15 conditions: Pakistan to file fresh report with FATF by April 15

ISLAMABAD: The simultaneous scrutiny done by the Financial Action Task Force (FATF) and its affiliate Asia Pacific Group (APG) has made Pakistan’s case more complex, as now Islamabad will have to submit another compliance report on terror financing and money laundering by April 15.

The compliance report would be taken up by FATF review group in its meeting scheduled to be held from May 13 to 17 at Colombo. The Colombo meeting will be quite crucial, as Islamabad will be scrutinised for its performance related to 15 key conditions so the time is limited and Pakistan will have to demonstrate action on ground against the proscribed outfits on the terrorist financing front.

Pakistani authorities argued that it was unfair to undertake both processes simultaneously. On the one hand, the APG mission completed its three-day visit to Pakistan on Thursday and is all set to share the first draft of their assessment about evaluation of performance displayed by differentministries/departments by April 10, 2019.

Pakistani authorities would give their response to the draft report in one week. The APG delegation will then submit its findings to the general body meeting expected to be held in coming August this year.

The APG is the recommending body and could ask the FATF to put Pakistan into the grey list with increased number of action plan. The APG does not have its own list or category but its recommendation possesses significant importance.

The Pakistani authorities which are part of Mutual Evaluation (ME) of APG told The News on Thursday that there was a mixed response from their side during this important visit where assessors remained tight-lipped but were going to share the initial draft of their findings till April 10.

“We need improvements in our system across different areas and enhance the effectiveness of our law enforcing agencies (LEAs) and framework for supervision of NON-PROFIT Organizations (NPOs) and Designated Non-Financial Business or Profession (DNFBP)” said the sources.

On FATF review, there is need to understand that it is being run on separate basis. Since 2007, the FATF’s International Co-operation Review Group (ICRG) has analyzed high-risk jurisdictions and recommended specific action to address the ML/FT risks emanating from them.

Throughout 2008 and 2009, the FATF issued a series of public statements expressing concerns about the significant deficiencies in the AML/CFT regimes of a number of jurisdictions. For two of these jurisdictions, Iran and DPRK, the FATF took the additional step of calling upon its members and urging all jurisdictions to apply counter measures to protect their financial sectors from money laundering and terrorist financing risks emanating from them.

Based on continued lack of progress by both jurisdictions, the FATF reiterated its call for countermeasures at each subsequent plenary meeting.

In June 2018, Pakistan was put in the grey list. In the last FATF plenary meeting, in their public statement the FATF stated that given the limited progress on action plan items due in January 2019, Pakistan is urged to swiftly complete its action plan, particularly those with timelines of May 2019.

Pakistan requires to submit its compliance report by April 15 on key 15 conditions to the FATF which would come under discussion in Colombo meeting including (1) the FATF asks Pakistan to conduct ongoing outreach to financial institutions to promote a clear understanding of their AML/CFT obligations and terror financing risks. Now the State Bank of Pakistan (SBP) after completion of national terror financing risk assessment, the financial institutions (FIs) regulated by the SBP, were supposed to prepare individual risk assessments. The SBP plans to initiate an outreach programme to disseminate the identified risks to all stakeholders and to guide them on commensurate risk mitigation techniques and tools.

Pakistan needs to provide plans of outreach and awareness programmes to disseminate identified risks to financial institutions. The SECP has already issued draft of AML/CFT guidelines.

(2) In May 2019, the SBP will have to demonstrate that supervisory activities including on-site and off-site examination are applied on risk sensitive basis to financial institutions. The SBP’s Supervision Department is making efforts to transform its CAMELS framework to complete risk based assessment in areas of credit market liquidity and operational risk specifically in areas in which ML/TF risk is assessed. Pakistan will have to share schedule of on-site and off- site.

(3) The SBP and SECP will have to demonstrate that remedial actions and effective, proportionate and dissuasive sanctions are being applied in cases of violations of AML/CFT requirements and failing in TF risk management. Pakistan will need to provide details on the enforcement action and other actions to demonstrate that FIs are reforming.

(4) Pakistan will have to demonstrate that competent authorities are cooperating and taking actions to identify and sanction illegal Money or Value Transfer Service (MVTS) to mitigate the risk of misuse by designated persons and entities (for example closing down illegal MVTS and prosecuting the operators).

The SBP and FIA signed an MoU to cooperate and coordinate on issues relating to actions against illegal MVTS, STRs and information sharing for investigation of financial crimes. Now the FIA will have to demonstrate actions against MVTS on the ground in order to satisfy FATF.

(5) The FBR will have to demonstrate that authorities are pursuing domestic and international cooperation to identify cash couriers and enforce controls on illicit movement of currency. Now the Customs authorities will have to present some cases to demonstrate its actions.

(6) The Nacta will have to establish and implement a policy for all responsible law enforcing agencies (LEAs) to proactively initiate financial inquiries and investigation of terrorist groups and their members and make reactive parallel financial inquiries or possible investigation a part of every terrorism investigation. The CTD has been tasked with preparing a comprehensive policy for proactively initiation of financial inquiries. At present, the provincial CTDs are following standard operating procedures (SOPs) for conducting parallel financial investigation in terror financing matters in terrorism cases. A comprehensive guidance has been issued by the Financial Monitoring Unit (FMU) for the LEAs and other authorities to comprehend and implement the requirement of action plan.

(7) The FMU will have to proactively request and provide international cooperation in cases of targeting, investigating and prosecuting terror financing cases. They will have to demonstrate that this has included police to police, custom to custom and FIU to FIU for formal cooperation under Mutual Legal Assistance (MLA). FMU has so far signed MoU with Iran, Turkey, Turkmenistan and Sri Lanka for exchange of information on money laundering, terrorism financing and related criminal activities in a spirit of cooperation and mutual interest. In addition, a number of MoUs with different countries such as UK, UAE and Qatar are under negotiations.

The FBR, NAB, ANF have powers of international cooperation under their respective establishment laws and these agencies are effectively and timely providing information on international requests. The FIA acts as focal point for Interpol in Pakistan and police to police takes place through the FIA. Pakistan has drafted standalone MLA law which caters for all the requirements of international cooperation which would be placed before the Parliament soon.

(8) Pakistan will have to demonstrate activities to enhance capacity and support for prosecution and the judiciary involved in terror financing cases.

(9) Pakistan will have to present technical compliance to demonstrate a comprehensive legal obligation to target financial sanctions without delay and Ministry of Foreign Affairs had recently complied with this condition to issue SRO to this effect.

(10) The SBP will have to demonstrate further risk based outreach to FI/non-profit organisations (NPOs) to ensure they understand and comply under 1267 and 1373 UN Security Council Resolutions.

(11) Pakistan will have to take immediate action to implement terror financing against designated persons and entities. This includes screening against their customer base and ongoing transaction monitoring by the regulators and law enforcing agencies.

(12) Pakistan will have to demonstrate effective implementation of terror financing against assets of 1,267 and 1,373 designated persons and affiliates including Daesh, al-Qaeda, FIF, JuD, LeT, JeM and HQN.

(13) Pakistan will have to show enforcement against violations with terror financing under UNSCR of 1,267 and 1,373 including asset freezing and prohibition on providing funds and other financial services and provide case examples to support the cooperation. In this regard, the country will have to demonstrate with evidence the administrative penalties that have been enforced over a two year period.

(14) Pakistan will have to demonstrate that the facilities and services owned or controlled directly or indirectly by designated persons and entities (and those acting on their behalf of or at their direction) are deprived of resources and the usage thereof (i.e. shut down or effectively taken over by the government or by reputable civil society organisation). This should include ensuring that the individuals affiliated with designated persons and entities are no longer in control directly or indirectly of the facilities or their activities and continuing public awareness campaign of freezing action taken for facilities and services owned or controlled be designated persons.

(15) Pakistan will have to demonstrate that authorities are applying focused measures to such NPOs which Pakistan identified as being vulnerable to terror financing abuse in line with risk based approach.