It’s been more than two years since Pakistan was placed on Financial Action Task Force (FATF) grey list for the second time. Pakistan was the second country in the South Asian Association for Regional Cooperation (SAARC),which was placed on this list after Sri Lanka. However, Sri Lanka implemented the FATF agenda and was placed back onto the white list in 2019. Whereas, Pakistan is still struggling to achieve the same status. This is not the first time Pakistan has had issues dealing with FATF and its regional organ, the Asia Pacific Group (APG).
Pakistan took almost seven years to introduce the first money-laundering ordinance design to meet global AML-CFT standards. However, FATF objected because the law did not describe penalties for multiple offenses and failed to define associated crimes. In 2009 a Mutual Evaluation Report (MER) was published by the World Bank and adopted by the APG. The MER’s findings stated that Pakistan was non-compliant in meeting FATF standards. This report also highlighted that Pakistan’s economic activities are undocumented, which facilitates money laundering and terrorist financing.
Eventually, Pakistan replaced the prevailing Anti Money Laundering Ordinance 2007 with the Anti- Money Laundering Act, 2010 to address the concerns raised by the AML-CFT watchdog. Despite implementing its new AML law, Pakistan failed to meet the FATF standards related to terrorist financing, their identification, freezing and confiscation of terrorist assets, and was placed on a ‘grey list’ in 2012.
This new law, as drafted is complicated and confusing. It includes multiple bodies and committees with overlapping jurisdiction and scope
After a regime change in 2013, Pakistan’s single handedly fought a full war against terrorism and restored peace in the country. This act by Pakistan was appreciated globally. It was a time when Pakistan was in position to capitalize on its achievements and mobilize the world to paly their role in helping to rebuild our country. However, an internal rift between our civil government and military establishments ruined this opportunity. This confrontation between our civilian government and military erupted into a storm in national politics and compromised the independence of our institutions. It also impacted our economy and damaged foreign relations. Ultimately, Pakistan was again placed in Grey list in June 2018.
Despite our huge sacrifices, Pakistan was branded as an exporter of terrorism and a sponsor of terrorist activities; the country paid a heavy toll fighting the war against terrorism. Pakistan lost approximately eighty thousand lives and incurred financial costs of over $100 billion. It left an overall scar on our economy and foreign direct investment. The severe impact noted on diplomatic fronts and it witnessed deterioration in relations with the international community and global lenders.
Further damage resulted from Pakistan’s weak and ineffective efforts to comply with FATF mandates, which were ranked unsatisfactory for most of its recommendations. The2019 MER also highlighted deficiencies in the risk-based assessment approach, national cooperation and coordination, money laundering, confiscation of provisional measures, and terror financing offences. It also highlighted that no quantum for monetary penalties were defined nor were relevant offenders ever prosecuted. Finally, it pointed out that Pakistan has not completed a comprehensive review of the adequacy of laws and regulations that relate to its highest-risk vulnerabilities based on Non-profit organizations (NPO), areas of compliance including customer due diligence, record keeping, politically exposed persons, and correspondent banking.
Recently, a follow-up report (FUR)is published in September 2020 which gauge the progress of Pakistan on technical compliance deficiencies identified in the MER 2019,it states that minimal progresswas made to address identified technical difficulties. Though there is no major change noted in the MERs technical compliance, Pakistan requested a re-rating of recommendations of 1, 6 and29. As per the FUR, Pakistan was compliant with three recommendations, but non-compliant with four, largely compliant with seven, and partially compliant withtwenty-six FATF recommendations.
In light of the FUR report, Pakistan tried to address most of the points raised in MER through hasty legislation, but it is too early to say whether it will satisfy the AML-CFT watchdog. The most critical issue to be discussed is the role assigned to AML-CFT authority and Self-Regulatory Bodies. Under amended law powers to regulate AML-CFT, related matters assigned to different governmental and professional bodies fall under section 7A of the Amended AML Act 2020.
This new law, as drafted is complicated and confusing. It includes multiple bodies and committees with overlapping jurisdiction and scope. For example, lawyers and accountants, who are considered the most vulnerable for money laundering and terrorist financing have been given the powers to self-regulate themselves. This new law further gives lawyers and accountants powers to act as an appellate authority, which goes against the principles of independence and could lead to conflicts of interest.
The goal should be to carefully craft our legal framework on par with global standards and FAFT requirements. Whereas it seems that government is more inclined to use these laws as a tool of political maneuvering against its opponents.
This impression is strengthened with recent amendments in AML Act and Anti-Terrorism Act where the government has given unrestricted powers to conduct undercover operations, interception of communication etc., which violates people’s fundamental rights of freedom of movement and the ability to conduct unimpeded commerce.
Will FATF recognize Pakistan’s progress, as we have attempted to frame laws to meet their requirements? Let’s hope for the best. After regaining respectability, Pakistan’s biggest challenge will be to finish implementing FATF recommendations, by applying relevant laws based on the letter and spirit of existing laws, while avoiding governmental conflicts and political victimization.
The writer is a corporate lawyer based in the USA and a subject matter expert in White Collar Crimes and Sanctions Compliance. He has written several books on corporate and taxation law in Pakistan. [email protected]