FATF’s Action Plan: What is at risk for Pakistan?
Recently, a delegation from the United States visited Pakistan to assess the country’s progress on the action plan agreed with Paris-based terror financing watchdog, Financial Action Task Force (FATF). This interaction comes at a crucial time with Pakistan submitting a comprehensive report on its progress to International Cooperation Review Group (ICRG) and the Asia Pacific Group (APG) this month. Since Pakistan was categorised in the grey-list by the FATF, the PTI government has increased diplomatic efforts meant to persuade reviewers regarding improvements in institutions, policies and rules which boost anti-money laundering and combat the financing of terrorism.
However, it is noteworthy that despite the strong intent of some of the items under the 27 point action plan, some require more concerted efforts. For example, the visiting delegation still feels that a large part of business transactions in Pakistan are happening in the informal sector which could discredit Pakistan’s otherwise sincere efforts. To formalize such transactions, PTI’s new economic team requires an in-depth understanding of how informal agriculture, services and property markets work.
Another critical issue which the delegation members are seeking information on revolves around ensuring that Pakistan actually implements amendments to its existing laws. It is known that Pakistan had decent laws to facilitate AML and CFT and the completion of such legislative exercises did result in Pakistan exiting from the grey list several years ago. However, back then, it was the lack of commitment from the highest levels to strongly implement existing laws and ensure inter-agency coordination to bring violators to justice that raised doubts about the seriousness of the government. For example, the unchecked smuggling of foreign currency from Pakistan, over the past several decades, has cost the state dearly besides opening doors for those who continue to instil damage to human life, infrastructure and private property.
Going forward, it is in Pakistan’s own interests to demonstrate tangible progress on the 27 point action plan. Money laundering, terrorism financing and currency smuggling should not define Pakistan and the millions of its citizens striving hard to make this country a better place for future generations.
Dr. Vaqar Ahmed
So what exactly is at risk here? In the event that this delegation and members of ICRG and APG are not convinced of Pakistan’s efforts, several negative economic implications would result.
These include, but may not be limited to, a halt in future tranche of International Monetary Fund (IMF), suspension of aid flows by bilateral and multilateral development partners, increased difficulties for Pakistan’s banking and financial sector while indulging in foreign transactions, and difficulties for the private sector in attracting foreign investment from abroad. Foreign banks working in Pakistan may have to reconsider their operations or may not be able to expand their branch network. All this put together could easily trigger another round of balance of payments crisis in Pakistan.
Going forward, it is in Pakistan’s own interests to demonstrate tangible progress on the 27 point action plan. Money laundering, terrorism financing and currency smuggling should not define Pakistan and the millions of its citizens striving hard to make this country a better place for future generations. All relevant institutions including Federal Board of Revenue, State Bank of Pakistan, Federal Investigation Authority, Pakistan Customs, Securities and Exchange Commission of Pakistan, National Counter-Terrorism Authority, Frontier Corps and others should demonstrate capability and capacity to address FATF’s concerns on a strong technical basis. Furthermore, these institutions also need to show seamless coordination in implementing the action plan. One hopes that this coordination will improve as capacities at Financial Monitoring Unit are enhanced.
Secondly, increased diplomatic efforts are required to counter any efforts by India to unnecessarily discount Pakistan’s efforts. It is important as India co-chairs the Joint Group of ICRG and APG along with US Assistant Treasury Secretary. In this regard, continued support of China, Malaysia, Turkey and other friends of Pakistan is essential to block possible blacklisting.
Prime Minister Imran Khan has also reportedly asked President Trump during their recent meeting, to have a considerate view of Pakistan’s efforts and to provide technical support to understand how best to strengthen systems for AML and CFT. Of course, US support will also be critical in case Pakistan requires any waivers from the IMF during future reviews.
Third, expedite the work at the parliamentary level to get the amendments in Foreign Exchange Regulations and AML passed at the earliest. Reviewers could easily get frustrated due to the lack of a timeframe in getting these laws passed and implemented.
Finally, provincial governments are also expected to play a proactive role in understanding and implementing the action plan. The activities of suspicious organizations and individuals, registration of banned outfits under new names, opening up of bank accounts meant for illegal activities, and the cross-border flow of people without visas, are all areas which require strong oversight of provincial institutions.
– Dr. Vaqar Ahmed is an Economist and author of ‘Pakistan’s Agenda for Economic Reforms’ published by the Oxford University Press.