FATF says good, but not good enough

Updated 26 Oct 2020

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Describing Pakistan as “largely compliant” on 21 of the 27 points of the action plan, Financial Action Task Force (FATF) President Dr Marcus Pleyer viewed the country as “safer” from the black list. — Reuters/File
Describing Pakistan as “largely compliant” on 21 of the 27 points of the action plan, Financial Action Task Force (FATF) President Dr Marcus Pleyer viewed the country as “safer” from the black list. — Reuters/File

Describing Pakistan as “largely compliant” on 21 of the 27 points of the action plan, Financial Action Task Force (FATF) President Dr Marcus Pleyer viewed the country as “safer” from the black list — technically called the high-risk jurisdiction.

At the same time, he noted that six outstanding items were “very serious” and risks were not over until the authorities in Islamabad repaired all those strategic deficiencies.

This was interpreted by Hammad Azhar, minister for industries and production and Pakistan’s head of the task force on FATF, as “FATF acknowledged that any blacklisting is off the table now”. He said Pakistan achieved impressive progress on its FATF action plan and 21 of 27 action items stood cleared while the remaining six were rated as partially complete.

When FATF places a jurisdiction under increased monitoring, it means the country has committed to resolving swiftly the identified strategic deficiencies within the agreed timeframes and is subject to increased monitoring. This list is often externally referred to as the “grey list”.

The Paris-based global money laundering and terrorist financing watchdog had given the option to countries in the grey list to not report at the October 21-23 meeting given their focus on addressing the impact of the Covid-19 pandemic. However, Pakistan was among the jurisdictions that chose to report and be reviewed. Other volunteers included Albania, Botswana, Cambodia, Ghana, Mauritius and Zimbabwe. On the other hand, Barbados, Jamaica, Myanmar, Nicaragua, Panama and Uganda deferred their reporting.

Outstanding items mostly pertain to the prosecution side as laws and systems have largely been put in place

The Paris-based watchdog noted the significant progress made across all action plan items saying it had “now largely addressed 21 of the 27 action items”.

“As all action plan deadlines have expired, the FATF strongly urges Pakistan to swiftly complete its full action plan by February 2021,” a statement by FATF said. The next plenary is due on Feb 21-26 when Pakistan will again come under review after the on-site verification of its performance.

The outstanding items mostly pertain to the prosecution side as laws and systems have largely been put in place. Pakistan will have to continuously work on implementing its action plan to address strategic deficiencies by demonstrating that law enforcement agencies (LEAs) are identifying and investigating the widest range of terror financing (TF) activity and that TF investigations and prosecutions target designated persons and entities, and those acting on behalf or at the direction of the designated persons or entities.

It also has to demonstrate that TF prosecutions result in effective, proportionate and dissuasive sanctions and show effective implementation of targeted financial sanctions against UN-designated terrorists under 1267 and 1373 resolutions and those acting for or on their behalf. The authorities also have to demonstrate progress on preventing the raising and moving of funds, including in relation to non-profit organisations (NPOs), identifying and freezing assets (movable and immovable) and prohibiting access to funds and financial services.

Moreover, Pakistan also has to demonstrate enforcement against targeted financial sanction (TFS) violations, including in relation to NPOs, of administrative and criminal penalties and provincial and federal authorities cooperating on enforcement cases.

In June 2018, Pakistan was placed in FATF’s increased monitoring list (the grey list) and it made a high-level political commitment to working with FATF and the Asia Pacific Group — the regional affiliate of FATF — to strengthen its anti-money laundering and counter-financing of terror (AML/CFT) regime and to address its strategic counter-terrorist financing–related deficiencies.

Since then, Pakistan’s continued political commitment has led to progress in a number of areas in its action plan, including taking action to identify and sanction illegal money or value transfer services (MVTS), implementing cross-border currency and bearer negotiable instruments (BNI) controls, improving international cooperation in terrorist financing cases, passing amendments to the Anti-Terrorism Act to increase the sanctioning authority, financial institutions implementing targeted financial sanctions and applying sanctions for AML/CFT violations and controlling facilities and services owned or controlled by designated persons and entities.

Although not included in its action plan, Pakistan like other countries will be required to continuously work closely with FATF and APG to comply with the 40 recommendations of FATF through mutual evaluations and amendments to these recommendations.

FATF in its plenary also adopted amendments to Recommendations 1 and 2 and their interpretive notes relating to “assessing risks and applying a risk-based approach” and “national cooperation and coordination” respectively. These require countries and the private sector to identify and assess the risks of potential breaches, non-implementation or evasion of the targeted financial sanctions related to proliferation financing, as contained in FATF Recommendation 7, and to take action to mitigate these risks as well as to enhance domestic coordination.

By adopting these measures, FATF has significantly strengthened the global response to weapons of mass destruction (WMD) proliferation financing, a serious threat posed to international peace and security, as long identified by the relevant United Nations Security Council Resolutions (UNSCRs). This is in response to the June 2019 call by the G20 to strengthen the global response to counter-proliferation financing (CPF).

This will ensure that these entities are aware of the risks involved in their businesses and professions, and do not unwittingly support or become part of the proliferation financing networks or schemes, in contravention of the relevant obligations. This will also ensure appropriate allocation of resources by countries and the private sector entities to their counter-proliferation financing efforts, commensurate with the level of risks faced.

FATF said ensuring that financially excluded or under-served groups have access to regulated financial or non-financial services without compromising the measures that exist for the purpose of AML/CFT/CPF is a key policy priority. It encouraged countries to implement the new requirements in a manner that is consistent with these objectives and apply measures proportionate to the risk of the relevant institutions.

As part of a phased approach, FATF will begin assessing jurisdictions for implementation of these requirements at the start of the next round of mutual evaluations to allow time to put the necessary domestic measures in place. FATF asked all countries and regions to take concrete steps to ensure the implementation of these new obligations and to determine the appropriate sequence and timeframe for the implementation at national level.

Published in Dawn, The Business and Finance Weekly, October 26th, 2020