Compliance failure to have serious implications for Pakistan
The Financial Action Task Force, an inter-governmental body that combats threats to the international financial system, has given Pakistan another four months to avoid being placed on its blacklist.
The report, Outcomes of FATF Plenary 19-21, February 2020, says all deadlines in the action plan have expired. “While noting recent and notable improvements, the FATF again expresses concerns given Pakistan’s failure to complete its action plan in line with the agreed timelines and in light of the Terrorist Financing risks emanating from the jurisdiction,” it said.
The global watchdog for illicit financial activities had put Pakistan on its grey list in June 2018 because of weaknesses in the country’s Anti-Money Laundering (AML) and Countering Financing of Terrorism (CFT) laws.
The grey list refers to countries or jurisdictions under increased monitoring because of strategic AML and CFT deficiencies. After being placed on the grey list, Pakistan had developed an action plan with the FATF to address those deficiencies, but fell short of targets.
“The FATF strongly urges Pakistan to swiftly complete its full action plan by June 2020,” the report said, noting Pakistan has largely addressed 14 of 27 action items, with varying levels of progress made on the rest of the action plan.
“Otherwise, should significant and sustainable progress especially in prosecuting and penalising TF not be made by the next plenary, the FATF will take action, which could include the FATF calling on its members and urging all jurisdictions to advise their FIs to give special attention to business relations and transactions with Pakistan,” the report said.
This simply means that failure to fully comply with the FATF action plan will result in getting downgraded to the blacklist, which will have serious implications for Pakistan.
Being on the blacklist means our banking system will be regarded as one with poor controls over AML and CFT standards. This can affect capital inflows and lower investment to Pakistan and hurt the ongoing IMF programme. Raising funds from global capital markets will be difficult, which will undermine our ability to pay our foreign debt.
The FATF doesn’t impose any sanctions directly, but its guidelines are taken seriously by global financial institutions. This means overseas Pakistanis who send remittances to Pakistan will be subject to more scrutiny. The traders who deal in imports and exports will also suffer because they have to make and receive payments with the help of international banks that may either increase the cost for our banks or simply not do business with us.
FATF comprises experts from Indonesia, China, the UK, Maldives, US, and Turkey. Since Pakistan is a member of the Asia Pacific Group on money laundering, which falls under the FATF’s purview, it has to ensure technical compliance with the AML and CFT standards.
Pakistan has remained on and off FATF’s grey list. The last time we were removed from this list and placed on the white list was in February 2015. During the latest review, which started on Sunday February 9, Pakistan was able to get support from China, Turkey and Malaysia because of the progress it has made in the last one-and-a-half years. This helped the country avoid the blacklist.
However, the country’s rank dropped to 23 in the global AML Index 2019, two levels below the previous year’s position. The country improved its score by 0.04 points to 6.45 points in 2019 on the Basel AML Index, an independent annual ranking that assesses the risk of money laundering and terrorist financing around the world.
Among 125 countries assessed for the 2019 report, Pakistan was among the 74 countries with a risk score of 5.0 or above. These were the countries that could be loosely classified as having a significant risk of money laundering and terrorist financing, the report said. With 2.68 points, Estonia has the lowest level of risk, while Mozambique faces the highest risk with 8.22 points.
Money laundering and terrorist financing continues to cripple economies, distort international finances and harm citizens around the globe, says Basel AML Index Report 2018. It estimated the amount of money laundered worldwide to be from $500 billion to a staggering $1 trillion.