering Act 2010 and Foreign Exchange Regulations Act 1947 are before the Senate Committee for approval after being endorsed by the National Assembly Standing Committee. The Mutual Legal Assistance Act has been introduced before the National Assembly while the amendments are being proposed to comply with the United Nations Security Council Act 1948 and Anti-Terrorism Act 1997.Nine amendments are proposed to the AML Act to make it consistent with the FATF standards and enhance punishments to make them effective.
Pakistan is also undergoing a separate scrutiny process by the Asia Pacific Group that has found Islamabad’s compliance to only 10 recommendations out of 40. Similarly, out of 11 effectiveness indicators, Pakistan is found at moderate effective level only against one indicator. Pakistan has also made a national strategy to avoid blacklisting by the AGP and it will submit the first implementation report in February. According to the International Monetary Fund (IMF) Pakistan remains at risk of being placed on FATF “blacklist” that could have implications for capital inflows to the country.” A potential blacklisting by FATF could result in a freeze of capital flows and lower investment to Pakistan,” stated the recent staff-level report that was finalised during the visit of the IMF team to Pakistan. The IMF programme continues to face significant risks, both from domestic and external factors, the report added. Potential external risks include blacklisting by FATF that could result in a freeze of capital flows to Pakistan.“[The] failure to meet programme objectives could jeopardise the availability of external financing,” cautioned the IMF.
Pakistan has to show a substantial level of effectiveness to the IMF by end-March 2020 that should be consistent with FATF Immediate Outcome 9 on terrorism financing investigations and Immediate Outcome 10 on targeted financial sanctions. Risks related to grey listing of Pakistan include enhanced due diligence of financial transactions; difficulty in opening of accounts in foreign jurisdictions; hitches in banking relationships; and higher compliance cost for financial institutions. The resistance to reform from vested interest groups could undermine the programme’s fiscal consolidation strategy and put debt sustainability at risk. It’s time for the national leadership to shield the FATF issue from petty politics.
—The writer is a freelance columnist based in Islamabad.