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FATF: Charities marked for leaks

Updated August 20, 2018

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Pakistan may have to formally seek a grace period from the global finance watchdogs to upgrade laws, processes and the workforce of agencies concerned as soon as the new government settles in and starts functioning.

The Paris-based Financial Action Task Force (FATF) decided in February to place Pakistan on its grey list in June on a campaign pushed through by the United States and its European allies for allegedly not doing enough to ban UN- and US-designated religious organisations and rein in their activities.

The then government negotiated a 10-point action plan to meet about 40 standards of the FATF by September 2019 to get out of the grey list. During the recently concluded pre-site mutual evaluation with the Asia/Pacific Group (APG), a series of deficiencies were identified in Pakistan’s anti-money laundering/counter-terror financing laws and mechanisms. The on-site verification on actions taken and progress made by Islamabad is due in the first week of October.

That gives a limited window to the Pakistan Tehreek-i-Insaf (PTI) government to remove all those shortcomings after being in the driving seat. It was in this background that outgoing caretaker finance minister Dr Shamshad Akhtar sounded to the six-member team of the APG and international assessors “to be flexible and practical in their deadlines” and allow full opportunity to the authorities to provide necessary materials and reports to the APG.

She particularly highlighted the political transition in the country and emphasised that the new government would need further time to gear itself with the requirement of mutual evaluation and related matters.

The APG delegation explained to the authorities concerned — ministries of interior, finance, foreign affairs and law besides the State Bank of Pakistan (SBP), Securities and Exchange Commission of Pakistan (SECP), National Counter-Terrorism Authority (Nacta), Federal Investigation Agency (FIA), Federal Board of Revenue (FBR), National Accountability Bureau (NAB), Anti-Narcotics Force (ANF), Financial Monitoring Unit (FMU), Central Directorate of National Savings and provincial counter-terrorism departments — what lay ahead in terms of the assessment methodology of the FATF and the provisional analysis of Pakistan’s compliance.

Federal and provincial governments must take control of matters quickly before a formal on-site meeting with the Asia/Pacific Group in October

The delegation left behind a long list of about 150 points that authorities would need to respond along with all the relevant material as evidence for submission by August 31. The two sides went through technical compliance through various legislative, administrative and regulatory instruments. Pakistan is also required to share final reports on technical compliance and effectiveness of the implementation with the APG by August 31. The APG desired that all preparatory work should be completed before the final on-site meeting in October.

Preparatory work is quite tedious because it also covers extradition treaties Pakistan has signed with other countries or where these treaties do not exist at all so far and how these could be revised to include AML/CFT offences.

The APG has identified deficiencies in Pakistan’s systems, agencies and laws to meet its global obligations against money laundering and terror financing and noted that legal mechanisms governing non-profit and charitable organisations, transparency in the beneficial ownership regime and counter-terror financing mechanisms to handle suspicious transaction reports (STRs) were not enough.

For example, authorities were told that the legal framework covering non-profit and charitable organisations was vulnerable to leaks and misuse by extremist and proscribed organisations while the beneficial ownership regime did not meet transparency standards and benami ownerships were still widespread.

Also, the FMU, Nacta and provincial agencies like the police required a lot of training and preparedness to combat money laundering and terror financing to the satisfaction of the FATF under the 10-point action plan committed by Pakistan.

The authorities are required to upgrade agencies and their human resources to be able to handle foreign requests to block terror financing and freeze illegal and targeted assets. It also advised strengthening of mutual legal assistance laws for extradition of those involved in terror financing and money laundering on requests from FATF-member countries.

The authorities would need to be vigilant and prove to the APG and the FATF that they had full and elaborate access to information and data relating to leadership, command and control structures of the fund-raising threads that could withstand the test of judicial examination while securing proportionate sentence for such crimes. Some of the shortcomings in policymaking and legal arrangements stemmed from inherent limitations of a caretaker set-up and political transition.

Therefore, the new PTI coalition government as well as provincial governments would be required to quickly take control of matters for an effective push before a formal on-site meeting due with the APG in October.

By the end of September next year, Pakistan has to comply with the 10-point action plan it committed with the FATF in June to combat terror financing and money laundering to get out of the grey list or else fall into the black list.

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

By January next year, 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 as well as federal and provincial coordination to combat these risks.

By January 2019, the government will also complete the profiling (preparing databanks) of terror groups or suspected terrorists, their financial assets and stren­gths, besides their members and their family backgrounds, and make them accessible at the inter-agency level.

Over the next 12 months, ie till September 2019, the government will complete the investigation into the widest range of terror financing activities, including appeals and calls for donations and collection of funds, besides their movements and uses. The outcome will be published at least twice before September next year.

Published in Dawn, The Business and Finance Weekly, August 20th, 2018