Is being taken off FATF grey list a Sisyphean challenge for Pakistan?

The decision by the Finan­cial Action Task Force (FATF) to maintain Pakistan on its increased monitoring list- also called the grey list- after having met 26 of the 27 items on the action plan, has raised concerns about the international body’s neutrality. It would be speculative to suggest that the well-respected organization does not apply its standards universally, as well as to suggest that some measures are specific to Pakistan. While it is difficult to believe that the FATF decision-making process should be influenced by international politics, but given Pakistan’s strong performance in meeting the objectives set out by the FATF’s International Co-operation Review Group (ICRG) action plan, suspicions are invariably aroused that FATF may be swayed by major powers, for reasons other than those strictly under its purview.

Despite being given an exceptionally onerous compliance timeline, Pakistan successfully undertook all necessary steps to comply with ICRG’s action plan, including legislative measures that were difficult to pass given the government’s slim majority in the parliament. However, FATF has decided to maintain the country on its grey list, on the pretext that it needs to work on the deficiencies that were separately identified in Pakistan’s 2019 Asia Pacific Group (APG) Mutual Evaluation Report (MER). FATF President Marcus Pleyer has stated that in Pakistan’s case, it will have to “largely comply with FATF’s 27 action plan items as well as the deficiencies later identified in Pakistan’s 2019 APG MER.” With this latest update, Pakistan has another 5 points in the APG action plan, as well as the one remaining item in the FATF action plan.

FATF has reviewed the measures taken and progress made by Pakistan, in anti-money laundering and combating financing of terrorism since June 2018, when the country first made a high-level political commitment to work with the FATF to strengthen its AML/CFT regime and to address its strategic counter-terrorism financing-related deficiencies. FATF has formally recognized that the measures taken by Pakistan to meet ICRG’s action plan meant it had fully completed 26 action items. However, it has expressed that Pakistan needs to complete the one remaining CFT-related item out of 27 by “demonstrating that TF (terror financing) investigations and prosecutions target senior leaders and commanders of UN-designated terrorist groups.” Moreover, in September, Scott Rembrandt, Head of the US Delegation to the Financial Action Task Force (FATF), visited Pakistan to discuss the country’s action plan agreed with the forum. Pakistan is now ‘compliant’ or ‘largely compliant’ in 35 of the 40 recommendations put forth by the APG, according to the follow-up MER.

Pakistan successfully undertook all necessary steps to comply with the FATF plan, including legislative measures difficult to pass given the government’s slim majority in the parliament.

Javed Hassan

It is worth noting that FATF objectives were not limited to enacting laws and their implementation, but also to enhance the capacity of Pakistani law-enforcement agencies and ensure convictions. The government can take credit for ensuring enforcement and effective regulation not only in the formal sector but also to have done so in the informal sector. It has implemented regulations to see that all non-banking financial institutions are now fully regulated and several thousand non-profit organizations mapped for TF and ML risk.

The two financial regulators, the State Bank of Pakistan and the Securities and Exchange Commission of Pakistan have built institutional capacity to implement a risk-based supervisory framework. Although Law Enforcement Agencies (LEA) and the judiciary had earlier lagged in ensuring prosecution and conviction, they too have achieved major success over the last two years. The chief of Jamatud Dawa (JuD), Hafiz Saeed, his deputy Zafar Iqbal, and spokesman Yahya Mujahid, were convicted on charges of terror financing and each sentenced to imprisonment for periods of over 10 years. The government has upgraded both TF and ML risk assessment systems. A risk-based investigation strategy had been prepared for LEAs, as well as establishing an effective inter-agency coordination mechanism.

Despite the success of implementing the many ICRG action plan items, in order to complete the implementation of 27 recommended measures, FATF would like Pakistan to further address strategic deficiencies that are primarily focused on combating money laundering. Under the new action plan, Pakistan will have to enhance international cooperation by amending the Mutual Legal Assistance (Criminal Matters) Act, demonstrating that assistance is being sought from foreign countries in implementing UN Counter-Terrorism (UNSC 1373) sanctions regime.

FATF would like to see a significant increase in the number of TF and ML prosecutions that result in successful convictions, and that proceeds of crime continue to be restrained and confiscated in line with Pakistan’s risk profile, including working with foreign counterparts to trace, freeze and confiscate assets. In addition, FAFT would like Pakistan to be fully compliant on the remaining 5 of the 40 recommendations put forth by the APG. It is to be hoped that the government will successfully achieve these targets, and doing so would not prove to be a Sisyphean effort, only to be presented with yet new demands by FATF.

– Javed Hassan has worked in senior executive positions both in the profit and non-profit sector in Pakistan and internationally. He’s an investment banker by training.

Twitter: @javedhassan