FATF pressure mounts on Pakistan as monitoring unit reports 8,707 suspicious transactions in 2018

Updated 21 Feb 2020


The achievement of 27 targets under a 10-point action plan has now become a top priority for the government. — Photo courtesy: FSC.go.kr
The achievement of 27 targets under a 10-point action plan has now become a top priority for the government. — Photo courtesy: FSC.go.kr

A recent warning to Pakistan by the Paris-based Financial Action Task Force (FATF) to deliver on its commitments to curb terror financing and money laundering risks to the global financial system has virtually put the country’s entire machinery into an aggressive mode to show tangible progress within two months.

The achievement of 27 targets under a 10-point action plan has now become a top priority for the government. As the FATF meetings were still in progress (Feb 18-22), the government announced a ban on Jamat-ud-Dawa (JuD) and Falah-e-Insanyat Foundation (FIF) to partially address the concerns raised by India that Pakistan supported these and six similar organisations, including Jaish-e-Mohammad (JeM) or at least considered them low-risk entities.

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JeM reportedly claimed responsibility for the recent Pulwama attack in which 44 Indian security forces personnel died. This provided India with new fuel to embarrass Pakistan and it tried to isolate it financially and diplomatically. The FATF had specifically noted with concern and condemned the Pulwama attack, saying such incidents proved that terrorism continued to threaten societies and citizens around the world, which could not occur without money and the means to move funds among terrorist supporters.

Since then, inter-ministerial consultations have been taking place on a daily basis to address weak areas pointed out by the International Cooperation Review Group (ICRG) of the FATF that assessed Pakistan’s progress report submitted by the Asia Pacific Joint Group — a regional associate of the FATF.

The Financial Monitoring Unit issued 8,707 suspicious transaction reports (STRs) in 2018, up 57pc from 5,548 STRs in 2017

In one of the recent meetings, authorities reported to the prime minister that the issue was serious from a global perspective, noting that it was in Pakistan’s own interest to put its house in order. The meeting was arranged with all the relevant agencies and institutions by the Ministry of Finance for a push at the highest level.

It was reported that six banks had been fined and 109 bankers were being investigated for opening fake bank accounts. About 8,707 suspicious transaction reports (STRs) were issued in 2018 by the Financial Monitoring Unit (FMU), showing almost 57 per cent growth over 5,548 STRs of 2017. About 1,136 STRs were issued in January and February this year alone.

Smuggled currency and jewellery worth more than Rs20 billion were confiscated between July 2018 and Jan 31, up 66pc from Rs12bn a year ago.

Memoranda of understanding are being signed with the United Kingdom, Qatar, United Arab Emirates and Australia for financial intelligence sharing. Pakistan is also trying to improve coordination among different agencies of the government through centralised software.

While such data may impress domestic audience, the FATF and its partners review processes, systems and weaknesses on the basis of a standard matrix. Pakistan is monitored on 27 indicators under the 10-point action plan with deadlines. The ICRG that reviewed Pakistan in recent meetings was not satisfied with progress on milestones set for January 2019. This was despite improvements in the anti-money laundering and combating the financing of terrorism (AML/CFT) regime and integrated database for currency declaration arrangements.

It showed concerns about Pakistani authorities’ inability to demonstrate why they considered eight proscribed entities to be low risk as opposed to the high-risk view of the APG and ICRG. Therefore, the FATF urged “Pakistan to swiftly complete its action plan, particularly those with timelines of May 2019” to address strategic deficiencies.

It said Pakistan had revised its terror financing risk assessment, but did “not demonstrate a proper understanding of the terror financing risks posed by Islamic State group, AQ (Al Qaeda), JuD, FIF, LeT (Lashkar-e-Taiba), JeM, HQN (Haqqani Network), and persons affiliated with the Taliban”.

Pakistan has to comply with the 10-point action plan. For this, it is required to adequately demonstrate its proper understanding of the terror financing risks posed by the militant groups listed above. It will have to conduct supervision on a risk-sensitive basis and prove that remedial actions and sanctions are applied in cases of AML/CFT violations, and that these actions have an effect on AML/CFT compliance by financial institutions.

It will also have to demonstrate that competent authorities are cooperating and taking action to identify and take enforcement action against illegal money or value transfer services (MVTS). It must show that the authorities are identifying cash couriers and enforcing controls on the illicit movement of currency and understanding the risk of cash couriers being used for terror financing.

Pakistan will have to improve inter-agency coordination, including that among provincial and federal authorities, on combating terror financing risks and demonstrate that law enforcement agencies are identifying and investigating the widest range of terror financing activity. It should demonstrate that such investigations and prosecutions target designated persons and entities.

Moreover, the country has to demonstrate that terror financing prosecutions result in effective, proportionate and dissuasive sanctions, enhancing the capacity and support for prosecutors and the judiciary. It must show effective implementation of targeted financial sanctions (supported by a comprehensive legal obligation) against all 1,267 and 1,373 (UN resolutions) designated terrorists and those acting for or on their behalf, including preventing the raising and moving of funds, identifying and freezing assets (movable and immovable) and prohibiting access to funds and financial services.

On top of that, Pakistan will also have to demonstrate enforcement against the violations of terror-financing sanctions, including administrative and criminal penalties.

The FATF will undertake the next review of Pakistan’s progress in June 2019, which will be preceded by a face-to-face meeting with the Joint Group in May 2019.

In June 2018, Pakistan made a high-level political commitment to work with the FATF and APG to strengthen its AML/CFT regime and to address its strategic counter-terrorism financing-related deficiencies by implementing an action plan to accomplish these objectives. The successful implementation of the action plan and its physical verification by the APG will lead the FATF to clear Pakistan out of its grey list or move it into the black list by September 2019.

Published in Dawn, The Business and Finance Weekly, March 4th, 2019