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Banks have mixed feelings on FATF move

Updated February 19, 2018

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IT’S business as usual for banks amid media reports that the United States and its European allies have tabled a motion before the Financial Action Task Force (FATF) to place Pakistan on a watchlist of countries considered non-compliant with global terrorist-financing regulations.

Paris-based FATF could adopt the motion against Pakistan during its meeting this week, Reuters news agency reported on Tuesday.

The FATF, an intergovernmental body of 37 full member countries, sets global standards for fighting illicit finance. Pakistan is its associate member and is part of its affiliate body Asia-Pacific Group (APG).

Senior bankers say they are watching the development with mixed feelings of confidence and unease: they are confident that the move to put Pakistan on the FATF watchlist will not succeed, but feel uneasy because it seems there is more to this issue than meets the eye.

This impression has become stronger after the weekly media briefing by Foreign Office spokesman Dr Mohammad Faisal on Thursday. In response to a question raised about the resolution put forwarded to the FATF, he challenged that “the real aim of this politically motivated move is to hamper Pakistan’s economic growth”.

Top bankers are apparently confident that the FATF will refrain from putting Pakistan on the watchlist as, according to them, most members of the global task force will appreciate our seriousness in the fight against illicit finance. But they share this optimism in private conversations and refuse to go on record.

Top bankers are apparently confident that the Paris-based body, which sets global standards for fighting illicit finance, will not put Pakistan on its ‘grey list’

Banks in Pakistan have already tightened internal controls on all transactions to ensure full compliance of State Bank of Pakistan’s regulations on anti-money laundering and combating financing of terrorism (AML/CFT), inquiries reveal.

The Reuters quoted Pakistan’s de facto finance minister Miftah Ismail as saying: “We are now working with the US, UK, Germany and France for the nomination to be withdrawn,” Mr Ismail told Reuters. “We are also quite hopeful that even if the US did not withdraw the nomination we will prevail and not be put on the watchlist.”

Pakistan promulgated a presidential ordinance earlier this month to further augment its efforts towards fuller compliance with FATF requirements. Under this ordinance, which has yet to be ratified by parliament, UN-proscribed organisations and individuals are to be automatically proscribed in Pakistan. That means all assets of such organisations and individuals can be taken over by the state, their bank accounts can be frozen and all sources of their funding can be blocked.

After the promulgation of this ordinance, Punjab authorities have started taking over all the moveable and immovable assets of Jamaatud Dawa (JuD) and Falah-i-Insaniyat Foundation (FIF). The JuD’s famous Muridke Markaz along with its various schools, seminaries and health facilities has also been taken over.

“When the FATF meets in Paris next week, Pakistan can comfortably explain we are more seriously cracking down on terror financing than the US is willing to acknowledge,” says the head of a local bank. “Hopefully we will not be put on the grey list.”

Being placed on the grey list means a country has a deficient anti-money laundering and anti-terror financing regime.

State Minister for Finance Rana Muhammad Afzal told the Senate on Thursday that the government was aggressively contesting the move to include Pakistan on the FATF watchlist. He informed the upper house that the interior minister and adviser to the prime minister on finance were already on overseas visits to seek support for Pakistan.

Pakistan was put on the FATF grey list back in 2012. Its name was removed from the list towards the end of February 2015 after visible improvements in the country’s AML/CTF regime.

That has been very helpful for banks, senior bankers say, recalling how during those three years they had to explain at length to their correspondent banks that it was not technical banking-related issues that had led to placement of Pakistan on the grey list. “We used to tell them that banks on their part were as vigilant as those in the developed world but because of the fact that actions against a few UN-proscribed organisations were not fully compliant with FATF standards, our country had been placed on the grey list.”

Pakistan’s banking system is gradually becoming more responsible in complying with the AML/CTF regime, but past instances of weaknesses in the system misused for money laundering cannot be forgotten.

The Supreme Court has recently tasked a high-level committee headed by SBP Governor Tariq Bajwa to find ways for retrieving money stashed abroad illegally in banks and properties by Pakistani citizens.

And in August last year, the Department of Financial Services (DFS) of New York sought to slap $630m on Habib Bank Ltd after its New York branch failed to comply with laws designed to combat illicit money transfers. The bank finally managed an out-of-court settlement and paid $225m in fines in early September.

“From then on, the SBP has become stricter in enforcing rules for curbing money laundering and potential terror financing of our banking system, with an emphasis on banks’ overseas operations,” says a senior executive of one of the top five banks.

It was barely two to three months after the DFS action against HBL that the State Bank also updated its AML/CFT regulations. In addition, the central bank has also been aggressively persuading banks to enforce the know-your-customer regime in letter and spirit.

Published in Dawn, The Business and Finance Weekly, February 19th, 2018