The Asia Pacific Group on Money Laundering (APG) has improved Pakistan’s rating on four more of the Financial Action Task Force’s (FATF) 40 technical recommendations against money laundering and terror financing (AML/CFT), but has kept it on ‘Enhanced Follow up’ to fulfil the remaining criteria.
The Asia Pacific Group on Money Laundering (APG) has improved Pakistan’s rating on four more of the Financial Action Task Force’s (FATF) 40 technical recommendations against money laundering and terror financing (AML/CFT), but has kept it on ‘Enhanced Follow up’ to fulfil the remaining criteria. “Pakistan has 35 recommendations rated compliant or largely compliant (C/LC). Pakistan will remain on enhanced follow-up, and will continue to report back to APG on progress to strengthen its implementation of AML/CFT measures,” announced APG, a regional affiliate of the Paris-based FATF.
According to the third Follow-Up Report (FUR) on Mutual Evaluation of Pakistan published by APG, Pakistan is now completely ‘compliant’ with eight recommendations and ‘largely compliant’ with 27 others. Three others were upgraded to mostly compliant status after being re-rated to compliance level.
Out of a total of 40 recommendations, the nation is ‘partially compliant with three, compared to seven in June this year, and ‘non-compliant with two (unchanged from June). Overall, Pakistan has complied with or is close to complying with 35 of the FATF’s 40 recommendations.
“Pakistan has made good progress in addressing the technical compliance deficiencies identified in its Mutual Evaluation Report (MER) and has been re-rated on R.10, R.18, R.26 and R.34,” the APG said.
As such, Pakistan showed satisfactory progress on one recommendation and upgraded to be compliant. This re-rating came about as Pakistan introduced comprehensive AML/CFT obligations for Central Directorate of National Savings (CDNS) and the entities that provide the financial activities previously provided by Pakistan Post are subject to the same AML/CFT obligations as other SBP and SECP regulated persons. Microfinance Banks (MFBs) and Exchange Companies (ECs) are also now subject to the same AML/CFT obligations as other SBP regulated persons.
On three points, Pakistan was re-rated from “partially compliant” to “largely compliant.” These were recommendations 18, 26, and 34. Recommendation 18 is about staff and employee screening in financial institutions, CDNS, MFBs, and ECs, among other things.
With new nine sections in the SBP and SECP Regulations, Pakistan also addressed gaps in personnel screening procedures for banks and DFIs. The CDNS and Pakistan Post Regulations have been amended to establish enforceable AML/CFT requirements. However, some flaws in the SBP Regulation’s covering of financial group criteria persist.
On Recommendation 26, the APG pointed out that there were still issues with financial group commitments and a lack of clear provisions for SBP to modify risk assessments of REs or financial groups in response to changes in their management and operations. Pakistan Post will be responsible for any gaps until the transfer of its commercial banking is completed. It was relegated to the category of mostly compliant, though.
Similarly, the APG said that Pakistan provided a broad variety of advice and had feedback sharing sessions with REs to help them fulfil their responsibilities, which generally corresponds with ML/TF risk. Minor flaws remain in the limited sector-specific feedback and advice provided to attorneys, as well as the quality of the red flag indications provided to REs, but the rating has been lowered to mostly compliant.
This evaluation’s reporting deadline was February 1, 2021, therefore Islamabad may have achieved more progress after then that will be assessed at a later date. Pakistan filed its third progress report in February 2021, seeking re-ratings for R.10, 18, 26, and 34. The APG praised Pakistan for taking efforts to enhance technical compliance with all four recommendations.
Separately, the Ministry of Finance and the chairman of the FATF task force, Hammad Azhar, welcomed the re-rating, stating Pakistan was in great technical shape compared to many other nations. When compared to other G20 nations, Pakistan ranks fourth behind Italy (38), Saudi Arabia (38) and the United Kingdom (38). (38).
“Pakistan is now in the top tier of countries that have achieved a rating of C/LC for over 35 of the 40 FATF Recommendations,” the finance ministry said, adding that the country also achieved the rating of largely compliant or compliant in all the six major recommendations of the FATF. The money laundering offence, terror financing offence, targeted financial sanctions related to terrorism and terrorist financing, customer due diligence, record keeping and reporting of suspicious transactions.
In the fourth follow-up report, Pakistan will maintain its pace in resolving the remaining gaps highlighted in the MER-2019 and would seek improvements in the remaining five recommendations, according to the finance ministry.
Pakistan’s MER was approved in August 2019, and the country was deemed compliant or mostly compliant in 10 of the 40 FATF technical compliance recommendations.