Pakistan in FATF and its Response

Introduction :
FINANCIAL Action Task Force (FATF) is a new debate nowadays but very few know the
details of this international body and its effects for Pakistan. FATF was formed in1989 during
the G-7 Summit to deal with the growing issue of money laundering. The task force at that time
was charged with studying money laundering trends, monitoring legislative, financial and law
enforcement activities taken at the national and international level, reporting on compliance, and
issuing recommendations and standards to combat money laundering. After, 9/11 this watchdog
extended its work parameters to terror financing and related funding of terrorist organizations.

The Financial Action Task Force (FATF), a global money-laundering watchdog, recently
decided to place Pakistan back on its terrorist financing watchlist in June 2018. The United
States fervently lobbied member countries of the FATF to place Pakistan on a so-called grey list
of nations that are not doing enough to combat terrorism financing. Being on this list means that
Pakistan’s financial system will be designated as posing a risk to the international financial
system because of “strategic deficiencies” in its ability to prevent terror financing and money
laundering. In the meantime, the government will work with FATF to build an “action plan” to
plug the deficiencies identified by the watchdog, which will be put up for approval by consensus
in the June session. If there is a failure to build consensus on the action plan, Pakistan could be
black listed by FATF, a status currently applied only to Iran and North Korea.

United Nations Security Council Resolution (1267)

United Nations Security Council Resolution (UNSCR) 1267, passed unanimously in October,
1999 by recalling previously passed resolutions like UNSCR-1189(1998), UNSCR-1193(1998)
and UNSCR-1214(1998) to designate Osama Bin Laden and his associates as terrorist. These
resolutions rebuked the Taliban regime in Afghanistan and asked states for compliance to these
resolutions by shutting down terrorist sanctuaries and training camps on their soil. It was also the
responsibility of the states to ensure that their territory was not misused for terrorist training
camps and installations. The UNSCR1267 also demanded all member states to freeze assets and
financial resources associated with the Taliban. It also urged all the member states to cooperate
for effective measures against Osama Bin Laden and his associates. Though Pakistan launched
multiple military operations in FATA and considerably destroyed terrorist infrastructure, but the
United States continued to exert more pressure and demanded to “Do More” because the Bush
and Obama’s administration was not satisfied with policy measures.
Reason to put Pakistan in GREY-LIST:

It had been kept in the grey list from 2012- 2015, the reason for including Pakistan in the grey
list was provided by the task force itself in its public statements explaining the jurisdiction done
by FATF on the strategic Anti-money Laundering and Counter Financing Terrorism strategies
and actions have not done sufficiently in countering the deficiencies found in the deterrence or
no action plan has been committed yet throughout 2012-2015. However, amendments were in
order when in 2013, the government of PPP, amended the “ATA Act” in order to enable the
Antiterrorism Act to confiscate the properties of the affiliated groups, as well as act against the
financers of the terrorist activities within the state. Pakistan was excluded from the grey list in
2015, on providing the details of the significant development in the improvement of Anti-Money
laundering and Countering Finance Terrorism plan and developing a sound legal framework for
not only jurisdiction but its regulation in committing towards action plan for deterrence against
the highlighted deficiencies by FATF as well .

1. Pressure by US:

Pakistan was put into the grey list of the FATF in 2018 again, based on the lack of “Strategic
Deficiencies” in curbing of corruption, tax evasion and terrorism finance, as per the declared
causes by FATF. One of the reasons to include is the building pressure by the U.S. onto Pakistan
to take action against the U.S. declared groups whereas Pakistan is working with its own strategy
to avoid collateral damage. The U.S. is not only the largest financer of the FATF, but the
president of the task force is also the treasury of the U.S department who also heads the office of
Terrorist Financing and Financial Crimes as well. With a strong influence in the task force, it is a
well-suited mandate for the U.S to remind Pakistan about their “Do More” policy with voting in
favor of placing Pakistan in the list. Such decisions stand more political because of the U.S.
interests.

2. Presence of terrorist groups in Pakistan:

Furthermore, according to a report by Dawn News, another reason for the inclusion in FATF
Grey-list is the presence of Jamaat-ud-Dawa and Falah-e-Insaniyat Foundation, headed by Hafiz
Saeed, as these were designated as terrorist organization by the United Nations, but are allowed
to work freely in the country and collect funds for their functioning and development10.
Pakistan’s courts after listening to cases against these organizations freed them. Therefore any
action dictated by the U.N or the United States may lead to the clash of institutions in Pakistan.
Implications
The probable implications of being put on the grey list are that the FATF regional group is
expected to visit Pakistan very soon to see the level of compliance of their guidelines.

a. Image Problem:
The FATF decision would be a major setback for Islamabad’s efforts to improve its image and it
will inflict far-reaching reputational damage on the country. FATF, which maintains grey and
black lists for identifying countries that have weak measures to counter and combat money
laundering and terror financing, does not have the authority or power to impose sanctions on a
country found non-compliant with the required standards. But a country’s listing can have an
impact on its international transactions, as it would come under greater scrutiny. Merely stating
that we can weather out the storm is nothing more than political and emotional rhetoric. The
world has changed, and the regional situation is evolving rapidly, and Pakistan needs to be
cognizant of the dynamics.
b. Economic Fallout
Pakistan’s economy will be adversely impacted. The country may suffer a risk downgrade by
multilateral lenders such as IMF, World Bank, ADB and also a reduction in risk-rating by
Moody’s, S&P and Fitch. As a result, the Pakistani stock market is expected to fall significantly.
Being in the “grey list” means that accessing funds from international markets, for instance,
would become tougher for Islamabad. The decision could make it harder for foreign investors
and companies to do business in Pakistan. Islamabad would be made to go through all the
scrutiny which can hurt the economy very badly.
Some global financial institutions would be wary of transacting with Pakistani banks and some
might even avoid Pakistan altogether, viewing the legal risks associated with doing business
there far outweigh economic benefits, if any.
However, Adviser to the Prime Minister on Finance Miftah Ismail brushed off concerns that
economic growth will suffer because of the country’s re-inclusion on a terrorist financing watch
list, and lashed out at the United States for seeking to “embarrass” Pakistan. The adviser does not
foresee the FATF decision acting as a brake on Pakistan’s economy, which, with growth above
five percent, is expanding at its fastest pace in a decade.

c. Diplomatic Isolation
The FATF decision has put Pakistan on the way to global isolation. Grey-listed during 2012-
2015, Pakistan was removed from the list on an assurance that it would strictly adhere, follow
and implement the provisions of the UN Security Council Resolution 1267. Now, Pakistan is put
on the watch list whose activities will be monitored by the watchdog FATF. If Pakistan fails to
implement a financial system to curb terror financing and control money laundering, it will be
back on the grey-list.
Thus a hundred-billion-dollar question here is: Will the existing government machinery be able
to develop the action plan and take suitable steps to implement it by June 2018, especially when
the next general election is due during this period? The answer seems in negative. The foreign
minister who is supposed to play a vital role in developing the country’s foreign policy on how
to counter global terrorism is busy in political bickering here. The foreign minister’s competence
is also questionable in this regard.

Pakistan’s Progress to Curb Financial Crimes

1. After Pakistan got grey listed in FATF in between 2012-2015, National Counterterrorism
Authority (NACTA) took the lead in regulating the movement of money within and
across different land routes in collaboration with the financial institutions of Pakistan that
includes Federal Board of Revenue (FBR), State Bank of Pakistan (SBP), Federal
Investigation Agency (FIA). To keep a limit to the amount of money inbound and
outbound from Pakistan, the SBP and FBR initiated the Money Declaration Forms for
international bound passengers, requiring the passengers to declare their amount of
money brought in or out from the state21, thus applying a threshold to the amount not
more than U.S $ 10,000 per visit out of the state.
2. According to a review report of International Corporate Review Group (ICRG)24,
Pakistan has reported that no financial service of any sort has been allowed to the
designated groups or individuals within the jurisdiction of Pakistan. Pakistan has frozen
117 bank accounts withholding a total of Rs. 48.2 million
3. The Pakistan financial authorities have also started a thematic review of the stock market
brokers as well, after some cases of non-compliance were registered

RECENT ACHIEVMENTS:

In a statement issued after the plenary session concluded, the financial watchdog said: "To date,
Pakistan has made progress across all action plan items and has now largely addressed 21 of the
27 action items. As all action plan deadlines have expired, the FATF strongly urges Pakistan to
swiftly complete its full action plan by February 2021."

The statement added that Pakistan needed to work on four areas to "address its strategic
deficiencies". These include:
  Demonstrating that law enforcement agencies (LEAs) are identifying and
investigating the widest range of terror financing activity, which target designated
persons and entities, and those who act on the behalf/direction of the designated
persons or entities
 Demonstrating that terror financing prosecutions result in effective, proportionate
and dissuasive sanctions
 Demonstrating effective implementation of targeted financial sanctions against all
1267 and 1373 designated terrorists and those acting for or on their behalf;
preventing the raising and moving of funds including in relation to non-profit
organizations; identifying and freezing assets; and prohibiting access to funds and
financial services
 Demonstrating enforcement against violation of terror financing sanctions,
including in relation to NPOs, of administrative and criminal penalties and
provincial and federal authorities cooperating on enforcement cases

According to Minister for Industries Hammad Azhar, Pakistan had "achieved impressive
progress" and he congratulated federal and provincial teams "who have worked day and night
even during the pandemic to ensure this turn around".

In February, the FATF had given Islamabad a four-month grace period to complete its 27-point
action plan, noting that Pakistan had delivered on 14 points but missed 13 other targets. On July
28, the government reported to parliament compliance with 14 points of the 27-point action plan
and with 10 of the 40 recommendations.

By September 16, however, the joint session of the parliament amended about 15 laws to
upgrade its legal system matching international standards as required by the FATF. Pakistani
officials were hopeful of a positive outcome, especially after the recent legislation by parliament
on counter-terror financing and money laundering.

OUTSTANDING AREAS:
Pakistan’s outstanding action areas also include effective implementation of targeted financial
sanctions (supported by a comprehensive legal obligation) against all 1,267 and 1,373 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.
 Pakistan will also have to demonstrate enforcement against TFS violations, including
administrative and criminal penalties and provincial and federal authorities cooperating on
enforcement cases and prove that facilities and services owned or controlled by designated
person are deprived of their resources and the usage of the resources.
According to the list of remaining 13 points of 27 action plan
I. Pakistan will have to demonstrate effectiveness of sanctions including remedial actions to
curb terrorist financing in the country;
II. Pakistan will have to ensure improved effectiveness for terror financing of financial
institutions with particular to banned outfits;
III. Pakistan will have to take actions against illegal Money or Value Transfer Services
(MVTS) such as Hundi-Hawala
IV. Pakistan will have to place sanction regime against cash couriers
V. Pakistan will have to ensure logical conclusion from ongoing terror financing
investigation of law enforcing agencies (LEAs) against banned outfits and proscribed
person
VI. Pakistani authorities will have to ensure international cooperation-based investigations
and convictions against banned organizations (list provided to Pakistan) and proscribed
persons (list provided to Pakistan)
VII. The country will have to place effective domestic cooperation between Financial
Monitoring Unit (FMU) and LEAs in investigation of terror financing
VIII. Prosecution of banned outfits and proscribed persons (list provided to Pakistan)
IX. Demonstrate convictions from court of law of banned outfits and proscribed persons (list
provided to Pakistan)
X. Seizure of properties of banned outfits and proscribed persons (list provided to Pakistan)
XI. Conversion of madrassas to schools and health units into official formations (list
provided to Pakistan)
XII. To cut off funding of banned outfits and proscribed persons
XIII. Pakistan will have to place permanent mechanism for management of properties and
assets owned by the banned outfits and proscribed persons (list provided to Pakistan).

India's plans will fail: