Technical and compliance deficiencies: FATF APG says Pakistan made good progress

ISLAMABAD: The Asia Pacific Group (APG) of the Financial Action Task Force (FATF) has said Pakistan has made good progress in addressing technical and compliance deficiencies identified in its Mutual Evaluation Report (MER).

The fourth follow-up report released by the APG states that overall, Pakistan has made good progress in addressing technical compliance deficiencies identified in its MER and has been re-rated as compliant with recommendation R33, largely compliant with R28 and R37 and partially compliant with R38.

The FBR’s supervision to date has included activity verification to identify the non-filer or zero-income filers conducting business activities; offsite supervision of very high- and high-risk entities in accordance with the risk-based supervision (RBS) framework; onsite thematic inspections of 412 entities and 467 onsite full scope inspections.

As a result, a wide range of non-monetary (including censure, warning and direction) and monetary sanctions were imposed on a large number of designated non-financial business professionals for AML/CFT non-compliance. For accountants supervised by the ICAP and ICMAP, the RBS has included the identification and analysis of the ML/TF risk, both at the sector and the reporting firm’s level. The ICAP and ICMAP have completed their 2-phase offsite monitoring. The ICAP has completed onsite inspections of 19 firms and the ICMAP has completed onsite inspections of eight firms. Thematic inspections have also been conducted by both the supervisors covering medium and low risk rated firms. A wide range of sanctions were imposed on the DNFBPs for AML/CFT compliance.

As of February 2022, Pakistan estimates that there are approximately 186,956 registered lawyers in Pakistan, with 130 confirmed to be offering regulated services under the AML/CFT regime. Considering the size and business of the sector, Pakistan has commenced supervision of lawyers based on three categories: Category 1 are the lawyers registered as intermediaries under the Intermediaries Registration Regulations 2017 issued in pursuance of Section 455 of the Companies Act, 2017; Category 2 are the lawyers providing services to Asset Management Companies (AMC); Category 3 are the other lawyers. The offsite supervision of lawyers is occurring in two phases: Phase 1, population determination survey and Phase 2, offsite monitoring questionnaire. Phase 1 is complete for Category 1 and 2 lawyers, and is ongoing for Category 3 lawyers. Phase 2 is ongoing for Category 1 and 2 lawyers, whilst planning is still taking place for Category 3 lawyers.

Pakistan has implemented fit and proper controls for DNFBPs. However, minor deficiencies remain with respect to the control for accountants supervised by ICMAP/ICAP and lawyers as they do not extend to cover associates of criminals. Risk-based supervision, real estate and accountants are in place and supervision has commenced for lawyers. The remaining deficiencies are weighed as minor, taking into account the overall implementation of supervision of DNFBPs. Recommendation 28 is re-rated to largely compliant.