ISLAMABAD – About a week before FATF meets in Paris to review, among otherthings, Pakistan’s case, its regional affiliate (APG), has released anevaluation report on Pakistan’s compliance vis-à-vis the immediate outcomesand recommendations outlined by FATF a year and half ago. That report hasbeen causing eager ones to jump to conclusions, Business Recorder hasreported.
Although speculation is rife as to what will transpire in Paris, the APG’sevaluation report provides some useful context as to what to expect.Though, it needs to be mentioned that the said report covers progress madeby Pakistan until October 2018 and verified on-site by APG. Besides thisreport’s contents, the FATF review is expected to review a year’s worth ofprogress made by Pakistan a year since then.
The APG report details what keeps Pakistan from achieving full compliancewith FATF demands. Though some progress is mentioned as evident, many ofthe issues are recurring in nature. For instance, the report, on variousplaces, highlights that Pakistani authorities, in general, do not have acomprehensive understanding of risks posed by money-laundering (ML) andterrorist-financing (TF) activities, besides hazards caused by legalpersons, trans-national risks, new technologies, and terrorist groups.
As a result, the inter-agency coordination on policy and operational levelsis limited. The authorities do not follow a risk-based approach inimplementing countervailing measures that could be commensurate with the MLand TF risks. In addition, sharing of financial intelligence (under FMUumbrella) with provincial authorities is minimal and subject to courtsgranting permissions. This has the effect of enforcing a level ofinvestigations, prosecutions, and convictions that isn’t at part with therisks faced.
The report comes down hard on the regulators. For instance, SBP isfollowing a risk-based approach to counter ML and TF risks, but it doesn’thave “clear understanding” of those risks affecting its regulated sectors.The report takes fault with “limited understanding” of the SECP’sregulatory supervision for those risks. As a result, most of the financialsector and the entire non-banking financial sector are unable to identifybeneficial owners and do not apply targeted financial sanctions.
The report also states that organizations like Pakistan Post and NationalSavings have no enforcement requirements against ML and TF risks. Thenon-profit sector is also exposed as there is no oversight framework tomonitor ML and TF activities that may be taking place through trusts andwaqfs (charitable endowments). In addition,
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The report identifies a number of priority actions. These include havingbetter understanding of ML and TF risks, inter-agency dissemination and useof financial intelligence to counter those risks, improving the lawenforcement and judicial capacity to catch ML and TF crimes, implementingtargeted financial sanctions for TF, monitoring and investigating ‘at-risk’non-profits, and extending supervisory framework to Pakistan Post, NationalSavings, lawyers, accountants and real-estate agents, among others.
Even discounting the fact that the report doesn’t evaluate current year’sprogress, the document doesn’t portray Pakistan’s case as a lost cause. Thereport itself mentions that Pakistan had a “mixed level of technicalcompliance” on a majority of FATF’s 40 recommendations and “minor” or“moderate” technical shortcomings for the remaining. On a majority ofrecommendations, Pakistan is showing a varying degree of compliance(partially-compliant: 26, largely-compliant: 9), with only four areas thatwere non-compliant.
At this juncture, it isn’t about Pakistan falling short of full complianceon each of those recommendations. What must be noted, instead, is thetrajectory of improvements since grey-listing first surfaced in February2018. Pakistan has repeatedly given high-level political commitments forremedial actions. Regulators are adapting to risk-based approach andenforcement agencies are improving capacity. An 18-month timeframe wasn’tenough to show full compliance. The positive trend towards domestic AML/CFTreforms and multilateral facilitation may help Pakistan remain on the greylist until clouds disappear.
