Daily Times

The Bretton Woods financial order created as a result of Bretton Woods Conference (1944) was meant to focus on the economic development of war ravaged and less developed nations. It also aimed at bolstering world trade by providing short and medium term financial assistance to countries which were experiencing temporary deficits in their balance of payments. An important component of this new financial order was the creation of two global financial institutions i.e. the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD) commonly known as the World Bank. Later, another intergovernmental organization by the name of Financial Action Task Force (FATF) was established as a result of G-7 summit in 1989. The stated objective of the FATF was to save the International Financial system from the risks posed by Money Laundering (ML). The mandate of FATF was later expanded to include Counter Terrorism Financing (CTF) in 2001 and Counter Proliferation Financing (CPF) in 2010.

All the major financial organizations of the world like UN, WB, and IMF etc. are the observer members of the FATF. It is pertinent to note that Pakistan is not a direct member of FATF but of Asia/Pacific Group (APG), which is its associate member. FATF communicates through Public statement in which countries are categorized in terms of their co-operation and willingness to comply with enforcement mechanism. The countries which are non-cooperative are commonly termed as Black-listed, whereas the countries which agree to an action plan and are put on an on-going compliance process are commonly termed as Grey-listed.

Pakistan though has made concrete efforts in relevant legislation but the country essentially lacks institutional framework for implementation of a sophisticated AML regime

The APG on Money Laundering is an inter-governmental organization, comprising 41 member jurisdictions. It is an FATF style regional body, focused on ensuring that its members effectively implement the international standards against money laundering, terrorist financing and proliferation financing. Pakistan joined the APG in May 2000 . The APG is an associate member in the FATF which permits APG delegates to attend FATF meetings and intervene on policy and other matters. All regional bodies use the FATF’s 40 recommendations as their principal guidelines for the implementation of effective AML/CFT measures.

In June 2010, Pakistan agreed with FATF on an Action Plan to address the strategic deficiencies in Pakistan’s AML/CFT regime. The Action Plan included measures to address strategic deficiencies in legal, operational and enforcement areas. In February 2012, Pakistan was listed in FATF’s Public Statement. In June 2014, after strenuous efforts, implementation of the Action Plan was completed and Pakistan was delisted from FATF’s Public Statement. As such, Pakistan enacted amendments in its Anti-Terrorism Act 1997 to strengthen the provisions pertaining to terrorist financing and asset freezing. The FATF in its February 2015 Plenary acknowledged Pakistan’s progress in improving its AML/CFT regime, delisted Pakistan from its Monitoring/ICRG process and desired to address full range of AML/CFT issues identified in its mutual evaluation report, particularly, implementing of UNSC Resolution 1267. FATF in its June, 2015 plenary upon examining Pakistan’s further report on implementation of UNSCRs referred Pakistan to work with Asia Pacific Group on Anti-Money Laundering (AML) and Counter Financing of Terrorism (CFT).

In January 2018, US, UK, France and Germany made Pakistan’s nomination for the International Cooperation Review Group (ICRG) process i.e. to place Pakistan in grey list. Pakistan objected to the nomination proposed by US, UK, France and Germany and advocated that it has taken meaningful action on the designated entities in respect of specific recommendations. However the measures taken by Pakistan failed to convince the US-India led alliance and prevent it from being placed in the grey list.

The FATF in 1990 initially prescribed 40 recommendations for combating money laundering and terror financing. In 2001, another eight special recommendations were introduced followed by a ninth one as well. The FATF recommendations require countries and regions to develop policies to counter ML/TF, establish Financial Intelligence Units, criminalize ML/TF, freeze and confiscate terrorist assets, put in place efficient mechanism for international cooperation etc.

In compliance with the Financial Action Task Force’s recommendations on anti-money laundering and terror financing, the State Bank of Pakistan in October 2007 set up a Financial Monitoring Unit to ensure and to safeguard the interest of the depositors from risks arising out of Money Laundering (ML) and Terror Financing (TF).

In order to address the deficiencies in the enforcement of the AML/CFT regime in Pakistan, the FATF laid down a ten point agenda to be followed by Pakistan. It includes proper identification and supervision of TF risks, remedial actions on violations of AML/CFT regime, improving cooperation between federal and provincial agencies, checking on illicit movement of cash through cash couriers, implementation of financial sanctions against designated terrorists under UNSC sanctions, effective prosecution in TF cases and enhancing the capacity of prosecutors and judiciary, ensuring that the TF prosecutions target the right persons and entities etc.

In part two of these article series, significant measures which have been taken up by Government of Pakistan have been discussed. Pakistan though has made concrete efforts in relevant legislation but the country essentially lacks institutional framework for implementation of a sophisticated AML regime. This is mainly due to complex institutional arrangements and political facets to the debate. The country has intermittently been on the radar of FATF because of lack of preventive measures in response to non-compliance status on many frontiers.

To be concluded

The writer has done MPA from Institute of Administrative Sciences (IAS) Lahore