FATF: one shade of grey; 50 explanations & excuses

ASWJ chief and members of other proscribed organisations will present themselves as candidates for upcoming elections

As the interim finance minister and her team left for Paris to present Pakistan’s case before the FATF plenary, the bank accounts of a notorious fourth scheduler were being unfrozen and he was otherwise preparing to join mainstream political processes. Months of hard work on the part of Pakistan’s government and banking institutions, as well as legitimate non-state actors, have been overshadowed by news that the ASWJ chief and members of other proscribed organisations will present themselves as candidates for the upcoming elections. Sadly, such events, in combination with an inability to demonstrate stronger action against those involved in the movement of criminal and terror-affiliated money speaks louder than anything Pakistan’s detractors could say and risks discouraging even those who most want Pakistan to do well on its upcoming mutual evaluation with the APG. In the estimation of the international community, the appearances of the present outweigh any future probabilities that fourth schedulers are electable.

The unfortunate co-occurrence of an interim government, an election and its aftermath, over the same time period as the implementation of the new counter-terror/anti-money laundering action plan will not provide any of us with any form of indemnity when the mutual evaluation takes place. The evaluation, our last chance to get off the watch list, is an evidence-based task — we are either making progress towards specified milestones or we are not. Similarly, the achieved sub-tasks, eg, new or revised regulations, are either sufficiently effective or they are not.

It follows that one area of error which the interim government must avoid is to underestimate or fail to allocate sufficient financial and appropriate human resources for the time-barred tasks ahead. To do so would not only lead to delays in achievement of tasks that would severely disrupt the 15-month timetable, but also compromise on the effectiveness of outcomes. Resource allocation was actually a difficulty after the last mutual evaluation and in relation to the new regulatory environment introduced in response to FATF recommendation 8, the technical standard dealing with abuse of non-profits for terror financing and money laundering, Pakistan’s NGO sector continues to suffer the consequences.

Recommendation 8 was one of those standards on which Pakistan received a low rating of “partially compliant.” According to the 2009 Mutual Evaluation Report, Pakistan could improve its ranking on recommendation 8, if the following deficiencies were addressed:

Strengthen the regulations that require NPOs to keep records on sources of funds, financial transactions and beneficiaries.

There is no effective monitoring or supervision of the NPOs that account for a significant portion of the financial resources of the sector and its international activities.

The information sharing amongst competent authorities is hindered by the fragmentation of the registration system, the lack of enforcement and the lack of computerisation.

A large segment of the NPO sector remains informal, ie, neither registered not licensed.

Support long-term efforts to streamline and improve the fragmented regulatory framework for NPOs in Pakistan. A comprehensive risk assessment of the sector and identification of NPOs or categories of NPOs that pose greater ML or TF risk is needed.

Expand programmes of outreach and training to include greater focus on the risks of abuse for money laundering and terrorism financing.

Consistent with a security-focused approach to regulations related to counter-terrorism, monitoring and supervision of NPOs was handed over to the intelligence services. No-Objection Certificates (NOCs ) for each project or activity NPOs would undertake became de rigueur and is handled differently in each province. Concurrent with re-registration, NGOs were required to apply for MoUs and undergo multiple background checks by several agencies. Because time, human resources and funds were in short supply for the implementation of these new policies, other deficiencies followed. Guidance and protocols were not very detailed or altogether lacking leading to confusion on multiple fronts as well as sketchy compliance. Re-registration processes for International NGOs that were not meant to take more than 90 days have taken more than a year and some organisations’ registrations have been pending for more than 2 years.

For local NGOs operating in Pakistan, the problems of compliance are no better. As the numbers range from 45,000 to as many as 100,000, those that are registered have done so under a variety of acts, ordinances and legislation and there is no central database for all. For those receiving foreign funds and committed to compliance with the regulations there have been long delays in receiving documentation which are a direct result of too few resources. Earlier this month, a set of new NGO regulations was made available by the SECP and in their present form, these also promise to incur high transaction costs for the government.

The problems described above are by no means unique to Pakistan. The FATF Secretariat and members have acknowledged that the FATF’s recommendation 8 has had unintended, damaging consequences for the non-profit sector and its legitimate and much-needed activities. This recommendation and its Interpretive Note were revised in 2016 to emphasise the need for realistic risk-based approaches to sector assessment and scrutiny of individual organisations, combined with outreach, as part of regulatory policies that allow NGOs to do their legitimate work while still supporting and complying with regulations.

There are obvious limits as to how much any government can allocate towards implementation of its action plan; especially when time is an important factor. Perhaps the current and next governments should not try to do it all themselves. Much time could be saved by employing international experts that have been supporting other countries with meeting the same obligations; eg, for interpreting what the FATF is actually demanding and setting work plans corresponding to each area of the action plan. In the case of legitimate non-profits which want to comply with Pakistan’s international obligations, the requirement for government outreach could be met through partnerships and cost sharing. Well-targeted, specific requests for international assistance could support much of the rest, as it already has with some support to the State Bank.

Published in The Express Tribune, June 30^th, 2018.

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