That Pakistan has entered the Financial Action Task Force’s (FATF) grey list is now a stark reality. The country has 15 months to correct its course or risk falling into the Force’s blacklist. A 10-point action plan has been agreed upon.

“The FATF has identified Pakistan as a jurisdiction with strategic Anti-Money Laundering/ Counter-terror financing (AML/CTF) deficiencies. The country has developed an action plan with the FATF to address the most serious deficiencies. The FATF welcomed Pakistan’s high level political commitment to their action plan,” said a brief formal announcement on the conclusion of the June 27-29 FATF Plenary in Paris.

The announcement is not going to affect Pakistan’s trade or foreign direct investment but will raise compliance pressure on correspondent banks engaging with Pakistani entities. It will also have certain nominal costs, mostly of a psychological nature, to external transactions including remittances.

The announcement is not going to affect Pakistan’s trade or foreign direct investment but will raise compliance pressure on correspondent banks engaging with Pakistani entities

But these are so negligible nobody really bothered when Pakistan twice remained in the monitoring jurisdiction (grey list) less than a decade ago – in 2008 and then in 2012-15.

Pakistan not only launched international bonds but also entered into an International Monetary Fund (IMF) programme and secured funds from other multilaterals like the World Bank and the Asian Development Bank.

Also it is not as difficult to get out of the jurisdiction as evident from Iraq’s exclusion by the same FATF Plenary on raising the compliance level on AML/CTF.

That is where the Securities and Exchange Commission of Pakistan (SECP) and the State Bank of Pakistan (SBP) have recently taken steps for strengthening the regulatory regime on AML/CFL even though these have already been very stringent since 2015. To address risk based challenges and changing identities and titles, the regulators have streamlined documentations for all individuals and entities in financial dealings.

To ensure that “criminals are not able to hide their identity through use of complex ownership structure of companies, partnerships, trusts or other similar forms, the financial institutions are required to identify the ultimate beneficial owner, who is a natural person, of all legal persons and legal arrangements before offering their services to them”.

But a lot more will need to be settled on the political front, since the FATF decision making originated more from political objectives than institutional and regulatory discrepancies if authorities are to be believed.

Pakistan was also found deficient on four areas such as supervision of AML/CTF, illicit cross-border movement of currency by terror groups, weak investigation and poor outcome on prosecution on terror financing and unsatisfactory implementation of UNSC resolutions 1267 and 1373.

Otherwise, enough had been done to discourage donations flowing to the proscribed entities and those identified under international obligations.

Yet photographs and videos, sometimes staged and planted, showing proscribed organisations seeking donations from major cities could reach world capitals to weaken Islamabad’s diplomatic efforts. Sting operations by western investigators in matters of known currency dealers involved in illicit financial flows (hundi and hawala) build upon the anti-Pakistan narrative to further embarrass the country.

By January next year (i.e. 2019), Pakistan will identify and assess domestic and international terror financing risks to and from its system to strengthen investigations and improve on inter-agency (FIA, SBP, SECP, Banks, home and interior departments and associated agencies) coordination and federal and provincial coordination to combat these risks.

Also during these six months, the government will complete the profiling (preparing data banks) of terrorist or suspect groups, their financial assets and strengths besides their members and their family backgrounds, and make them inter-agency accessible.

By May 2019, the banks, exchange companies and all these agencies will be upgraded and trained about risks associated with AML/CTF issues, obligations and responsibilities for sharing, and start imposing penalties on violations.

Over the next nine months i.e. until September 2019, the government will complete the investigation of the widest range of terror financing activities including appeals and calls for donations and collection of funds besides their movements and uses.

The focus will be on curbing smuggling of funds and misuse of not-for-profit titles of the black listed organisations.

The government will also proactively request and provide international cooperation in targeting, investigating and prosecuting terrorist financing cases and clearly demonstrate that it has included police-to-police, customs-to-customs, financial investigation unit-to-unit and formal cooperation in the Mutual Legal Assistance regimes.

While Pakistan has presented a long list of its achievements, including issuance of suspected transaction report (STRs) by banks and financial monitoring unit (FMU) registration of cases and prosecution successes, it will share with the world by May 2019 the number of fresh successful prosecutions in AML/CTFs, along with how these lead to proportionate and dissuasive sanctions against persons convicted in such cases and extend cooperation abroad in similar cases.

Focus will remain on action against UNSC sanctioned entities, freezing their accounts and assets, limiting their activities, closing down their charitable and social service organisations and ensuring they are incapacitated in all manifestations. The outcome will be published at least twice before September next.

Published in Dawn, The Business and Finance Weekly, July 2nd, 2018