ISLAMABAD: The Financial Action Task Force (FATF) announced on Friday that it was retaining Pakistan on its grey list for four more months after which Islamabad might face action including being blacklisted if it failed to make any significant progress on the inter-governmental body’s 27-point action plan.
“Pakistan needs to do more and it needs to do it faster. Pakistan’s failure to fulfil FATF’s global standards is an issue that we take very seriously,” FATF President Xiangmin Liu said while addressing a news conference in Paris.
“The FATF is giving a very clear warning [that] if by February 2020 the country has not made significant progress, we would consider further actions, which potentially include placing the country on the Public Statement, also referred to as the blacklist,” he added.
This is for the first time since February last year that the global money-laundering and terror-financing watchdog has warned that it could blacklist Pakistan and also ask its members and other nations to issue an advisory to their business community against investing in the country.
The FATF president said If Pakistan failed to make progress across the full range of its action plan by the next plenary meeting, the global body could urge its member states to advise their foreign investors to give “special attention” to business relations and transactions with the country.
The FATF president acknowledged that Pakistan had made some “tangible progress” under its new government and the global body welcomed it. However, he pointed out that the majority of the issues under the action plan still remained outstanding including effective measures to prevent terror financing.
He said despite a high level commitment from Pakistan to fix these weaknesses, it had not made sufficient progress and now the action plan deadlines had expired.
“The main purpose of giving a warning to Pakistan is not to punish, but rather to incentivise it to make more changes and make those changes faster,” he remarked.
The FATF also issued a press statement, elaborating that Pakistan had only largely addressed five of the 27 points in the action plan, with varying levels of progress made on the rest of them.
The FATF’s decision to retain Pakistan on the grey list is in line with the government’s expectations. However, the government had not expected a stern warning of being blacklisted, particularly when China is the president of the global body. There were little chances of Pakistan being blacklisted at the FATF’s plenary meeting this month because of the Pakistani civilian and military leadership’s commitments to plug the loopholes in combating terror financing and money laundering. But Pakistan had not expected a warning at the same time.
Although, the government was unable to comply with the majority of the points in the action plan, it did make efforts to improve the situation.
In February last year, the FATF had decided to place Islamabad on the grey list with effect from June 2018. Pakistan had been given a 27-point ambitious action plan that required it to completely choke terror financing and monetary laundering, dismantle terrorists’ sanctuaries, and make the banking and non-banking financial regulations more stringent.
“Pakistan’s delegation reaffirmed its political commitment to fully implement the action plan”, according to a statement issued by the finance ministry after the FATF announcement. It added that the plenary meeting had decided to maintain the status quo on the FATF action plan and allow the usual 12 months observation period for the mutual evaluation report of the global watchdog’s Asia Pacific Group (APG).
Economic Affairs Minister Hammad Azhar tweeted that the global body had noted the progress already achieved by Pakistan during the last one year, especially in the last four months.
“However, more work needs to be done as our action plan is perhaps the most ambitious and challenging ever handed out to any country,” he added.
“A coordinated effort from all regulators, LEAs, federal and provincial government departments is already underway in this regard.”
The APG presented Pakistan’s mutual evaluation report at the FATF plenary meeting, which discussed in detail the country’s compliance with 40 recommendations of the FATF. The APG in its mutual evaluation report did not agree with Pakistan’s assessment that it faced “medium” category risks of money laundering and terror financing.
The mutual evaluation report found money laundering and terror financing as high-risk category areas in Pakistan. The report showed that of the 40 recommendations of the FATF on curbing money laundering and combating the terror financing, Pakistan was fully compliant on one only.
It was “largely compliant” on nine, “partially compliant” on 26 and “non-compliant” on four recommendations.
On anti-money laundering/combating financing of terrorism (AML/CFT), Pakistan was found moderately effective only on one benchmark while on the remaining nine its effectiveness was declared low as of the cut-off date of October 2018.
Due to these adverse findings, the APG placed Pakistan on its expedited enhanced follow-up reporting list.
In its statement, the FATF underlined that since June 2018, Pakistan had made progress towards improving its AML/CFT regime, including the recent development of its money laundering / terror financing (ML/TF) risk assessment.
The FATF said Pakistan should continue working on implementing its action plan to address its strategic deficiencies, including by adequately demonstrating its proper understanding of the terror-financing risks posed by the terrorist groups, and conducting supervision on a risk-sensitive basis. Pakistan should also demonstrate that remedial actions and sanctions are applied in cases of AML/CFT violations, and that these actions had an effect on AML/CFT compliance by financial institutions.
There is also a need to demonstrate that competent authorities are cooperating and taking action to identify and take enforcement action against illegal money or value transfer services.
The FATF said Pakistan should also demonstrate that its authorities were identifying cash couriers and enforcing controls on illicit movement of currency, improve inter-agency coordination including between provincial and federal authorities on combating terror financing risks.
“[Pakistan should] demonstrate that its law enforcement agencies are identifying and investigating the widest range of TF activity and that TF investigations and prosecutions are targeting designated persons and entities, and those acting on behalf or at the direction of the designated persons or entities.
The country has also been directed to demonstrate that terror financing prosecutions resulted in effective, proportionate and dissuasive sanctions and enhancing the capacity and support for prosecutors and the judiciary.
There was also a need to demonstrate effective implementation of targeted financial sanctions supported by a comprehensive legal obligation against all 1,267 and 1,373 designated terrorists and those acting for or on their behalf, including preventing the raising and moving of funds, identifying and freezing assets (movable and immovable), and prohibiting access to funds and financial services.
The FATF said Pakistan should also work on enforcement against terror-financing violations including administrative and criminal penalties and provincial and federal authorities cooperating on enforcement cases. “The country should also demonstrate that facilities and services owned or controlled by designated person are deprived of their resources and the usage of the resources,” it added.
The global body again expressed serious concerns with the overall lack of progress by Pakistan to address its TF risks, including remaining deficiencies in demonstrating a sufficient understanding of Pakistan’s transnational TF risks, and more broadly, Pakistan’s failure to complete its action plan in line with the agreed timelines and in light of the TF risks emanating from the jurisdiction.