Pakistan’s Efforts to Exit the FATF Grey-List


The Financial Actions Task Force (FATF) is charged with the task to combat money laundering (ML) and terror financing (TF) to protect the International Financial System. The decisions of the FATF in the case of Pakistan are inimical to the integrity of this intergovernmental organization as it shows the non-uniformity in its dealing with cases of different states. For instance, Pakistan, which has accomplished most of the tasks given by the FATF, is still on the grey-list while the FATF does not question India for the money laundering of billions of dollars and sponsoring terrorism in the region. However, Pakistan has shown unprecedented progress and successfully executed the action plan. This time FATF must deter the political pressure and remove Pakistan from the Grey-list.

Initially, in response to the grey-listing of Pakistan by the FATF, the government took swift law enforcement measures such as there was a nationwide crackdown against the terror organizations. The militant group Jamaat-ud-Dawa and its affiliated organizations were declared banned by the government of Pakistan.  Pakistan also seized hundreds of properties that were owned by the group and also arrested the proscribed persons and their associates. After this development, the key regulators, ministries, and authorities issued a series of guidelines and administrative regulations which were aimed to implement the resolutions 1267 and 1373 of the UNSC and also to update the frameworks related to AML and CFT.

Moreover, the guidelines and several key regulatory orders were passed by Pakistan between June and October of 2019 to make its case strong before the FATF. Firstly, the Federal Government via MOFA passed the UNSC Freezing and Seizure Order 2019.  The Ministry of Foreign Affairs released guidelines that were aimed to implement resolution 1267 of the United Nations Security Council.  The implementation of the 1267 resolution holds significant importance in the Action Plan of the FATF. It has included the implementation of a travel ban, arms embargo, and financial sanctions.

The guidelines to implement the Resolution 1373 of the UNSC issued by NACTA aimed to create awareness and bring improvement in the coordination and cooperation between law enforcement agencies, ministries, regulators, and financial institutions all over Pakistan on the obligations which are mentioned in UNSC 1373. This resolution demands that the countries develop mechanisms to take stern actions against the proscribed persons and banned terrorist organizations.

Moreover, the Security and Exchange Commission of Pakistan (SECP) and State Bank of Pakistan issued their guidelines on frameworks of CFT and AML. The SECP also issued guidelines for banning the informal ways to transfer money such as Exchange Companies “B” and Money or Value Transfer Services (MVTS). For the Non-Profit Organizations, NACTA-SECP issued the guidelines.  The guidelines and regulations, which have been issued and passed by several governmental bodies, will have a far-reaching effect on the enforcement of law in Pakistan and significant structural changes will occur throughout the insurance and banking sectors of Pakistan. Anyhow, the meeting of the FATF in October 2019 concluded that Pakistan has complied with 5 points out of 27 as mentioned in the Action Plan and therefore it would remain on the grey-list for further compliance.

Pakistan undertook an updated National Risk Assessment (NRA) after the meeting of the FATF in October 2019. This updated assessment considered and viewed all the inherent vulnerabilities of Pakistan and threats of ML and TF by using a coordinated approach. In this scenario, while analyzing the implications of ML and TF, several parameters were used.

Furthermore, the National FATF Coordination Committee (NFCC), a high-powered 12-member committee, was established in 2019 to complete all the given tasks by the FATF till December 2019. It was a clear indication that Pakistan is more serious to comply with the Action Plan than ever before. To bring the informal economic sectors of Pakistan, the government of Pakistan took various steps. Firstly, as the NRA 2019 identified that the stones/metals industry, real estate sector, and jewelry are high-risk sectors for the financing of terrorists and money laundering, therefore the Federal Bureau of Revenue (FBR) was given charge to regulate these sectors.

Secondly, the task of the regulation of the lawyers, law firms, and legal advisors has been given to the Pakistan Bar Council Ministry of Law and Justice. Moreover, the Institute of Cost and Management Accountants and the Institute of Chartered Accountants would regulate their respective members and the remaining categories of Accountants would be regulated by the FBR. Thirdly, the Financial Monitoring Unit (FMU) would be empowered to regulate the financial transactions which are happening via Pakistan Post.

Furthermore, some important laws have been passed through the parliament which was required as per the Action Plan. The Foreign Exchange Regulation Act (Amendment) Bill 2020 has been passed by the parliament.  The monetary instruments like bullion and securities and the movement of foreign currency are governed by the FERA Act. The amendment in this act is aimed to improve the governance of these areas by harsher punishments and allowing the SBP to also regulate these areas.

From February 2020 to October 2020, the Parliament passed a total of fifteen laws based on FATF’s Recommendations to address the remaining 13 points on the 27-Point Action Plan as asked by the FATF in the meeting in February 2020. The last plenary meeting of FATF was held in February 2021, though the officials acknowledged Pakistan’s significant progress and announced that Pakistan has largely addressed 24 out of 27 action items but the organization could not circumvent the political pressure.

The Asia Pacific Group, a regional body of FATF, in its second and latest Mutual Evaluation Report (MER), has found that Pakistan has been declared compliant or largely compliant on recommendations to combat money laundering and terror financing. This is also a matter of fact that Pakistan’s compliance with the Action Plan is unmatched when it comes to the progress of other countries in the Grey-list.

In short, despite Pakistan’s significant and unusual progress vis-à-vis Action Plan, the FATF has been biased in the case of Pakistan. To maintain the credibility of the organization and uphold the mandate, the FATF must remove Pakistan from the Grey-list as there is no justifiable reason left for FATF to keep Pakistan on the list. The FATF is going to decide about Pakistan’s status this week, and rather than becoming a pawn in the hands of “few”, the organization should take the rational decision.

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