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It’s been more than two years since Pakistan was placed on Financial Action Task Force (FATF) grey list for the second time. Pakistan was the second country in the South Asian Association for Regional Cooperation (SAARC), which was placed on this list after Sri Lanka. However, Sri Lanka, implemented the FATF agenda and was placed back onto the white list in 2019 whereas Pakistan is still struggling to achieve the same status. This is not the first time Pakistan has had issues dealing with FATF and its regional organ, the Asia Pacific Group (APG).

Pakistan took almost seven years to introduce the first money-laundering ordinance designed to meet global AML-CFT standards. However, FATF raised concerns over the enacted law as it did not describe penalties for multiple offenses and failed to define associated crimes. In 2009 a Mutual Evaluation Report (MER) was published by the World Bank and the same was adopted by the APG. The MER’s findings stated that Pakistan was non-compliant on several points which leads its economy being exploited to facilitate criminal activities. This report also highlighted that Pakistan’s economic activities are often undocumented, which creates a significant risk of money laundering.

Eventually, Pakistan replaced the prevailing Anti Money Laundering Ordinance 2007 with the Anti- Money Laundering Act, 2010 to address the concerns raised by the AML-CFT watchdog. Despite implementing its new AML law, Pakistan failed to meet the FATF standards related to terrorist financing, their identification, freezing and confiscation of terrorist assets, and was placed on a ‘grey list’ (Other Monitoring Jurisdictions) in 2012.

After a regime change in 2013, Pakistan’s single handedly fought a full war against terrorism and restored peace in the country. This act by Pakistan was appreciated globally. It was the time where Pakistan should have been able to capitalize on its achievements and mobilized the global community to play their role in helping to rebuild our country. However, an internal rift between civil government and military establishments ruined this opportunity. The international community voiced their concerns about the growing role of those rogue actors. However, this confrontation between our civilian government and military erupted into a storm in national politics and compromised the independence of our institutions. These factors adversely impacted our economy and damaged foreign relations. Ultimately, Pakistan was again placed in Grey list in June 2018.

Even though Pakistan was branded as an exporter of terrorism and a sponsor of terrorist activities, the country paid a heavy toll fighting the war against terrorism. Pakistan lost approximately eighty thousand lives and incurred financial costs of over $100 billion. It left an overall scar on our economy and foreign direct investment. The severe impact noted on diplomatic fronts was deterioration in relations with the international community and global lenders.

Further damage resulted from Pakistan’s weak and ineffective efforts to comply with FATF mandates, which were ranked unsatisfactory for most recommendations. The 2019 MER also highlighted deficiencies in the risk-based assessment approach, national cooperation and coordination, money laundering offenses, confiscation of provisional measures, and terror financing offences. It also further highlighted that no quantum for monetary penalties were defined nor were relevant offenders ever prosecuted. Finally it pointed out that Pakistan has not completed a comprehensive review of the adequacy of laws and regulations that relate to its highest-risk vulnerabilities based on Non-profit organizations (NPO), areas of compliance including customer due diligence, record keeping, politically exposed persons, and correspondent banking.

Recently a follow-up report (FUR) is published on September 25, 2020 which gauges the progress of Pakistan on technical compliance deficiencies identified in the MER 2019, it states that minimal progress was made to address identified technical difficulties. However, there is no major change noted in the MERs technical compliance, Pakistan requested a re-rating of recommendations of 1, 6 and 29. As per the FUR, Pakistan was compliant with three recommendations, but non-compliant with four, and largely compliant with seven, and partially compliant with twenty-six FATF recommendations.

Pakistan made its efforts to address most of the points raised in MER through hasty legislation, but it is too early to say whether it will satisfy the AML-CFT watchdog. The most critical issue to be discussed is the role assigned to AML-CFT authority and Self-Regulatory Bodies. Under amended law powers to regulate AML-CFT, related matters assigned to different governmental and professional bodies fall under section 7A of the Amended AML Act 2020.

This new law, as drafted is complicated and confusing. It includes multiple bodies and committees with overlapping jurisdiction and scope. For example, lawyers and accountants, who are considered the most vulnerable for money laundering and terrorist financing, have been given the powers to self-regulate themselves. This new law further gives powers to professional bodies to act as an appellate authority, which goes against the principles of independence and could lead to conflicts of interest.

The goal should be to carefully craft our legal framework on par with global standards and FATF requirements, whereas it seems that government is more inclined to use these laws as a tool of political maneuvering against its opponents

This impression is strengthened with recent amendments in AML Act and Anti-Terrorism Act where the government has given unrestricted powers to conduct undercover operations, interception of communication etc., which violates people’s fundamental rights of freedom of movement and the ability to conduct unimpeded commerce.

Will FATF recognize Pakistan’s progress, as we have attempted to frame laws to meet their requirements? Let’s hope for the best. After regaining respectability, Pakistan’s biggest challenge will be to finish implementing FATF recommendations, by applying relevant laws based on the letter and spirit of existing laws, while avoiding governmental conflicts and political victimization.

Abdul Rauf Shakoori

The writer is a US-based corporate lawyer, and specialises in white collar crimes and sanctions compliance. He has written several books on corporate and taxation laws of Pakistan. He can be reached at [email protected]


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