FATF Post-Orlando: Pakistan Off the Hook But What Next?

Pakistan is off the hook – at least for the time being. A statement after the plenary meeting of the Financial Action Task Force (FATF) held at Orlando, Florida, highlighted the need for further actions needed for implementing the 27-point Action Plan (AP) agreed upon a year ago.

It stated that Pakistan had missed the January and May deadlines for actions on ground. The plenary also urged Pakistan to “swiftly complete its action plan by October 2019.”

The United States, the United Kingdom, France and India were the main proponents behind the decision to grey-list Pakistan, an embarrassing designation that implies poor standards in combating financial crimes.

India — co-chair of the joint group of FATF and the Asia Pacific Group — wants Pakistan to be placed on the Paris-based watchdog’s much-worse blacklist. Since June 2018, Pakistan has taken several steps required under the FATF AP, which include no foreign currency transactions without a national tax number, and a ban on currency change of up to $500 in the open currency market without submission of a national identity card copy.

It has also proscribed several militant groups and seized their assets, including Jamat-ud-Dawa (JuD), and Jaish-e-Mohammad (JeM).

Continued concerns Pakistan’s governance structures do not demonstrate a proper understanding of the TF (terrorist financing) risks posed by the Islamic State/Daish (IS), Al Qaida (AQ), JuD, Falah-e-Insaniyat Foundation (FiF), Lashkar-e-Taiba (LeT), JeM, the Haqqani Network, and persons affiliated with the Taliban.

Deficiencies in imposing sanctions against financial institutions for Anti-Money Laundering (AML)/Combating the Financing of Terrorism (CFT) violations.

Insufficient demonstration of cooperation between the federal and provincial authorities to prosecute terrorism financing commensurate with its risks.

Lack of measures to prevent illicit cross-border transportation of currency, and lack of cooperation with the customs. Lack of implementation of targeted financial sanctions against proscribed groups under the United Nations Security Council (UNSC) Resolutions 1267 and 1373.

The real test ahead Pakistan must complete all 27 points of the FATF AP by September 2019, including the following due by end of September:

Demonstrate that law enforcement agencies (LEAs) are identifying and investigating the widest range of terror finance (TF) activity (e.g. domestic or transnational provision, collection, movement, or use of funds). Particular focus should be on key aspects of the TF risk profile including:

– Cash smuggling

– Illegal Money or Value Transfer Service (MVTS)

– Narcotics trafficking

– Misuse of Non-Profit Organizations (NPOs)

– Proceeds of smuggling funding the terror/proscribed groups (listed above)

– Demonstrate that TF investigations and prosecutions target designated persons and entities involved in, aiding or abetting terror groups (listed above).

– Demonstrate that TF prosecutions successfully result in effective, proportionate and dissuasive sanctions against natural and legal persons convicted of TF offences.

– Demonstrate that supervisors’ actions have an effect on compliance by financial institutions with their AML/CFT obligations

– Demonstrate implementation of cross-border currency and Bearer-Negotiable Instrument (BNI) controls at all ports of entry, including applying effective, proportionate and dissuasive sanctions when there are instances of false declaration or failure to declare.

– Demonstrate implementation of the integrated database for monitoring and enforcing SBP’s currency regulation regime at all ports of entry.

The path to salvation The overall requirement is for Pakistan to provide risk assessment-based guidelines by September to show that its financial institutions are able to take immediate actions against designated persons and entities.

Some advice for a solid and credible way forward came from a number of prominent experts on finance, economy and security such as Dr. Sohaib Suddle, Ehsan Ghani, General (retd.) Ijaz Awan, Sakib Sherani, Advocate Sarwar Khan and a few key government officials (who requested not to be named) at a consultation.

Organized by the independent think tank Center for Research and Security Studies (CRSS) on how Pakistan can pass the FATF scrutiny, the round-table yielded the following policy recommendations on how Pakistan can both technically and politically fend off FATF challenges.

– The Federal Investigation Agency (FIA) (instead of the National Counterterrorism Authority (NACTA)) should be designated as the focal entity to promote meaningful coordination, better reporting, quality investigation and effective prosecution.

– A national task force on money laundering should be established.

– Current State Bank of Pakistan (SBP) regulatory frameworks for mitigating risks, money laundering, terrorism financing, hundi/hawala, currency smuggling, and MVSBs must be updated, and the existing loopholes immediately rectified.

– A mitigating risks matrix should be prepared for high risk sectors in relation to money laundering and terrorism as per National Risk Assessment 2018.

– Contingency planning is essential against the possibility of continued grey-listing or blacklisting.

– FIA should have an anti-money laundering directorate to investigate major cases and also to act as the forum for capacity-building of investigators, prosecutors and judges and promote coordination and international best practices.

– Strict implementation of the provisions of the Anti-Terrorism Act (1997) must be ensured.

– To enhance coordination between relevant authorities four sub groups must be constituted, i.e.

– Law and Policy Group comprising Ministries of Foreign Affairs, Finance, Interior and Law

– Regulatory Group comprising of SBP, Securities and Exchange Commission of Pakistan (SECP) and NACTA

– Enforcement Group comprising of FIA, Federal Bureau of Revenue (FBR), National Accountability Bureau (NAB), Anti-Narcotics Force (ANF), Counter Terrorism Departments (CTDs), and other LEAs.

– Focal/Monitoring Group for banned outfits.

– NAB must focus on the most critical cases to close.

– Mutual Legal Assistance (MLA) mechanisms with other countries should be strengthened and improved; efforts should be made to encourage responsiveness and cooperation.

The author is Editor-in-Chief at Matrix Mag.