Three years on, we remain incapable of countering the money laundering and terrorism finance threats.
Pakistani authorities’ claims of having satisfactorily dealt with the recommendations of the Financial Action Task Force (FATF) and the Asia Pacific Group (APG) and complying with 26 out of 27 action items agreed in June 2018 have failed to yield the desired results. Pakistan has also been handed over a further six-point action plan to be completed by June 2022.
The new action plan continues in pursuit of the already agreed objectives to address the strategic deficiencies. However, it emphasises the concerns raised by the international community related to terrorist financing, prosecuting the heads of banned outfits and streamlining the avenues considered high risk for money-laundering.
The coalition government led by Pakistan Tehreek-i-Insaf (PTI) and independent analysts having in-depth knowledge of the FATF/APG-related challenges must evaluate the factors why Pakistan has been unable to address the concerns of the FATF/APG after three years of consultation, monitoring and advice. Why has the international community felt the need once again to emphasise the same points?
It is obvious that after assuming power in 2018 the PTI government never realised the consequences of non-compliance with international standards on money laundering (ML) and combating financing of terrorism (CFT). It may be recalled that Pakistan opted to become an APG member in 2000. Being an APG member it was supposed to enact and implement laws and regulations related to ML/CFT. However, successive governments in Pakistan remained indifferent to the need and no progress was made to fulfill the responsibilities with reference to AML-CFT.
Following the warnings issued by an APG team in 2007, the authorities paid some heed to the matter and the Anti-Money Laundering Ordinance, 2007, was promulgated. The relevant regulations were issued in 2009. After the ordinance was issued hurriedly, the parliament failed to enact a comprehensive legislation. In time, the FATF raised objections to the ordinance which was not at par with global standards.
In view of the negative observations, the Anti-Money Laundering Act, 2010 [AML, 2010] was passed by the parliament. The FATF/APG again identified areas for improvement; some of those still remain unaddressed.
After the change of government in 2013, the then finance minister Ishaq Dar amended the AML-CFT laws, rules, regulations and guidelines for financial institutions in line with the requirements of the FATF/APG.
The Income Tax Ordinance, 2001; Federal Excise Act, 2005; and Sales Tax Act, 1990, were amended to address the FATF concerns. However, some areas were not touched.
Pakistan gave an assurance to the FATF/APG to implement the entire action plan and was removed from the grey list in 2015. Within a year, the FATF conveyed its concerns regarding some strategic deficiencies.
In 2018, Pakistan was again placed on the grey list and handed over a 27-point agenda to address strategic deficiencies. After a lapse of three years, the progress made by the Pakistani authorities has not been recognised as satisfactory as the effectiveness of the compliance rates low.
Although the parliament has amended several laws, including the Anti-Money Laundering Act, 2010; the Anti-Terrorism Act, 1997; the Trust Act, 1882, etc, some of the FATF concerns reman unmet. Some arbitrary provisions have been introduced in the Anti-Money Laundering (Second Amendment) Act, 2020, as well as in other laws. These amendments diverge from the international standards as was highlighted by us in the Pakistan Tackling FATF: Challenges and Solutions (co-authored) and in various articles written jointly and individually.
We have failed to remove the concerns of the global community regarding detection of proceeds of crimes generated in Pakistan and their use to support cross-border terrorism as our reporting of suspicious transactions does not match our risk profile.
The Mutual Evaluation Report Pakistan October 2019, too, highlights the deficiencies and suggests areas for improvement and an implementation strategy. Despite this, the PTI government failed to introduce appropriate laws, develop the right framework and execute an effective strategy to address the concerns of the global community. Our AML-CFT policy, coordination among the law enforcement agencies, their operations and approach to mitigate the potential risks are not aligned with the global best practices.
We have failed to remove the concerns of the global community regarding detection of crime proceeds generated in Pakistan and their use to support cross-border terrorism as our reportig of suspicious transactions does not match our risk profile. Most public and private institutions concerned are still unaware of the AML-CFT threats. Resultantly, despite the lapse of three years, we remain unable to counter money laundering and terrorism finance threats, punishing the criminals and confiscating their assets.
It is late, but not too late, for the PTI government to undertake reform in the AML-CFT framework which should focus on addressing domestic issues as well as global concerns. It is more than two decades since we opted to be a member of the APG but so far we have failed to develop an effective AML-CFT framework. Meanwhile, our hostile neighbouring country has not only secured a full-fledged membership of the FATF but is in the process of becoming a leader in bringing innovation through use of modern technology to address AML-CFT concerns.
We, on the other hand, appear confused and hav been unable to assign proper roles to the concerned departments. We have created several committees to address the AML concerns but the formation and role of the committees does not match the FATF guidelines for following a risk-based approach. Tasks of a similar nature are being performed by multiple committees and the National FATF Secretariat is a waste of resources rather than contributing anything productive in the implementation of the AML-CFT standards.
Both the National FATF Secretariat and the Financial Monitoring Unit (FMU) claim the role of coordination, implementation and guiding the relevant sectors in implementing AML-CFT related policies and procedures, but on visiting their websites it seems that they are clueless about the AML-CFT best practices. The website of the National FATF Secretariat is mostly inoperative and the content makes no sense. The FMU website carries law texts that have not been updated. Regulations placed on the website are repetitive and lead to confusion. Amendments made in the Anti-Money Laundering Act, 2010, from time to time are placed separately rather than having a single updated version to avoid any confusion. There are multiple entries for a single law, many not accessible e.g. updated version of National Accountability Bureau Ordinance of 1999.
Ideally, the FMU website should also have a reporting portal where those subject to regulations can submit reports. It must have a sector-wise categorisation/grouping. For each sector data/resources may be arranged as following
Sector specific laws
Sector specific regulations/guidelines
Reporting portal link
The websites of National FATF Secretariat and the FMU must be linked directly to national/international sources of information and should provide options for people to search for designated people/proscribed/listed entities or those with criminal records. This will help people make risk assessments beforehand and in an efficient manner. In order to facilitate the general public and business concerns a helpdesk link and live chat option needs to be added where people can raise their queries.
The casual behaviour of regulators and bodies formed for ML/CFT is a matter of great anxiety. We are living in an era of information technology. Without effective use of these platforms and tools we cannot achieve the desired output. If the situation persists, then we should not expect a positive outcome in the near future. As responsible and concerned citizens, we have been raising alarm for long. Through this article, we are again raising flags about deficient areas and suggesting the way forward. We hope that the responsible government functionaries will go through these considerations and steer Pakistan off the grey list and satisfy the world community that Pakistan has an unshakable will to counter threats related to ML/CFT.
Huzaima Bukhari and Dr Ikramul Haq, lawyers and partners of Huzaima, Ikram & Ijaz, are adjunct faculty at Lahore University of Management Sciences (LUMS), members of the Advisory Board and visiting senior fellows of Pakistan Institute of Development Economics (PIDE). Abdul Rauf Shakoori is a corporate lawyer based in the USA and an expert in white collar crimes and sanctions compliance. They have recently coauthored a book, Pakistan Tackling FATF: Challenges and Solutions