Pakistan’s move from a reactionary model to a proactive/preemptive model when it comes to anti-money laundering (AML) and countering terror financing (CFT) continues as the country is pushing pieces of legislation – one after the other – to comply with a 27-point action plan the Financial Action Task Force (FATF) had given it in June 2018, while placing Pakistan on the dreaded “grey list”.
The Financial Action Task Force (FATF) listing has been a matter of international embarrassment and internal turmoil for Pakistan since the country was put on the so-called “grey list”. However, after 12 years of being placed on and off the grey-list, it seems Pakistan is finally at the precipice of plugging the profusely bleeding financial system that provides loopholes for terror financing (TF) and money laundering (ML). The passing of the third FATF-related bill by the parliament yesterday is a step in this direction, allowing for the exchange of criminals and information with other countries.
The FATF itself has no “grey” or “black” classification, but it does identify jurisdictions with “serious strategic deficiencies” in two documents issued at the end of the plenary held tri-annually.
The black list refers to the first document, identifying stark systemic issues and deficiencies, and include countries like Iran and North Korea.
The grey list implies the country was put in the second document, which “calls on its members to apply enhanced due diligence measures proportionate to the risks arising from the deficiencies associated with the country”. The deficiencies relate to AML/CFT.
This is not the only time Pakistan was put in the grey list. The first time was at the end of the February 2008 plenary. Seven years later, citing AML/CFT improvements, Pakistan was taken off of the list. This victory was short-lived, as concerns over lack of AML/CFT legislation arose once again, and Pakistan was back on the list in June 2018 to pressure the country into plugging holes in terror financing and activities of UN-designated terrorists, a move largely spearheaded by the US.
While the FATF is a technical body, this goes to show international powers (most notably India) are keen on leveraging the money laundering watchdog as diplomatic leverage in geo-politics.
Pakistan was also criticized internationally for conducting symbolic raids on nefarious outfits in the days leading up to the plenaries, and never seriously patching the ML/TF cracks in the system.
In October 2019, the Asia Pacific Group (APG) on Money Laundering, a regional affiliate of FATF, found critical gaps in Islamabad’s reform plans on stemming the flow of funds to terror organizations. Despite major achievements like the conviction of Hafiz Saeed, several of the 27 points in the action plan were not addressed, resulting in Pakistan’s continued presence on the grey list.
Progress in 2020
Earlier this year, the FATF declared Pakistan compliant with 14 of the 27 points, with October 2020 the new deadline for complying with the remaining 13 points. Last week, Pakistan’s Foreign Minister Shah Mehmood Qureshi said that the government had prepared eight bills for legislation on ML/TF to achieve compliance on these remaining points. Qureshi said consultations were held with the Law Ministry, Finance Ministry, Financial Monitoring Unit (FMU), and experts dealing with money laundering and counter-terrorism issues.
“The prime minister wishes that the opposition be taken into confidence on this matter of national importance […] time is of the essence here. We must act timely so that the Asia Pacific Group, of which Pakistan is a member, can place the government’s practical steps before the plenary which will then decide whether the obligations Pakistan was subjected to were fulfilled or not,” he said.
The passing of said bills will be the preliminary step, as Pakistan has to then ensure their timely and uncompromising implementation. The 27 points are designed to create systems that plug the holes in the international financial system and systematically cut off terror groups and crime syndicates from much-needed cash for continued operations.
The fresh checks on money transfers, new constraints on dubious transactions, and tightening of other existing legislation are welcome, needed, and positive changes that put Pakistan on the path to securing monetary pipelines and stemming organized crime.
The author serves as a Research Fellow at the Center for Research and Security Studies, Islamabad, is a freelance journalist. He can be reached via zeeshan[dot]salahuddin[at]gmail.com and tweets @zeesalahuddin.
 The 13 remaining points are:
- Pakistan will have to demonstrate effectiveness of sanctions including remedial actions to curb terrorist financing in the country;
- Pakistan will have to ensure improved effectiveness for terror financing of financial institutions with particular to banned outfits;
- Pakistan will have to take actions against illegal Money or Value Transfer Services (MVTS) such as Hundi-Hawala;
- Pakistan will have to place sanction regime against cash couriers;
- Pakistan will have to ensure logical conclusion from ongoing terror financing investigation of law enforcing agencies (LEAs) against banned outfits and proscribed persons;
- Pakistani authorities will have to ensure international cooperation based investigations and convictions against banned organizations (list provided to Pakistan) and proscribed persons (list provided to Pakistan);
- The country will have to place effective domestic cooperation between Financial Monitoring Unit (FMU) and LEAs in investigation of terror financing
- Prosecution of banned outfits and proscribed persons (list provided to Pakistan)
- Demonstrate convictions from court of law of banned outfits and proscribed persons (list provided to Pakistan)
- Seizure of properties of banned outfits and proscribed persons (list provided to Pakistan);
- Conversion of madrassas to schools and health units into official formations (list provided to Pakistan);
- To cut off funding of banned outfits and proscribed persons; and
- Pakistan will have to place permanent mechanism for management of properties and assets owned by the banned outfits and proscribed persons (list provided to Pakistan).