The FATF and the Furious

The Financial Action Task Force (FATF), an inter-governmental body set up to combat money laundering, financing of terrorism and proliferation of weapons of mass destruction, has placed Pakistan on its money laundering blacklist for "flaunting recommendations made to fight money laundering and financing terrorists" after an earlier warning that "at the global level, the FATF will also monitor and take action to promote implementation of the standards." Blacklisting a country which has rendered more sacrifices in terms of men and material to fight terrorism than any other country is indeed shocking. However, we are not blameless for this downgrade as we have failed to beef up our enforcement mechanism backed by an amended law acceptable to the international community, which requires amending the existing law to enable the authorities to take appropriate action, investigation and co-operation on a complaint by a foreign government. Suitably amending the banking laws and establishing an anti-money laundering unit in the finance sector are not enough. In fact, Pakistan is way ahead of other countries on this score. It is the failure of Ministry of Interior and the Federal Finance Ministry to effect legislative changes, which can back enforcement and prosecution in accordance with revised FATF recommendations that are broadly aimed at enabling national authorities to take more effective action against money laundering and terrorist financing at all levels - from the identification of bank customers opening an account through to investigation, prosecution and forfeiture of assets. Although, money laundering refers to the process of concealing the source of illegally obtained money and the methods by which money may be laundered are varied and can range in sophistication, in the case of Pakistan it is generally aimed at whitening tax-evaded income. Militants from northern Pakistan or southern Punjab do not use banking channels for funding their operations. Pakistan is still by and large an under-banked and cash transaction backward country and it cannot be equated with countries where plastic-based/credit cards are in preponderance, while cash transfers are not very frequent. We need to explain to the FATF the ground-reality. However, we could have still made progress on some recommendations and drawn a timeline on others to satisfy the international community. A very negative consequence of Pakistan's blacklisting by the FATF would now be our inability to raise funding from the international bond market. Therefore, we can kiss goodbye to plans for raising another Eurobond to pay for the maturing forex debt. We shall have to amend the existing law in order to avail forex debt inflows. This just shows that our government needs to be more proactive instead of being reactive to economic challenges. Failure to bring timely amendments to the law, sought by the FATF would show that the relevant ministries and their parliamentary secretaries are not doing their jobs properly, efficiently and effectively. Anti-money laundering law is not something that can get bogged down due to polarisation in the political arena. After all we were able to pass the 20th Amendment to the Constitution that required, like any other amendment to the Constitution, support of a two-thirds majority of legislators of the house. That wasn't meant to be an easy task. But we did manage. Our priorities need to be corrected so that we do not succumb, albeit unknowingly, to the machinations aimed at transforming Pakistan into a rogue state. Copyright Business Recorder, 2012