Pakistan’s Compliance Gaps in FATF Stipulations

Claudio Rossi

Pakistan’s Senate recently passed a bill amid resistance, paving way for establishing ‘National Anti-Money Laundering and Counter Financing of Terrorism Authority Pakistan’. It is an effort in order to ensure the continuation of Pakistan’s removal from the ‘grey list’ of the Financial Action Task Force (FATF) in October last year. However, it may be noted that the bill passed amid strong sloganeering from the opposition benches.

Although the opposition parties Jamaat-e-Islami (JI) and the Pakistan Tehreek-e-Insaf (PTI) expressed concerns over the bill, surprisingly members from the treasury benches such as the PPP’s Raza Rabbani, National Party’s Tahir Bizenjo and JUI-F’s Kamran Murtaza also opposed it.  It is very strange to see that the country which itself is a victim of terrorism could not pass the bill unopposed.

The opposition to the act shows that a large number of people in Pakistan are neither interested nor committed to control crimes like money laundering and terror financing which they consider to be routine. A report by the Financial Monitoring Unit (FMU) of Pakistan also recently identified gaps & deficiencies in the implementation of UNSCR 1267 sanctions regime in Pakistan. It was reported about inadequate Federal oversight on the implementation of Targeted Financial Sanctions (TFS) against domestically proscribed entities & individuals in the country.  Legal gaps related to dual-listed persons and entities which are listed under both UNSCR 1267 & UNSCR 1373 regimes continue to exist, in spite of monitoring. 

Critics point out that Pakistan’s Ministry of Interior doesn’t have any oversight on the designated/listed entities and it rarely conducts any systematic or regular review of the TFS regime except some piecemeal actions, just an eye wash.  This crucial requirement is leading to great difficulty in identifying the front men of terrorist organizations, and collecting reliable information and evidences of the connection between the suspected assets and the terrorists. Ministry of Interior’s inaction now seems to be deliberate. For Pakistan, terrorism is seen as an inalienable part of its foreign policy and so Islamabad is not fully committed to break the nexus between money laundering and terror outfits.

Further, political affiliates and their partners & supporters of proscribed entities and individuals have been ignored from the context of ‘persons acting on behalf of or at the direction of’ proscribed entities. This exclusion is very serious.  An example of this is the Pakistan Markazi Muslim League (PMML) which is the political affiliate of the UN proscribed Jama’at-ud-Dawa (JuD).  It was reported in media that the PMML has conducted open meetings and campaigns and even held a large rally recently at Nishan-e-Pakistan monument attracting tens of thousands of people. It was to observe Youm-e-Takbir, which is celebration of commemoration of 1998 nuclear test in Pakistan.  In August, various units of the party also held public demonstrations in Karachi and Lahore against rise in petrol prices.

So far, Islamabad has no uniform law to prosecute money laundering, financing of terrorism offenders and targeted financial sanctions are being enforced under different laws mainly via Anti-Money Laundering Act 2010, Anti-Terrorism Act, 1997, and the United Nations Security Council Act, 1948. This led to deficiencies in monitoring Pakistan by FATF mandated Asia Pacific Group (APG). This may be deliberately intended for fuzzing the truth.

However, in spite of these deficiencies, it is surprising how the country was delisted from FATF’s ‘grey list’ last year. The country did not have even KYC (know your customer) guidelines. In February this year only, the Federal Board of Revenue (FBR) issued regulations granting banks access to asset declarations of high-level federal civil servants for purposes of AML/CFT compliance of customer due diligence. Lobbying might have helped Pakistan to come out of ‘grey list’ without fulfilling compliance requirements fully, but this sets a wrong precedence.

Earlier also while responding to questions about a viral video in which Hizbul Mujahideen Chief and US-designated global terrorist Syed Salahuddin can be seen leading the funeral prayers of one of India’s most-wanted terrorists, Bashir Ahmad Peer, who was killed in Pakistan, FATF President Raja Kumar of Singapore said: “I will not speculate on specific media reports. But I think what is important is to emphasise that there continues to be monitoring of Pakistan’s progress by the Asia Pacific Group.”  Videos showed Hizbul Mujahideen chief Syed Salahuddin along with armed bodyguards as he led funeral prayers for Bashir Ahmad Peer, a Hizbul Mujahideen commander shot dead by unidentified assailants in Rawalpindi. Such concessions, however, reduce the effectiveness of FATF to serve the very purpose it was made.

Although Pakistan has been removed from the list of jurisdictions under increased monitoring, it still has to address the technical compliance-related concerns regarding the partially and largely but not completely compliant recommendations of FATF.  Similarly, the status of the effectiveness of Pakistan’s compliance is poor. Out of 11 Immediate Outcomes, Pakistan’s rating on 10 immediate outcomes remained poor. 

Pakistan has also failed to implement the FATF action plan recommendations to adequately prevent abuse of Non-Profit Organizations (NPO) by terror organizations and terror financers to raise and move funds for use in terror activities. There is no inspection/verification mechanism regime at the provincial level with respect to seizure of assets. 

Further, the new budget for FY 2023-24 contains a new tax amnesty scheme in the context of ongoing forex crisis, allowing foreign currency up to USD 100,000/- to be brought back into Pakistan without the proof of income or source. It is posing new challenges in implementing the AML measures.  Though it is a provision meant for shoring up the meager forex reserves of the country, it allows terror organizations and financiers to bring funds collected for terror purposes calling them as white money.  This is a clear and fundamental violation of the FATF guidelines. 

In view of all these, Pakistan’s removal from the grey list may dent the sanctity of FATF mechanism itself. It is really a time to be strict on compliance, otherwise FATF would find it difficult to realize the goals it stands for.