FATF and Pakistan's preparedness
In my previous pieces, I have argued that capacity building interventions at regulatory bodies and institutions responsible for financial surveillance in Pakistan may not be enough. To come out of the terror financing grey list and to remain out of it in the future, reforms cannot be limited to the Financial Monitoring Unit or the central bank. Secondly, going forward, a mix of institutional reforms and diplomatic efforts are required.
To be fair with government authorities, there has been a push to understand the desires of terror financing watchdog, the Financial Action Taskforce (FATF). Currently, government functionaries are trying to meet demands under two different lists – one provided by International Cooperation Review Group (ICRG) and another by Asia-Pacific Group (APG). Pakistan has admitted that it is partially compliant on 22 of the 27 points in the action plan and non-compliant on five targets of the ICRG – a position not seen favorably by FATF. While Pakistan will submit the next report to APG during December 2019, there is the general feeling that FATF will retain Pakistan in the grey list beyond February 2020.
While some may see this as a success at some level i.e. Pakistan not being downgraded from the grey list, this progress report is discouraging news for the financial sector in the country and potential long term investors who keenly look at indicators around financial integrity. Having discussed the matter with some such private sector representatives, it seems in their assessment, Pakistan could stay in the grey list for another 2 to 3 years, unless significant efforts at both institutional and diplomatic levels bear fruit. They are worried that friends of Pakistan, which initially were backing Pakistan’s stance at FATF, now also wish to see time-bound tangible progress.
Lately, Pakistan has offered an attractive policy rate which in turn lured high levels of foreign portfolio investment. But even in this case, members of the Pakistani diaspora who wanted to contribute more are now reluctant to invest short-term capital often called ‘hot money’ for the reason that this could result in unnecessary scrutiny by their host countries.
Dr. Vaqar Ahmed
The private sector also demands that Pakistan’s government be more open to citizens and inform timelines during which progress could be achieved, or what could be the implications if the government remains unsuccessful with ICRG (which remains more critical than APG). Nobody seems to be playing a lead role as a communicator on this subject. There has to be an official spokesperson on this subject to let us know performance every time there is an Economic Coordination Committee meeting –where this agenda should be prioritized.
Lately, Pakistan has offered an attractive policy rate which in turn lured high levels of foreign portfolio investment. But even in this case, members of the Pakistani diaspora who wanted to contribute more are now reluctant to invest short-term capital often called ‘hot money’ for the reason that this could result in unnecessary scrutiny by their host countries. They concede that progress is there, but that Pakistan’s risk profile still needs improvement.
We are also informed through media reports that the central bank has initiated outreach sessions with the commercial banks all across the country to better sensitize on the demands by ICRG and APG. One would expect that an independent evaluation may be conducted on an urgent basis if such outreach efforts are indeed contributing to the understanding of banking sector staff? The evaluation will go a long way in satisfying ICRG if Pakistan is able to demonstrate, in number terms, how many adverse cases were intercepted.
Pakistan’s evolving diplomatic relations in the region and abroad also need to be studied here to properly respond to the challenge. The US Department of State’s annual Country Report on Terrorism, describes how there are elements in Pakistan which could target neighboring countries. At the same time, the tone of such observations is relatively soft compared to the previous year’s report. This is perhaps due to some decent on-ground measures taken by Pakistan. How can the foreign policy design build on this success? After all, Pakistan’s Prime Minister and all other relevant institutions have repeatedly condemned elements trying to strengthen the narrative in favor of militancy and to de-stabilize peace in the region.
An evaluation is also required as to why federal and provincial governments, and relevant institutions have remained slow in achieving the targets set in a home-grown idea - National Action Plan (NAP) which did carry steps to improve the counter terror financing regime? Why is it that the country requires more departments and units to meet FATF’s demand (including the newly planned FATF Secretariat at Prime Minister’s office) when there already is the National Counter Terrorism Authority– an entity responsible for coordinating all the above mentioned. Perhaps FATF and other desirous to see quick improvements in the country’s risk profile would be better convinced if existing institutions are strengthened instead of creating new layers of bureaucracy.
– Dr. Vaqar Ahmed is an Economist and author of ‘Pakistan’s Agenda for Economic Reforms’ published by the Oxford University Press.