On October 18th, the Financial Action Task Force (FATF) concluded its first Plenary in Paris. During the press conference, President Xiangmin Liu gave a specific warning to Pakistan to curb terrorist financing to avoid being blacklisted over its failure to implement corrective measures; he explicitly said that “Pakistan needs to do more and it needs to do it faster”.
This comes as a consequence of the previous warning that FATF gave to Pakistan in June 2019, when it expressed “concern that not only did Pakistan fail to complete its action plan items with January deadlines, it also failed to complete its action plan items due May 2019”.
In the final document released by FATF, the agency recognized Pakistan’s progress towards improving its Anti-Money Laundering and Countering the Financing of Terrorism (AML and CFT) regime, particularly regarding recent developments of its Money Laundering and Terrorist Financing (ML and TF) risk assessment. However, despite improvements, the agency expressed “serious concerns with the overall lack of progress by Pakistan to address its TF risks”, and noted that Pakistan has only addressed five of 27 action items, at a time when “all deadlines in the action plan have now expired”.
The documents ends urging Pakistan to complete its action plan within four months, by the next Plenary in February 2020. Otherwise, it will be forced to adopt measures and place Pakistan on the blacklist alongside Iran and North Korea, which could deliver a severe blow to its economy.
This last warning has been given only after two weeks from the publication of a report by the FATF-affiliated Asia/Pacific Group on Money Laundering (APG). The evaluation analyses the level of compliance of Pakistan with the FATF 40 Recommendations as at the date of the on-site visit in October 2018 of the APG valuation team.
In its final assessment, APG reported that Pakistan was “not implementing a comprehensive and co-ordinated risk-based approach to combating ML and TF”. The assessment also noted that even though law enforcement agencies have taken measures to freeze and seize property subject to confiscation, “Pakistan’s law enforcement efforts to address ML are not consistent with its risks”.
Similarly, in spite of significant TF threats, Pakistan has registered a small number of TF cases which is not consistent with its overall level of TF risk. However, the team did acknowledge an improvement in TF coordination as a result of National Counter Terrorism Authority (NACTA)’s recent steps aimed at introducing new counter-terrorism strategies in the field.
The assessment team particularly warns of the ways terrorist and criminal groups raise funds, pointing out Pakistan’s geographical landscape and porous borders as a significant vulnerability to TF cash smuggling.
APG also evaluated the bank system of Pakistan in relation to ML/TF, stating that while most banks have an acceptable understanding of their AML/CFT obligations and have conducted internal ML/TF risk assessments, “a significant deficiency is their lack of effective identification of beneficial owners”. The State Bank of Pakistan itself is said not to have a clear understanding of ML and TF risks unique to the sectors it supervises, but progress was made thanks to new AML and CTF procedures and investigations introduced recently.
Overall, APG expressed satisfaction with Pakistan’s high-level commitment to fighting terrorism, but it was also concerned by the poor coordination and integration efforts in TF investigations and prosecutions, with the exception for those conducted in Punjab.
However, while the agency criticised Pakistan in the report for not taking sufficient measures to fully implement UNSC Res. 1267 obligations against all listed individuals and entities, Pakistan made progress by proscribing between March and May 2019 Jamaat-ul-Da’awa (JuD) and Falah-e-Insaniat Foundation (FIF), including their associates, financial organizations, and subsequently seizing numerous articles of properties.
Previously, Pakistan has been placed on the whitelist in 2015, having met its commitments in its 2010 action plan regarding the strategic deficiencies. However, in June 2018 it was again put on the greylist as a consequence to its AML/CFT deficiencies, which should have been addressed by January 2019.