In spite of making attempts to reinforce its declaration that Pakistan is combating terrorism, FATF, the global financial overseer, in their assessment found discrepancies in Pakistan review report. Pakistan has failed a the review at the Financial Action Task Force (FATF) that examines ways to plug the funds to terrorist groups among other things.
A “follow up report” by the Asia Pacific Group (APG) of the FATF to an assessment done last year that was made public on Monday, concluded that Pakistan has “made some progress in addressing the technical compliance deficiencies identified in its MER (Mutual Evaluation Report).”
But “Pakistan will remain in enhanced (expedited) follow-up, and will continue to report back to the APG on progress to strengthen its implementation of AML/CFT ( anti-money laundering/combating financing of terrorism) measures,” the report concluded.
The 41-member APG in August last year had downgraded Pakistan’s status to the “Enhanced Follow-up” category from “Regular Follow-up” over technical deficiencies to meet normal international financial standards. “Enhanced follow-up” is an intensive process of correction that deals with members with significant deficiencies (for technical compliance or effectiveness) in their AML/CFT systems.
According to a person familiar with the matter in New Delhi, “enhanced (expedited) follow-up,” means Islamabad will have to give monthly reports of its compliance—a clear sign that all the steps that it has taken so far has failed to convince the international community that it has plugged channels of money flows to terrorist groups. “This (expedited follow up) means more pressure on Pakistan to comply,” the person said.
This means that Pakistan seems sure of remaining in the “gray list” despite Islamabad hurrying through three crucial legislations—the Anti-Terrorism Act (amendment) Bill, 2020, the Anti-Money Laundering (Second Amendment) Bill and the Islamabad Capital Territory (ICT) Waqf Properties Bill—through parliament by calling a special session in September.
This APG evaluation of Pakistan comes weeks before an FATF plenary on 21-23 October that will examine its performance to meet global commitments and standards on fight against money laundering and terror financing (ML and TF).
Continuation on the “gray list” means it becomes increasingly difficult for the countries to get financial aid from the International Monetary Fund (IMF), World Bank, Asian Development Bank (ADB) and the European institutions. Pakistan is seen as keen to attract investments, given its precarious economic situation has become even more vulnerable due to the pandemic.
Pakistan has also been lobbying hard with members of the international community to ensure it exits the “gray list.” It needs the support of 12-15 countries to exit the “gray list.” What seems to be assured is that Pakistan is unlikely to be put on the FATF’s “black list”, given that it has the support of China, Turkey and Malaysia.
The APG report, known as first Follow-Up Report on Mutual Evaluation of Pakistan, concluded that Pakistan’s progress on the 40 FATF recommendations on the effectiveness of anti-money laundering and combating financing terror (AML/CFT) system largely remained unchanged from a year before.
While Pakistan was found to be “partially compliant” on 25 of 40 recommendations, it was found to be “non compliant” on four, “largely compliant” on nine parameters and “fully complaint” on one.
Pakistan’s measures against money laundering and terror financing “are not yet sufficient to justify a re-rating,” by the FATF, the report said.
The APG Mutual Evaluations is a peer-review system to determine whether countries meet the compliance standards for money laundering and terror financing. After a country submits a mutual evaluation report, APG members can decide whether to place a member either through regular or enhanced follow-up. While a regular follow-up means just biennial reports, a country put under enhanced follow-up has to send four reports of compliance the following year.
Pakistan had requested for updated ratings in three areas declared partially compliant by the APG in October last year. The request was accepted on one count and rejected on two due to “insufficient” progress to the satisfaction of international experts.
Pakistan was placed on the FATF’s “gray list” in June 2018. The Paris-based watchdog asked Islamabad to implement a plan of action to curb money laundering and terror financing by the end of 2019 but the deadline was extended later on due to covid-19. In February, the FATF gave Pakistan, which missed 13 targets, a four-month grace period to complete its 27-point action plan against ML and TF committed with the international community. In its third plenary held virtually in June, the FATF decided to keep Pakistan in the “gray list” as Islamabad failed to check flow of money to terror groups like Lashkar-e-Taiba (LeT) and Jaish-e-Mohammed (JeM).
In a bid to exit the FATF’s grey list, debt-ridden Pakistan in August imposed financial sanctions on 88 banned terror groups and their leaders, including 26/11 Mumbai attack mastermind and Jamaat-ud-Dawa (JuD) chief Hafiz Saeed, Jaish-e-Mohammed (JeM) chief Masood Azhar and underworld don Dawood Ibrahim.
