The June deadline for our review of Financial Action Task Force (FATF) of our remaining actions items is approaching and there are still many key areas that the authorities need to pay attention to come out of grey list we placed in June 2018. The general perception in Pakistan is that FATF’s action against us of keeping in the grey list is politically motivated under the influence of the United States of America (USA), India, France and some other members. The debate and discussion around this narrative is more emotional than based on objective evaluation of our persistent failure to meet all the action items agreed in June 2018. Now, with the new government of democrats in USA, there is hope in official quarters that in June 2021, we will be out of grey list.
In the previous meeting, Dr. Marcus Pleyer President of FATF, during his Press conference, informed that we must comply with the remaining three action items by June 2021.
I with co-author of our book Pakistan: Tackling FATF Challenges & Solutions (Dr. Ikramul Haq & Huzaima Bukhari) provided in depth analyses of various aspects of the issue and provided remedial measures in the following articles:
After remaining unsuccessful in last review of FATF, according to a report, Mr. Hammad Azhar said: “As you have seen, today the FATF itself is saying that we are 90 per cent close to achieving this goal…the residual three points on the FATF’s action plan will be completed soon….a lot of work has been done on the three points in which we are partially compliant…Pakistan is perhaps the only country in the world that is under the FATF’s dual scrutiny“. The FATF while keeping Pakistan in grey list decided that it “will remain under dual scrutiny because the MER [Mutual Evaluation Report] process is also ongoing simultaneously”. On this, Mr. Hammad Azhar commented: “So, in parallel our government and departments have also been working day and night on the completion of this process.”
In Press briefing after the decision to keep Pakistan in grey list, FATF President announced: “As all action plan deadlines have expired, FATF strongly urges Pakistan to swiftly complete its full action plan before June 2021… a fully completed action plan including three outstanding areas will be verified and then members will test ‘sustainability’…severe deficiencies still remain relating to terror financing. It means the Mutual Evaluation Report [MER] process is also ongoing simultaneously with three remaining partially complied areas.
The FATF recommendations on the three areas till today remain not fully complied. Pakistan was required to designate criminal investigation to crack down on money laundering and terrorist financing (ML/TF) offenses. On the contrary, the coalition Government of Pakistan Tehreek-i-Insaf (PTI) retracted from its decision of going to Supreme Court for dissolution of a political party after banning it under the terrorism law.
Section 212 of the Elections Act 2017, dealing with the dissolution of a political party, requires a proper reference to the Supreme Court within 15 days after making a declaration that the concerned political party was indulging in acts of terrorism or a foreign aided party or operating in a manner prejudicial to the sovereignty or integrity of Pakistan. It is, in fact, requirement under Article 17(2) of the Constitution of Islamic Republic of Pakistan [“the Constitution] which says: “Every citizen, not being in the service of Pakistan, shall have the right to form or be a member of a political party, subject to any reasonable restrictions imposed by law in the interest of the sovereignty or integrity of Pakistan and such law shall provide that where the Federal Government declares that any political party has been formed or is operating in a manner prejudicial to the sovereignty or integrity of Pakistan, the Federal Government shall, within fifteen days of such declaration, refer the matter to the Supreme Court whose decision on such reference shall be final.”.
[underlined by us for emphasis]
The decision on the recommendation of the Punjab Government to ban the party once again reminded the forgotten order of the Supreme Court judgment in Suo Motu Case No.7 of 2017 [2019 PLD SC 318] holding as under:
If a political party “is a foreign aided political party or has been formed or is operating in a manner prejudicial to the sovereignty or integrity of Pakistan or is indulging in terrorism” the Election Commission may submit a reference to the Federal Government under section 212 of the Elections Act, 2017. When such a reference is submitted the Federal Government may issue a notification declaring that the political party is foreign aided, operating in a manner prejudicial to the sovereignty or integrity of Pakistan and/or indulging in terrorism. Within fifteen days of the declaration/ notification the Government has to refer the matter to the Supreme Court for its consideration and if the Supreme Court upholds the declaration made by the Federal Government the political party stands dissolved… The Election Commission’s report states that….did not provide information about its funding despite repeatedly directing it to do so…”
It is shocking that only two political parties filed income tax returns for tax year 2020 out of 27 registered with FBR and 127 with Election Commission of Pakistan despite section 114(1)(ac) of the Income Tax Ordinance, 2001 makes it mandatory. It is also necessary requirement under section 211 of the Elections Act, 2017 and rule 161(2) of the Elections Rules, 2017.
The entire scenario of efforts with reference to curtaining terrorist financing do not align with the FATF mandates explain in the FATF press release which state that Pakistan should continue to work on implementing the three remaining items in its action plan to address its strategically important deficiencies, namely by:
Since Pakistan’s placement in Grey list in June 2018, Pakistan has been making efforts to comply with FATF mandates and in this regard, we have made significant progress to address the strategic deficiencies highlighted by the watchdog. However, the bar needs to be raised at par with FATF’s satisfaction level regarding their effectiveness and comprehensiveness which has been evaluated as weak in the FATF consolidated risk assessment.
The Mutual Evaluation Report (MER) by Asia Pacific Group (APG) about Pakistan released in 2019 highlighted major deficiencies in our system with reference to terrorist financing, its investigation and prosecution. The major observation raised in the MER was about Pakistan’s top financial crimes investigating agency Federal Investigation Agency (FIA), the report states that it lacks requisite skills, capacity and capability and has failed to prosecute any terrorist financing related case.
The MER highlighted that during the review period of MER Pakistan has convicted fifty-eight individuals so far which is not consistent with Pakistan’s overall profile. MER further stated that sufficient reports were not provided to assess the consistency level of terrorist financing risk in the country and that Financial Monitoring Unit (FMU) does not have any mechanism to transmit information to provincial Counter Terrorism Departments (CTD’s) spontaneously.
Despite such serious concerns, our strategy to counter financing of terrorism has not witnessed any visible change. The major challenges are about the identification of the funds injected in our financial system to support terrorist related activities, and then prosecution of the facilitators who exploit vulnerabilities in our system to accomplish their objectives. However, our law enforcement agencies officials as well our financial institutions personnel’s responsible to prevent the movement of illicit funds are not trained enough to identify the suspicious transaction performed to fund this activity.
The major problem in dealing with this dilemma is our approach in combating financing of terrorism. The proactive approach to assess the risk normally include (i) threat (ii) Vulnerabilities (iii) Consequences (iv) Risk. However, this approach appears to be missing in our national risk assessment performed in 2017 and MER highlighted that National Risk Assessment (NRA) lacks a comprehensive analysis of threats and vulnerabilities and is narrow in scope with gaps in key risk areas including lack of assessment of legal persons and arrangements, Non-profit organizations, cross-border risks, terrorist organizations known to be operating in Pakistan and new technologies.
Pakistan needs to bring all the stakeholders i.e. law enforcement agencies as well as private sector together to play their role in deterring, detecting and disruption of terrorism. These matters can only be tackled with, designing of effective controls, and having a technically skilled workforce who can handle such complex situations. In this regard, Pakistan established a National Action Plan (NAP) with aim to crack down on terrorism and their financing including organizational issues to cut their support.
However, Pakistan could not fully implement it in letter and spirit. It appears that government has no strategy to address the source of funding through legitimate and illegitimate sectors and we still have no proper mechanism to control and monitor fund raising, including Broad charities which are in most cases categorize as sham contributions, funding through legitimate businesses, drug trafficking etc. Through these factors terrorist organization raise money to fund their illicit activities and inject those funds in our financial system. Criminal elements utilize also utilize alternative remittance system to transport their illicit funds.
As per U.S State Department report 2020, alternate remittance system is still a big challenge for Pakistan. Though operating unlicensed money services business (MSB) in Pakistan is illegal, however, it is still practiced in Pakistan due to different reasons and MSB operators are commonly used to transfer and launder funds, these are further disguised through trade invoicing and exploitation of import and export firms for funding terrorist activities.
Our current strategy to handle this critical challenge seems impractical. The main factor which plays an important role to curtail the financing of terrorism includes the following:
Unfortunately, we have still not developed enough controls to comply with any of these strategies. Our law enforcement agencies personal as highlighted in MER are not well trained to identify the terrorist financing activities. Despite facing significant Terrorist Financing threats by wide range of terrorist organizations, our LEA’s and Private sectors need to improve basic understanding of terrorist financing risk.
The lack of understanding about terrorist financing is adversely affecting the ability of our LEAs to control this curse. Also, our legal framework to deal with illicit flow of funds is complicated and confusing. It is unfortunate that even after an unsuccessful attempt in February 2021 to come out of grey list, the newly introduced laws, rules, and regulations also are not at par with international standards, and at many levels are in contrast with the principles of independence, ultimately leading to conflict of interest.
Moreover, delegating powers to multiple bodies and committees with overlapping jurisdictions and scope which are run by politically exposed persons is a real threat and risk for our system. Moreover, regulating real estate sector through Federal Board of Revenue (FBR) is questionable. Our policy makers need to understand that tax collection and compliance with financial crimes regulations are two different segments and FBR officials lack the aptitude to investigate and prosecute terrorist financing related matters. This exercise has now become a source of corruption rather than curtailing the illicit flow of funds.
Our determination regarding implementation of U.N resolution 1267 and 1373 is still undefined. Both resolutions require targeted sanctions as well as criminalization of terrorist financing, ensuring border security and actions against arms trafficking, freezing of terrorist assets without delay, effective regulations of Money or value transfer services to stop hawala transactions, effective control on cash couriers, checks on raising funds through non-profit organization etc. Though Pakistan took few steps to implement both resolutions, however, our efforts could not satisfy the international community.
Our next deadline is not far, during the remaining time, we must address all these issues to satisfy the global community. The most critical portion of remaining actions items includes the compliance of U.N resolution 1267 and 1373. Their strict implementation will automatically solve our serval issues including cross border cash disruption, alternative methods, NPOs roles and imposition of sanctions on individuals and entities. The goal can only be achieved through proper planning and effective strategy drafted and implemented by the skilled professionals. No other way forward is available to save us from continuous embarrassment in the eyes of international community.
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Abdul Rauf Shakoori, Advocate High Court, is a subject-matter expert on AML-CFT, Compliance, Cyber Crime and Risk Management. He has been providing AML-CFT advisory and training services to financial institutions (banks, DNFBPs, Investment companies, Money Service Businesses, insurance companies and securities),, government institutions including law enforcement agencies located in North America (USA & CANADA), Middle East and Pakistan. His areas of expertise include legal, strategic planning, cross border transactions including but not limited to joint ventures (JVs), mergers & acquisitions (M&A), takeovers, privatizations, overseas expansions, USA Patriot Act, Banking Secrecy Act, Office of Foreign Assets Control (OFAC). Over his career he has demonstrated excellent leadership, communication, analytical, and problem-solving skills and have also developed and delivered training courses in the areas of AML/CFT, Compliance, Fraud & Financial Crime Risk Management, Bank Secrecy, Cyber Crimes & Internet Threats against Banks, E – Channels Fraud Prevention, Security, and Investigation of Financial Crimes. The courses have been delivered as practical workshops with case study driven scenarios and exams to insure knowledge transfer. His notable publications are; Rauf’s Compilation of Corporate Laws of Pakistan, Rauf’s Company Law and Practice of Pakistan, Rauf’s Research on Labour Laws and Income Tax Etc. His articles includes; Revenue collection: Contemporary targets vs. orthodox approach, It is time to say goodbye to our past, US double standards., Was Due Process Flouted While Convicting Nawaz Sharif?, FATF and unjustly grey listed Pakistan, Corruption is no excuse for Incompetence, Next step for Pakistan,, Pakistan’s compliance with FATF mandates, a work in progress, Pakistan’s strategy to address FATF Mandates was Inadequate, Pakistan’s Evolving FATF Compliance, Transparency Curtails Corruption, Pakistan’s Long Road towards FATF Compliance, Pakistan’s Archaic Approach to Addressing FATF Mandates. The recent book, coauthored with Huzaima Bukhari & Dr. Ikramul Haq is Pakistan Tackling FATF: Challenges & Solutions
available at: https://www.amazon.com/dp/B08RXH8W46
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