FATF Approval Not Required For Tax Amnesty Scheme

FATF Approval Not Required For Tax Amnesty Scheme

The Financial Action Task Force (FATF) grey-listing debate continues to be an important issue for the Pakistani government in its last few weeks in power. Indeed, it will remain an important legal, financial and foreign relations matter for the caretaker set-up as well.

The Prime Minister of Pakistan recently introduced a tax amnesty scheme which has many interesting aspects with far-reaching consequences from a domestic as well as international perspective. The proposed scheme has its merits and disadvantages and has received a fair amount of reasoned criticism from various stakeholders.

In the context of the FATF debate, media reports now suggest that FATF has expressed displeasure over the announcement of this tax amnesty scheme without obtaining ‘prior approval’ of FATF [https://tribune.com.pk/story/1679574/2-fatf-expresses-concern-pms-tax-amnesty-scheme/]. There are some fundamental issues with such media reporting and this needs immediate clarification and explanation, which ideally should come from the relevant state authorities in Pakistan.

The writer has earlier discussed the structure of FATF and its link with Pakistan in a previous article [https://www.dawn.com/news/1390408].  It is important to note that FATF is an inter-governmental organization 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 an FATF Associate Member, the Asia/Pacific Group on Money Laundering (APG). Therefore, as Pakistan is not a member state of FATF, it cannot be required to seek prior approval of any tax scheme or internal policy matters from FATF directly.

Any discussions on Pakistan’s domestic decisions, in relation to matters related to FATF and APG’s scope of activities, need to be considered with APG or international financial institutions which have a direct link with Pakistan and/or a reporting mechanism in place. It should be noted that FATF’s recommendations are deemed to be the international standard for steps required for anti-money laundering and therefore serve as ‘best practices’ which should be considered and followed. However, the concept of ‘prior approval’ from a body to which Pakistan doesn’t even belong is misleading and misplaced. It is just like Pakistan doesn’t need prior approval from organizations such as NATO, of which it is not a member, for its defence related decisions.

It is important to highlight that the public statement by FATF on 27 February 2015, which announced the removal of Pakistan from the watch-list, stated the following:

Pakistan will work with APG as it continues to address the full range of AML/CFT issues identified in its mutual evaluation report…”

Accordingly, APG is the relevant body from Pakistan’s perspective.

FATF Grey-listing Context

FATF maintains lists of countries which, in FATF’s opinion, need to take further actions and provide more cooperation in relation to AML/CFT (Anti-Money Laundering/Combating the Financing of Terrorism) matters. It has been reported, including statements made by Pakistani officials, that Pakistan may be placed on an FATF grey-list in May/June this year. It is not clear what steps Pakistan is required to take to avoid such listing and if any firm decision has been taken by FATF in this regard. One would expect that an organization such as FATF wouldn’t operate on vague terms, and specific recommendations would be expected to have been conveyed, through APG, to Pakistan. In the same manner, it is unlikely that the Prime Minister and relevant authorities wouldn’t be aware of the nature of the recommendations, if any, and would not have considered them before announcing the tax amnesty scheme.

Accordingly, the chance of the tax amnesty scheme having been introduced in disregard of any recent FATF/APG recommendations is very low. On the other hand, if there has been an oversight by the decision-makers, then indeed heads should roll as Pakistan cannot afford mismanagement of this issue. This is the reason it is important that relevant decision-makers should provide immediate clarity on the tax amnesty scheme’s implementation in the context of the looming FATF grey-listing scenario.

Tax Amnesty and FATF’s Typical Concerns

Without going into the details of the criticism of the tax amnesty scheme from a domestic perspective, which is a separate matter, one may consider it simply from the FATF perspective. The scheme mainly focuses on bringing more citizens in the tax net as well as hopefully bringing back money stashed by Pakistani nationals abroad.

Considering the current situation in relation to the decline of the Pakistani rupee versus the US dollar, it is unclear how much money from abroad will ever come back to Pakistan. Even if citizens avail this scheme for bringing back money, it is being said that this option won’t be available to politically exposed persons and will not curtail the investigating powers of the National Accountability Bureau. Moreover, this also doesn’t provide an amnesty to the holders of such amounts from investigations abroad, for example, under the recently introduced unexplained wealth orders (UWOs) in the UK.

Therefore, there are limited aspects due to which FATF can have concerns in relation to the tax amnesty scheme. FATF recommends that member states (and the global community generally) implement steps which focus on a robust reporting, investigation and legislative framework for criminalizing money laundering and terrorist financing. As far is this overarching objective is concerned, the tax amnesty scheme will, in fact, only serve to identify more individuals and organizations which should be in the spotlight of the tax as well as AML authorities in the country.

Another key FATF recommendation relates to implementing systems to be able to identify beneficial ownership of companies and assets and, again, the tax amnesty scheme, if managed and implemented properly, will only assist in widening the net for the authorities.

Accordingly, the tax amnesty scheme, when simply considered from an FATF perspective, may not be a faux pas. However, it is evident that the authorities need to be more pro-active in their approach in engaging with this subject as well as furthering Pakistan’s position, as a country keen on combatting anti-money laundering and terrorist financing, instead of reacting to international pressure and taking a defensive approach.


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.

Taimur Malik

Author: Taimur Malik

The writer is a Partner at Clyde & Co, a global law firm. He is also the Founder of Pakistan’s leading law and justice initiative, Courting The Law.