Significant improvements in fight against money laundering, terror financing

Updated October 07, 2019

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APG report comes a week ahead of FATF’s review meetings in Paris (Oct 13-18) that would determine whether Pakistan should remain or move out of the grey list or be put on the blacklist. — FATF website/File
APG report comes a week ahead of FATF’s review meetings in Paris (Oct 13-18) that would determine whether Pakistan should remain or move out of the grey list or be put on the blacklist. — FATF website/File

ISLAMABAD: Even though put on the “Enhanced Follow-Up” category by the Asia Pacific Group (APG) in August this year, Pakistan made significant improvements in its systems to fight money laundering (ML) and terror financing (TF) as per international standards.

A Mutual Evaluation Report (MER) released here on Sunday by the APG — a regional affiliate of the Financial Action Task Force — showed that Pakistan was “non-compliant” on four out of 40 recommendations of the APG on effectiveness of the anti-money laundering and combating the financing of terrorism (AML/CFT) system.

The report based on Pakistan’s performance as of October 2018 showed that the country was fully “compliant” only on one aspect relating to financial institutions secrecy laws. It was found “partially compliant” on 26 recommendations and “largely compliant” on nine others.

APG report shows Islamabad is ‘non-compliant’ on four, ‘partially compliant’ on 26 and ‘largely compliant’ on nine out of 40 recommendations

The report comes a week ahead of FATF’s review meetings in Paris (Oct 13-18) that would determine whether Pakistan should remain or move out of the grey list or be put on the blacklist.

The 41-member APG had adopted 3rd MER on Pakistan during Aug 13-18 meetings in Canberra, Australia, and downgraded the country to “Enhanced Follow-up” category over technical deficiencies to meet normal international financial standards by October 2018. As a result, Pakistan is now required to submit quarterly progress reports, instead of biannual, to the APG, starting Feb 1, 2020 to show improvements in its technical standards on AML/CFT.

The report said Pakistan had assigned a national risk-rating of ‘medium’ for both ML and TF, but its national risk assessment lacked a comprehensive analysis. It said the authorities had varying levels of understanding of the country’s ML and TF risks, and the private sector had a mixed understanding of risks.

“While Pakistan has established a multi-agency approach to implement its AML/CFT regime, it is not implementing a comprehensive and coordinated risk-based approach to combating ML and TF,” it added.

The report said Pakistan was using financial intelligence to combat ML, TF and predicate crimes and trace property for confiscation purposes but only to a minimal extent. Critically, the Financial Monitoring Unit (FNU) could spontaneously or upon request disseminate information and the results of its analysis to provincial counterterrorism departments (CTDs). To a minimal extent, the CTDs were accessing FMU information and financial intelligence during TF investigations but only with court’s permission.

Pakistan’s law enforcement agencies (LEAs) undertook 2,420 ML investigations, resulting in 354 prosecutions (primarily self-laundering cases) and conviction of one natural person for self-laundering related to corruption. Proportionality and dissuasiveness of the sanction against natural persons could not be assessed due to a lack of information. Pakistan’s law enforcement efforts to address ML are not consistent with its risks.

LEAs have measures to freeze, seize and prevent dealing with property subject to confiscation. They are seizing some assets in predicate offences cases, but not in ML cases and the value of confiscated funds did not commensurate Pakistan’s risk profile. Its cross-border cash declaration system was not effectively utilised to seize cash at the border.

“Pakistan faces a significant TF threat,” the report said, adding that the country had registered 228 TF cases and convicted 58 individuals. The vast majority of investigations and all of convictions were obtained at the provincial level, including 49 convictions in Punjab. A total of nine TF convictions for all other provinces are not consistent with province-specific TF risks.

Pakistan gave domestic effect to UNSCR 1267 by issuing the Statutory Regulatory Order (SRO), but despite recent improvements, there were numerous instances where SROs were not issued “without delay” — there are other technical shortcomings. Pakistan has proscribed 66 entities and approximately 7,600 individuals under the Anti-Terrorism Act under the UN resolutions.

No funds or assets owned by such organisations have been frozen. Committees for coordination, review and monitoring of UNSCR resolutions on counter-proliferation activities are mainly related to countering proliferation activities. The State Bank of Pakistan and Securities and Exchange Commission of Pakistan are undertaking some general TFs monitoring, but actions exclusively focused on province-specific TFs were not demonstrated.

Most banks and larger exchange companies have an adequate understanding of their AML/CFT obligations and have conducted internal ML/TF risk assessments, which underpin a reasonable understanding of customer ML risk, but not TF risk.

The report said the State Bank did not have a clear understanding of ML and TF risks unique to the sectors it supervises. It is improving its understanding and is implementing a risk-based approach, including conducting regular on-site and thematic AML/CFT supervision activities.

Also, Pakistan had limited mitigating measures for legal persons and there is no supervisory oversight for AML/CFT purposes. There are no measures in place to address ML and TF risks posed by trusts, including foreign ones, in Pakistan. The country also did not have a formal framework for mutual legal assistance.

Published in Dawn, October 7th, 2019