Pakistan has crossed the finish line but has to wait another quarter of the year to secure an international certificate and get out of the ‘list of increased monitoring’ — the so-called grey list of the Financial Action Task Force (FATF).
On Friday, the Paris-based global watchdog against financial crimes, particularly anti-money laundering and combating financing terror (AML/CFT) said it would soon be sending a technical team to Pakistan for an onsite visit to verify that the “implementation of Pakistan’s AML/CFT reforms has begun and is being sustained and that the necessary political commitment remains in place to sustain implementation and improvement in the future”. The verification would result in Pakistan’s formal ‘delisting’ from the grey list.
The June 13-17 FATF plenary held in Berlin unanimously cleared, according to junior minister for foreign affairs Hina Rabbani Khar, that Pakistan had largely and substantially completed 34 points of two simultaneous action plans against money laundering (ML) and terror financing (TF).
Delegates representing 206 FATF members and observers including the International Monetary Fund, the United Nations (UN), the World Bank and the Egmont Group of Financial Intelligence Units attended the plenary session. Pakistan’s all stakeholders and authorities would have to be more cautious during this time to ensure there are no slips.
Standing so close to the finish line is no mean achievement in a culture where every shop had fundraising and collection points and where private armed mafias could operate with impunity and get protection from the highest level
Moreover, it is easier to complete the action plan and get out of the increased monitoring list but it is more challenging to remain part of the global regulatory system on a sustainable basis. It has to be remembered that Pakistan was placed on the FATF grey list in June 2010 for strategic deficiencies in AML/CFT regime and came out of it in February 2015.
But it slipped again in the following years owing to a series of terrorist attacks and risk assessments pertaining to activities including funding of terror groups, individuals and non-governmental organisations, particularly those on the UN lists. The FATF and regional associates also identified ML and TF risks through corruption, drug trafficking, fraud, tax evasion, smuggling, human trafficking and organised crime etc.
Under the FATF process, a country needs to complete all or nearly all of the components of its action plan to be removed from the monitoring list. Once the global watchdog has determined that a country has completed the components, it then schedules an on-site visit to confirm that the implementation of the necessary legal, regulatory, and operational reforms is underway and it has the necessary political commitment and institutional capacity to sustain implementation.
If there is a positive outcome of the visit, the FATF would decide on removing the country from public identification at the next plenary. The country, however, has to continue to work on improving its anti-money laundering and counter-terror financing regimes through the FATF’s normal follow-up process.
The journey has been long and tedious but worth treading, not because of international pressures but for domestic course correction to the extent possible, given larger than acceptable black holes in the economy and the society. It was no less than treasonous initially to raise warning signs about the emerging unfavourable international environment towards our grey areas. The FATF’s greylisting in June 2018 came as a rude awakening as the country was given 15 months until October 2019 to improve on 27 action points.
The deadlines were repeatedly missed and enemies kept on lobbying for blacklisting Pakistan which survived owing to its incremental progress despite slippages, coupled with support from friendly countries. Until March this year, Pakistan had completed 32 out of 34 action points but FATF insisted on quick action on the remaining deficiencies in the financial system and demonstrate prosecution of senior leaders of UN-designated terror groups.
By then, Islamabad had completed 26 of the 27 action items in its 2018 action plan for the FATF and six of the seven action items of the 2021 action plan of the Asia Pacific Group, ahead of deadlines. It boiled down to just three areas of ‘demonstrating’ outcomes through result-based prosecutions. Authorities ensured the conviction of a few high-profile commanders in subsequent months.
Pushed by various global adversaries, Pakistan’s system against money laundering and terror financing was found wanting. The deficiencies were so ‘strategic’ in the areas of the financial sector, border control, legal standards, investigations and prosecutions that even friends stood neutralised when it came to international arm-twisting on political considerations.
The June 2018 grey-listing of Pakistan by the Paris-based global watchdog on ML and TF came as a jolt and woke up the authorities living in silos.
According to FATF, when it places a jurisdiction under increased monitoring, it means the country has committed to resolving the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring. Non-performance can lead to being described as a high-risk jurisdiction, subject to a call for action, commonly called a blacklist, with lethal consequences like international financial exclusion.
Pakistan made a top-level political commitment to a 27-point action plan in June 2018. Roughly 10 items on the 27-point action plan pertained to the strengthening of the financial sector’s security, regulator protocols and border controls.
Read more: ‘Many fathers’ of FATF success
Nine points belonged to targeted financial sanctions against proscribed organisations and about eight covered the robust investigation and prosecution mechanisms and systems. At least three dozen laws at the federal level had to be changed to meet the highest global standards along with upstream and downstream reporting networks.
This has to be done in a culture where every shop — small and big — had fundraising and collection points, where at least half the economy was informal, where cases remained undecided for generations and where private armed mafias could operate with impunity and get protection at the highest level. It was no mean achievement.
It entailed a whole lot of reorganisation of the legal, security, financial, trading, religious, regulatory and law enforcement structures that various entities had been resisting for ages and treated like virtual no-go areas under their respective domains.
Published in Dawn, The Business and Finance Weekly, June 20th, 2022