Capital flight through illicit financial flows is a major challenge for the global economy. The United Nations and multiple watchdog agencies play a role in eliminating this curse by working together on different platforms. The role of the Financial Action Task Force’s (FATF) in combating money laundering and terrorist financing is one of the most important.
The FATF promulgates international standards to combat the menace of money laundering and terrorist financing. Its regional bodies ensure that each signatory nation is complying with its standards. If the FATF decides that a signatory state is non-cooperative or has weak enforcement measures, it can declare it “high risk’ and place it on a “Grey List” for continuous monitoring. Grey-listed nations suffer severe economic consequences after reduced foreign direct investments, imports and exports, remittances, and limited access to international financial institutions. Pakistan was grey listed in June 2018 due to its ties to Islamist militant groups, its weak anti-money laundering mechanism, and its insufficient attention to combat the financing of terrorism and AML-CFT regulations.
In my opinion, Pakistan was prematurely and unfairly grey-listed even though it had worked diligently to combat terrorism and money laundering. Pakistan’s efforts against militants were loudly applauded by the world. It became an important ally tothe US and ISAF forces. But this cooperation resulted in a high cost to the Pakistani nation. A Physician for Social Responsibility report states that from 2004-2013, more than 81,000 Pakistanis lost their lives in the war against terrorism. The war badly impacted Pakistan’s economy; as per an economic survey, Pakistan lost more than $123 billion in the war against terrorism. Despite the losses, Pakistan’s achievements against terrorism were unmatched by any other country.
Under the leadership of Nawaz Sharif, Pakistan designed a comprehensive national action plan to counter terrorism. This plan not only defined direct military actions against terrorists but also choked off terrorism financing to prevent the re-emergence of targeted organisations. Pakistan also established special trial courts under the supervision of army to ensure speedy terrorist trials.
Military tribunals in Pakistan convicted more than 180 terrorists and issued verdicts for more than 300 terrorism related cases in just one year.
A National Counter Terrorism Authority (NACTA) report on terrorism proves that there was a significantly reduced number of terrorist incidents in Pakistan, from 1,816 in2004 to 548 by 2018. The report further highlights significant reductions in terrorist related incidents from 50 to 92 percent in Islamabad, Punjab, Sindh, Balochistan and Khyber Pakhtunkhwa.
When it comes to combating money laundering, Pakistan’s progress was better than the majority of FATF member nations. The State Bank of Pakistan tightened its policy against unlicensed alternative remittance systems such as hundi or hawala). It became compulsory for all hawaladars to be registered as authorised foreign exchange dealers and meet minimum capital requirements starting in June 2004.
Pakistan successfully implemented anti-money laundering laws in 2007, which were further amended in 2010 in the light of the FATF guidance. Pakistan introduced the detailed AML-CFT regulations, utilising a risk-based approach in 2012. Those regulations were further amended in 2015. The Securities and Exchange Commission issued amended regulations in 2018 based upon recommendations. These regulations contain comprehensive guidelines for risk assessment and applying risk based approaches to monitor the AML-CFT system; cross-border correspondent relationships; on-going monitoring of business relationships; simplified due diligence including enhanced diligence of high risk customers; politically exposed persons (PEPs); record keeping including reporting of suspicious transactions; and currency transactions.
Pakistan needs to present its case strongly during the next FATF meeting. Pakistan’s compliance levels are growing, and our successes compare favourably to other FATF member states
When Pakistan was greylisted, it seemed arbitrary and unfounded, especially since other FATF member nations were facing severe money laundering challenges. In fact, a review of money laundering vulnerabilities, methodologies and incidents revealed that England, Canada, Italy, Argentina, Belgium, Brazil, and India were facing similar issues, includingdrug trafficking, fraud, corruption, counterfeiting, piracy, and tobacco smuggling. Although these states had not fully implemented laws and regulations to control money laundering, the FATF never issued warnings nor added their names to a grey list. Once a developing country is placed on an FATF grey list, it slows and raises the costs of international transactions because of the additional time and resources required to perform enhanced due diligence on each transaction made with a grey-listed nation. These advisories become burdensome even when transferring legitimate funds to support families due to additional requirements and interrogation by financial institutions or money services businesses acting as transaction intermediaries.
Why was Pakistan singled out by the FATF? Did our former caretaker Finance Minister Shamshad Akhter and the current government do a poor job of defending Pakistan’s national interests? They happily accepted FATF directives but failed to fully explain that Pakistan was already complying with its ten-point objectives and was successfully implementing its national action plan. We are witnessing the effects of that lost opportunity to date. Pakistan needs to present its case strongly during the next FATF meeting. Pakistan’s compliance levels are growing, and our successes compare favourably to other FATF member states. We need to strongly communicate that Pakistan has successfully won the war against terrorism. We have shown tremendous achievements in hunting down militants and their organisations. We have improved our laws and regulations, and our system is far better than many FATF member states. We are not a facilitator of the drug trade like the western and central Europe and Caribbean countries highlighted in a UNODC report. Our border security is better than the INSCR has reported about most other FATF member nations. The bottom line is that Pakistan’s name was placed on the grey list due to weak representation, and it will continue to remain there until we fight back and promote our progress. However, our current leadership may not be up to the task. Recently, their anaemic foreign policy resulted in a failure to convince sixteen nations to pass a resolution against India for obvious human rights violations in Kashmir. Do we really expect that the current Pakistani leadership can convince the FATF to remove our grey listing? This important issue is far more technical and complicated than human rights violations and requires expert leadership to solve.
The writer is a corporate lawyer and an expert in AML-CFT and Sanctions Compliance. He is the author of several books on corporate and taxation law in Pakistan. He can be reached at [email protected]