Pakistan is in the spotlight again.
This time, due to a motion moved by certain member states of the Financial Action Task Force (FATF) to place Pakistan on the body's watch-list of countries that need to do more in relation to anti-money laundering and combatting the financing of terrorism (collectively referred to as AML/CFT).
A US-led push to place Pakistan under review is likely to be discussed during the FATF week scheduled to held from 18-23 February 2018 (currently ongoing) in Paris, along with a review of actions taken by Norway and Spain to address deficiencies identified in their 2014 assessments of our progress in throttling the flow of dirty money.
But just what is the FATF?
FATF is an inter-governmental organisation that was established in 1989 and comprises 35 member states, the European Commission and the Gulf Cooperation Council. Its recommendations are deemed to be the international standard for steps required for AML/CFT.
A list of high-risk and other monitored jurisdictions is maintained by FATF of countries which, in the organisation's opinion, need to take further actions and provide more cooperation in relation to AML/CFT. The current list includes countries such as Iran, Iraq, Sri Lanka, Syria and Yemen.
Pakistan is not a member state of FATF: instead, it is a FATF Associate Member of the Asia/Pacific Group on Money Laundering (APG).
The context of the review
It is pertinent at this point to take a look at Pakistan's recent history with the FATF.
A public statement from FATF on February 27, 2015, which announced the removal of Pakistan from the watch-list, had stated the following:
“The FATF welcomes Pakistan’s significant progress in improving its AML/CFT regime and notes that Pakistan has established the legal and regulatory framework to meet its commitments in its action plan regarding the strategic deficiencies that the FATF had identified in June 2010.
"Pakistan is therefore no longer subject to the FATF’s monitoring process under its on-going global AML/CFT compliance process.
"Pakistan will work with APG as it continues to address the full range of AML/CFT issues identified in its mutual evaluation report, in particular, fully implementing UNSC (United Nations Security Council) Resolution 1267.”
The reference to APG in the statement is important as it highlights that FATF does not and can not directly impose conditions on Pakistan since it is not a member state. Instead, it is the APG (and international financial institutions such as the World Bank) which have worked with Pakistan in the past to address FATF’s concerns.
Pakistan’s mutual evaluation
The World Bank had conducted a mutual evaluation on Pakistan, based on FATF’s assessment guidelines, which was adopted by the APG in 2009. The 218-page report lists in detail the steps that had already been taken by Pakistan till then in respect of prevention and criminalisation of money laundering and terrorist financing.
The report also provides an overview of the legislative framework and gives recommendations for improvements. The assessors of the report highlighted and praised the Pakistani authorities for their "strong commitment to the assessment".
Therefore, even in 2009, Pakistan was committed to strengthening its framework and institution to improve the AML/CFT regime in the country.
The report highlights areas in which Pakistan needs support as well as the constructive steps already taken by the country. Pakistan has set-up a financial monitoring unit at the State Bank of Pakistan and the banking sector has continually enhanced its reporting of suspicious transactions to the unit.
Pakistan has also implemented key aspects of UNSC Resolutions 1267 and 1373 and frozen bank accounts and assets of proscribed organisations.
Irrespective of FATF’s concerns and the pressure from western powers, Pakistan should, in any event, continue to review its position and performance in relation to the various points raised in the 2009 mutual evaluation report.
Pakistan needs to combat money laundering and terrorist financing for its own sake and not because of any international pressure. No country perhaps has a perfect AML/CFT system. In Pakistan’s case, the legislative and institutional systems exist but there is a need to improve the investigation and prosecution aspects.
Legislation is also an evolutionary process and Pakistan can benefit from a review of its current legislative framework and identification of loopholes or contradictory provisions of law which might be hampering timely prosecution of offenders.
Typical concerns raised by FATF/APG
There are certain specific steps that FATF wants the countries to undertake to support the existence of a universal system of AML/CFT. These typically include:
legislative action to criminalise money laundering and terrorist financing;
harmonising criminalisation of money laundering across different laws and to streamline definitions of related offences;
establishing legal framework for freezing assets deemed to be linked to proscribed terrorist organisations;
developing and implementing procedures for the confiscation of assets identified in the AML/CFT context;
establishing and enhancing suspicious transaction reporting procedures;
implementing systems to be able to identify beneficial ownership of companies and assets; and
ensuring that the legal and prosecution frameworks work effectively to achieve convictions of offenders before local courts.
If FATF does indeed add Pakistan to its watch-list, Pakistan should expect to be scrutinised on matters mentioned above.
This is not a daunting task as Pakistan is well on its way to addressing most, if not all, of these issues related to AML/CFT.
It is unlikely that FATF will issue a "call for action" right away. If anything, FATF may seek Pakistan’s increased cooperation on AML/CFT matters and willingness for mutual monitoring and evaluation of its AML/CFT strategy and processes.
Where does Pakistan stand?
Pakistan should be able to satisfy international financial institutions and organisations such as FATF and APG in relation to many of the points mentioned above.
In relation to the implementation of certain UNSC resolutions, Pakistan seems to be taking additional steps based on internal demand for action against proscribed organisations and in line with the army’s Radd-ul- Fasaad operation.
Any businessman or banker in Pakistan can tell you that justifiable reasons and documentary evidence are now required for any significant cross-border money transaction done through banking channels.
Unlike what some in the world may think, Pakistan has a robust and well-regulated banking and finance industry.
Nevertheless, it is not clear how effective the prosecution process has been and how many convictions have been obtained in respect of AML/CFT cases in Pakistan. It is an evolutionary process and Pakistan can’t be expected to perform at the level of G8 level countries within a few years.
Legislative reform, capacity building of prosecution officials and judges and strengthening of institutions such as the State Bank, Federal Investigation Agency, Anti-Narcotics Force and National Accountability Bureau is a time consuming, expensive and resource intensive process.
Instead of putting international pressure to place Pakistan on a watch-list, international institutions should support the country in strengthening its domestic institutions by sharing international best practices and lessons learnt from other jurisdictions.
Pakistan has been at the forefront in the fight against terrorism and would benefit from a collaborative instead of punitive approach from international stakeholders.
The writer is an international lawyer and former Executive Director of the Research Society of International Law (RSIL). He is also the Founder of Courting the Law.