Should FATF Put Pakistan On Its Terrorist Financing Watch-List?
Pakistan is in the spotlight again. This time due to a motion moved by certain member states of the Financial Action Task Force (FATF) to place Pakistan on FATF’s watch-list of countries that need to do more in relation to anti-money laundering (AML) and combatting the financing of terrorism (CFT). This article provides an overview of FATF, its watch-list and Pakistan’s connection with FATF.
What is FATF?
FATF is an inter-governmental organization established in 1989 and comprising of 35 member states, the European Commission and the Gulf Cooperation Council. Pakistan is not a member state of FATF. Pakistan is instead a member of a FATF Associate Member, the Asia/Pacific Group on Money Laundering (APG). FATF’s recommendations are deemed to be the international standard for steps required for AML/CFT.
List of High-Risk and Other Monitored Jurisdictions
FATF maintains a list of countries which, in FATF’s opinion, need to take further actions and provide more cooperation in relation to AML/CFT. The current list includes countries such as Iran, Iraq, Sri Lanka, Syria and Yemen.
The US-led push to place Pakistan under review is likely to be discussed during the FATF week scheduled to be held from 18-23 February, 2018 in Paris. Among other matters, during the week FATF will also review the actions taken by Norway and Spain to address the deficiencies identified in their 2014 assessments. Accordingly, just being subject to review by FATF is not catastrophic for a country.
Pakistan’s Removal From the Watch-List in 2015
The public statement by FATF on 27 February 2015, which announced the removal of Pakistan from the watch-list, stated the following:
“The FATF welcomes Pakistan’s significant progress in improving its AML/CFT regime and notes that Pakistan has established the legal and regulatory framework to meet its commitments in its action plan regarding the strategic deficiencies that the FATF had identified in June 2010. Pakistan is therefore no longer subject to the FATF’s monitoring process under its on-going global AML/CFT compliance process. Pakistan will work with APG as it continues to address the full range of AML/CFT issues identified in its mutual evaluation report, in particular, fully implementing UNSC Resolution 1267.”
The reference to APG in the statement is important as it highlights that FATF does not and cannot directly impose conditions on Pakistan as Pakistan is not a member state of FATF. Instead, it is the APG (and international financial institutions such as the World Bank) which have worked with Pakistan in the past to address FATF’s concerns.
Pakistan’s Mutual Evaluation
The World Bank conducted a mutual evaluation on Pakistan, based on FATF’s assessment guidelines, which was adopted by APG in 2009. The 218-page report lists in detail the steps that had already been taken by Pakistan till then in respect of prevention and criminalization of money laundering and terrorist financing.
The report also provides an overview of the legislative framework and gives recommendations for improvements. The assessors of the report highlighted and praised the Pakistani authorities for their ‘strong commitment to the assessment’. Therefore, even in 2009, Pakistan was committed to strengthening its framework and institution to improve the AML/CFT regime in the country.
The report highlights areas in which Pakistan needs support as well as the constructive steps already taken by the country. Pakistan has set up a financial monitoring unit at the State Bank of Pakistan and the banking sector has continually enhanced its reporting of suspicious transactions to the unit. Pakistan has also implemented key aspects of the United Nations Security Council (UNSC) Resolutions 1267 and 1373 and frozen bank accounts and assets of proscribed organizations.
Irrespective of FATF’s concerns and the pressure from Western powers, Pakistan should, in any event, continue to review its position and performance in relation to the various points raised in the 2009 mutual evaluation report. Pakistan needs to combat money laundering and terrorist financing for its own sake and not because of any international pressure.
No country perhaps has a perfect AML/CFT system. In Pakistan’s case, the legislative and institutional systems exist but there is a need to improve the investigation and prosecution aspects. Legislation is also an evolutionary process and Pakistan can benefit from a review of its current legislative framework and identification of loopholes or contradictory provisions of law which might be hampering timely prosecution of offenders.
Typical Concerns Raised by FATF/APG
There are certain specific steps that FATF wants the countries to undertake to support the existence of a universal system of AML/CFT. These typically include:
(a) legislative action to criminalize money laundering and terrorist financing;
(b) harmonizing criminalization of money laundering across different laws and to streamline definitions of related offences;
(c) establishing legal framework for freezing assets deemed to be linked to proscribed terrorist organizations;
(d) developing and implementing procedures for confiscation of assets identified in the AML/CFT context;
(e) establishing and enhancing suspicious transaction reporting procedures;
(f) implementing systems to be able to identify beneficial ownership of companies and assets; and
(g) ensuring that the legal and prosecution frameworks work effectively to achieve convictions of offenders before local courts.
If FATF does indeed add Pakistan to its watch-list, Pakistan should expect to be scrutinized on matters such as the above. This is not a daunting task as Pakistan is well on its way to addressing most, if not all, of these issues related to AML/CFT.
It is unlikely that FATF will issue a ‘call for action’ right away. If anything, FATF may seek Pakistan’s increased cooperation on AML/CFT matters and willingness for mutual monitoring and evaluation of its AML/CFT strategy and processes.
Where Does Pakistan Stand?
Pakistan should be able to satisfy international financial institutions and organizations such as FATF and APG in relation to many of the points mentioned above. In relation to the implementation of certain UNSC resolutions, Pakistan seems to be taking additional steps based on the internal demand for action against proscribed organizations and in line with the Army’s Radd-ul-Fasaad operation.
Any businessperson or banker in Pakistan can tell you that justifiable reasons and documentary evidence are now required for any significant cross-border money transaction done through banking channels. Unlike what some in the world may think, Pakistan has a robust and well-regulated banking and finance industry.
Nevertheless, it is not clear how effective the prosecution process has been and how many convictions have been obtained in respect of AML/CFT cases in Pakistan. It is an evolutionary process and Pakistan cannot be expected to perform at the level of G8 level countries within a few years. Legislative reform, capacity building of prosecution officials and judges and strengthening of institutions such as the State Bank, FIA, ANF and NAB is a time consuming, expensive and resource intensive process.
Instead of putting international pressure to place Pakistan on some watch-list, international institutions should support Pakistan in strengthening its domestic institutions by sharing international best practices and lessons learnt from other jurisdictions. Pakistan has been at the forefront in the fight against terrorism and would benefit from a collaborative rather than punitive approach from international stakeholders.
The views expressed in this article are those of the author and do not necessarily represent the views of CourtingTheLaw.com or any organization with which he might be associated.