Pakistan Put On Money-Laundering, Terror Finance Watch List For Lack Of ‘Adequate Measures’

Pakistan placed on FATF ‘grey list’ despite diplomatic efforts to avert decision; “We were told in February that we will be placed on the grey-list” – FO Spokesman

JUN 28, 2018 (BE2C2): Late Wednesday night, Pakistan was officially placed on the Financial Action Task Force (FATF) ‘grey list’, despite the country’s diplomatic efforts to avoid the designation.

As the FATF plenary began its proceedings in Paris, the Pakistani delegation apprised the watchdog of steps Islamabad had taken to weed out money laundering and terror financing. The steps taken so far were not considered adequate.

The Foreign Office spokesperson Dr Mohammad Faisal said during a weekly press briefing in Islamabad, “If adequate measures are taken, we can be removed from the grey-list,” he said adding that otherwise the country will “face problems”.

“We will have to ensure the implementation of the action plan shared with FATF while we are on the grey-list.”

“Earlier we were also removed from the grey-list after we took adequate measures,” Faisal continued.

“We are in talks with the FATF over the plan of action.”

The FO spokesperson upheld, “We were told in February that we will be placed on the grey-list.” At that time, former Interior Minister and Planning & Reforms Mr. Ahsan Iqbal had said the move of putting Pakistan on the FATF watch list is “an attempt to destabilize economy” of the country, while adding that that the government will expedite steps to curb terror financing and money laundering.

Later in March, Iqbal assured the nation that putting Pakistan on FATF grey list would not affect economy of the country.

As far as Pakistan’s economy was concerned after listing the name in FATF grey list, he said there would be no threat to our economy. In 2015, Pakistan’s name was included in white list, he added.

According to sources, a money laundering and terrorism financing watchdog took the decision during the meeting on Wednesday, arguing that Pakistan had failed to act against money laundering and terror financing on its soil.

Several international studies over the years have been highlighting that money laundering and terror financing are morphing into one, and that at the very least, they have become mutually inclusive, said one expert.

The development comes amid a startling report that that Pakistani citizens transferred a staggering sum of $ 15.253 billion abroad during the period July 1, 2016 thru June 30, 2017 through normal banking channels. During the said period a substantial amount of transfers also took place from Pakistan under unauthorized and undocumented Hundi and Hawala mechanisms.

The current FATF watch list includes countries such as Iran, Iraq, Sri Lanka, Syria and Yemen. With Pakistan’s placement on the list, there would be four countries (Pakistan, Iraq, Syria, Yemen) which tops in terror-affected countries index 2017. Nigeria is the fifth but not on watch list.

Being placed on the ‘grey list’ means that Pakistan’s financial system will be designated as posing a risk to the international financial system because of “strategic deficiencies” in its ability to prevent money laundering and terror financing.

After being placed on the ‘grey list’, Pakistan will be directly scrutinized by the financial watchdog until it is satisfied by the measures taken to curb unregulated financing activities.

A 37-nation FATF plenary had held its first meeting on Pakistan in February where China, Turkey and Saudi Arabia opposed the United States-led move to place Pakistan on the watchlist. But the US pushed for an unprecedented second discussion on Pakistan, held on February 22.

Over 700 delegates from the FATF global network, as well as the United Nations, Inter­nati­onal Monetary Fund, World Bank and other partners, had attended the Feb 18-23 meetings.

The FATF is an intergovernmental organization founded in 1989 to develop policies to combat money laundering, but after 9/11 it has focused more on preventing terrorist financing. The agency comprises 35 member states, the European Commission and the Gulf Cooperation Council. Its recommendations are deemed to be the international standard for steps required for anti-money laundering and combating the financing of terrorism (collectively referred to as AML/CFT).

Pakistan is not a member state of FATF: instead, it is a FATF Associate Member of the Asia/Pacific Group on Money Laundering (APG).

FATF does not and can not directly impose conditions on Pakistan since it is not a member state. Instead, it is the APG (and international financial institutions such as the World Bank) which have worked with Pakistan in the past (2010-2015) to address FATF’s concerns.

According to some experts, it is unlikely that FATF will issue a “call for action” right away. If anything, FATF may seek Pakistan’s increased cooperation on AML/CFT matters and willingness for mutual monitoring and evaluation of its AML/CFT strategy and processes.

Writing on the issue in February, Taimur Malik, an international lawyer and former Executive Director of the Research Society of International Law (RSIL), said that Pakistan needs to combat money laundering and terrorist financing for its own sake and not because of any international pressure. No country perhaps has a perfect AML/CFT system. In Pakistan’s case, the legislative and institutional systems exist but there is a need to improve the investigation and prosecution aspects.”

Legislation is also an evolutionary process and Pakistan can benefit from a review of its current legislative framework and identification of loopholes or contradictory provisions of law which might be hampering timely prosecution of offenders.

He further added that it is not clear how effective the prosecution process has been and how many convictions have been obtained in respect of AML/CFT cases in Pakistan. It is an evolutionary process and Pakistan can’t be expected to perform at the level of G8 level countries within a few years.

Legislative reform, capacity building of prosecution officials and judges and strengthening of institutions such as the State Bank, Federal Investigation Agency, Anti-Narcotics Force and National Accountability Bureau is a time consuming, expensive and resource intensive process, Malik said.

Instead of putting international pressure to place Pakistan on a watch-list, international institutions should support the country in strengthening its domestic institutions by sharing international best practices and lessons learnt from other jurisdictions, he added.

Pakistan has been at the forefront in the fight against terrorism and would benefit from a collaborative instead of punitive approach from international stakeholders, Malik added.

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