November Issue 2019

Despite ‘largely complying’ with only five of the 27 agreed points of the action plan, Pakistan managed to retain itself on the grey list of the counterterror watchdog, the Financial Action Task Force (FATF), last month.

The FATF met in Paris from October 14 to 18 last month to review the position of 15 states, with Pakistan managing to cling on to the grey list, despite a strongly worded warning issued by the president of the watchdog, Xiangmin Liu.

“Despite a high level commitment by Pakistan to fix these weaknesses, Pakistan has not made enough progress,” Liu said. “If by February 2020 the country has not made significant progress, we will consider further actions which, potentially, could include placing the country… on the blacklist,” he added.

Should it happen in February, Pakistan would join Iran and North Korea as the only countries on the black list, which in turn would translate into a hike in economic sanctions which would significantly add to Islamabad’s ongoing financial problems.

The FATF meeting in Paris in October 2019.

Pakistan has been on the grey list of the FATF since June 2018, when Islamabad was given 15 months to enact a 27-point action plan. Of these, 22 points still remain insufficiently addressed.

Pakistan had previously been on the grey list from 2012 to 2015. After having spent three years on the white list, Islamabad was warned about being placed on the grey list in the FATF’s Paris meet in February 2018, with the move going ahead in June last year.

Over the past 15 months, in addition to the FATF, its affiliated Asia-Pacific Group (APG) has also been monitoring Pakistan’s counterterror progress. The APG adopted Pakistan’s mutual evaluation report in its 22nd Annual Meeting in Canberra in August. In its formal report issued last month, the APG rates Pakistan’s compliance with the FATF programme as ‘poor.’

Despite its failures in the implementation of the counterterror plan of action and given India’s push to get Pakistan blacklisted, the fact that Islamabad has been able to retain itself on the grey list is seen as a diplomatic triumph.

However, the support from Turkey, Malaysia and China, much of which was mustered on the sidelines of the United Nations General Assembly in September, might not suffice to save Pakistan, if significant progress is not made over the next couple of months.

“The good news is that India was going all out to have Pakistan blacklisted, but it failed. The bad news is that we’ve dodged the black list – but only just,” notes political scientist Farrukh Saleem, the current government’s former spokesperson on economy and energy.

“The FATF uses simple math. If you get less than 50 marks out of 100, you’re blacklisted – Pakistan got around 51. We’ve failed in the 27-point action plan, when it was reviewed in January and May. Therefore, the performance of the government is really unsatisfactory,” he adds.

Given that the APG’s report took into account Pakistan’s actions till October 2018, Islamabad passing the FATF review – which considered developments till April 2019 – suggests that even on the points where it wasn’t ‘largely complying’, sufficient progress had been made to show some results.

However, more likely, it is our diplomatic lobbying that has saved Pakistan this time around, given that a state needs three of the 39 members to block the blacklisting move at FATF.

Before the start of the Paris meeting, the Pakistani delegation led by the Minister for Economic Affairs, Hammad Azhar, was aware that it had the support of Turkey, Malaysia and China. Furthermore, with the current FATF presidency lying with China till June 30, 2020, Islamabad is further hopeful that it would get Beijing’s support in this critical phase.

Even so, experts believe that significant progress needs to be made on the FATF’s action plan for Pakistan’s diplomatic allies to bail it out in February.

As per the APG’s Mutual Evaluation Report entitled, ‘Anti-Money Laundering and Counter-Terrorist Financing Measures – Pakistan,’ the areas in which Pakistan is non-compliant include, transparency and beneficial ownership of legal arrangements; regulation and supervision of DNFBPs (Designated Non-Financial Businesses and Professions) and mutual legal assistance: freezing and confiscation.

Following the Paris meeting, FATF published a detailed report on Pakistan’s actions in addressing deficiencies in its AML/CFT [Anti-Money Laundering/Combating the Financing of Terrorism].

The report published on the FATF website said Pakistan can overcome strategic deficiencies by:

1. Adequately demonstrating its proper understanding of the TF risks posed by the terrorist groups, and conducting supervision on a risk-sensitive basis.

2. Demonstrating that remedial actions and sanctions are applied in cases of AML/CFT violations, and that these actions have an effect on AML/CFT compliance by financial institutions.

3. Demonstrating that competent authorities are cooperating and taking action to identify and take enforcement action against illegal money or value transfer services.

4. Demonstrating that authorities are identifying cash couriers and enforcing controls on illicit movement of currency.

5. Improving inter-agency coordination including between provincial and federal authorities on combating TF risks.

6. Demonstrating that law enforcement agencies (LEAs) are identifying and investigating the widest range of 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.

7. Demonstrating that TF prosecutions result in effective, proportionate and dissuasive sanctions and enhancing the capacity and support for prosecutors and the judiciary.

8. Demonstrating effective implementation of targeted financial sanctions (supported by a comprehensive legal obligation) against all 1267 and 1373 designated terrorists and those acting for or on their behalf, including preventing the raising and moving of funds, identifying and freezing assets (movable and immovable), and prohibiting access to funds and financial services.

9. Demonstrating enforcement against TFS violations including administrative and criminal penalties and provincial and federal authorities cooperating on enforcement cases.

10.Demonstrating that facilities and services owned or controlled by designated person are deprived of their resources and the usage of the resources.

Social policy analyst and Executive Director of the Sustainable Development Policy Institute (SDPI), Abid Qaiyum Suleri, believes that the current government has taken quite a few steps to help Pakistan not just avoid the black list, but also promote itself to the white list.

“The budget passed for this fiscal year also had clauses to curb money-laundering and terror-financing. The banks have increased their scrutiny in the shape of ‘knowing your customer.’ The documentation of the economy, which the business community and other sections have expressed their concerns about, will further help Pakistan,” he says.