THE latest International Narcotics Control Strategy Report released by the US Department of State goes much further than previous reports in pointing out the deficiencies in Pakistan’s anti-money laundering and counter-financing of terrorism, or AML/CFT, environment. This might be one indication of the kind of relationship Pakistan can expect to have with the new American administration. For example, this year’s report notes that “UN-designated groups continue to be able to solicit donations openly without apparent government reaction”. In another place, it notes that “Pakistan does not fully implement UN sanctions obligations uniformly against all designated parties”. These observations were absent in strategy reports for the previous two years, and may point towards a diminished willingness on the part of the new administration to turn a blind eye towards this problem.

Another striking deficiency pointed out in the report is the near-total failure of the law-enforcement and judicial apparatus to proceed against money laundering and terror financing, despite the fact that the system for flagging and reporting suspicious transactions has improved. In 2011, for example, 560 suspicious transaction reports were filed, and for nine months from July 2014 till March 2015 that figure rose to 1,919. This rise in the number of STRs suggests greater vigilance on the part of financial institutions and authorities, possibly as part of a tightening AML/CFT regime. But the number of prosecutions in the latter year was two, and the number of convictions zero, suggesting severe weakness on the part of law-enforcement and judicial authorities. Combating terror financing and money laundering are crucial priorities for Pakistan’s security and development, and the persistent weakness in this area is puzzling. To some extent, this weakness is structural. Pakistan has one of the world’s highest cash-to-bank deposit ratios in the world, meaning there is a massive informal sector where rackets thrive, and where channels for illicit financial flows are readily available. Law-enforcement and judicial authorities are new to the task of combating illicit financial flows, and it will take them time to develop the capacities required to carry out effective investigations and prosecution. But these weaknesses are not the full story. The use of illicit financial flows by powerful entities and individuals means there is ample protection available to those who operate these rackets. Ultimately, our security and development needs will require ending this relationship between power and black money altogether.

Published in Dawn, March 6th, 2017