Complying with FATF demands is in Pakistan’s interests
In a previous article, I argued that deeper interaction between the Financial Action Task Force and countries with developing economies, who are opening up their financial sector, is urgently required. Several such countries on the FATF watch list do not fully understand why they are on this list and how their inability to put in place financial regulations could contribute toward negative outcomes for their own nationals and other countries.
One example is where the FATF has placed Pakistan on the grey list. This month also saw a visit by the Asia-Pacific Group on Money Laundering with the purpose of the adoption, implementation and enforcement of global counter-terrorist financing and anti-money laundering standards as per the guidelines provided by the FATF.
Pakistan has been asked by the FATF to take certain measures and the next review regarding retaining Islamabad on the grey list or not will be due in September next year. With this objective in mind, it becomes extremely important that Pakistan listens carefully to the recommendations provided by the Asia-Pacific Group and expediently moves toward the implementation phase.
This is not only important so that the FATF doesn’t take a harsher step come September next year, but also because it is linked with Pakistan’s national security goals. For example, during this month alone a senior official of the Federal Investigation Authority told the Supreme Court of more than a dozen fake bank accounts that were used for money laundering.
Even within the national boundaries, due to a lack of forensic audit capacities with the relevant institutions, there is an incentive to maintain undeclared local currency bank accounts and undeclared foreign currency bank accounts. It is no surprise that a significant part of national wealth is parked in bearer certificates and real estate, whose actual market value is rarely declared in registration or tax documentation.
A large undocumented economy also plays a role in facilitating money laundering. To provide a one-time incentive so that Pakistani nationals could declare hidden wealth at less than statutory rates, the previous government announced an amnesty scheme in May 2018. The performance of this scheme seems mixed in terms of revenue mobilization, but government authorities claim that more than 70,000 individuals have come forward to declare their hidden income and asset holdings.
To prevent a move by the FATF where Pakistan could see much harsher surveillance, the government has committed to work with the task force to implement improvements in 10 key finance-related operations. The implementation of these would require significant capacity building at institutions such as the FIA, National Accountability Bureau, Securities & Exchange Commission of Pakistan, State Bank of Pakistan, and the Federal Board of Revenue.
It is extremely important that Pakistan listens carefully to the recommendations provided by the Asia-Pacific Group and expediently moves toward the implementation phase.
Dr. Vaqar Ahmed
At the same time, perhaps the most daunting task would be to ensure what the FATF calls “improving inter-agency coordination, including provincial and federal authorities, on combating terror financing risks.” Traditionally, there has been sporadic and weak sub-national and inter-agency coordination, which now needs to be improved, not through the creation of supra-administrative structures, but through provisions laid out under the 18th Constitutional Amendment. Perhaps the Council of Common Interests needs to revisit the current coordination mechanisms and address loopholes that prevent the timely achievement of Pakistan’s national commitments.
Another difficult area for Pakistan to demonstrate to the FATF will be to completely deprive the designated persons of their resources and ensure that they are unable to use these resources through alternate names and financial arrangements — as seen in the past.
Many have argued that the FATF’s guidelines are in fact in Pakistan’s own interest. As Pakistan integrates with the region, for example, through the China-Pakistan Economic Corridor and the Central Asia Regional Economic Cooperation Programme, even the Chinese and other neighbors would demand greater transparency in private financial transactions. Pakistan is also aiming to undertake free and preferential trade agreements with non-traditional trading partners. The pursuit of such goals could also become difficult if the country is not able to demonstrate a more responsible financial surveillance mechanism.
It is also important for Pakistan’s political parties to have a good understanding of the challenges arising out of a harsher stance by the FATF in the event the country fails to make convincing progress toward the 10 points on the agenda. It is widely known that several members of various political parties are under investigation by the NAB on account of suspicious financial flows. The leadership of political parties in the country must make it clear that it will not support such members in the wider interest of the country. This perhaps applies the most to the new and emerging religious parties.
• Dr. Vaqar Ahmed is Joint Executive Director of the Sustainable Development Policy Institute, Pakistan. His book “Pakistan’s Agenda for Economic Reforms” was recently published by the Oxford University Press. Twitter: @vaqarahmed
