FATF greylist: is Pakistan’s progress good enough?
Dr. Vaqar Ahmed
Almost two and a half years have passed, but Pakistan’s struggle to come out of the FATF grey list continues. At the conclusion of the plenary meeting in Paris on Friday, Financial Action Task Force (FATF) members agreed to maintain Pakistan’s status on the monitoring list and reminded the country there were further efforts required to check terrorist financing networks. It noted that until now, 14 out of 27 action plan items had been addressed but with varying degrees of progress.
FATF has reminded Pakistan that despite a high level political commitment, deadlines provided for various action plan items had already expired and terrorist financing risks continued. It was again stated that if actions on this matter were not concrete, there could be repercussions and that the FATF would ensure there were consequences during the June 2020 meeting.
From the statement issued by the Ministry of Finance and its officials, it is clear that Pakistan was able to clinch the grace period of a few more weeks due to the diplomatic push by friendly countries such as China – which certainly cannot be a strategy Pakistan continues to relies on for the future.
What is clear from the FATF’s proceedings is that unlike in the past, the organization this time actually wants to see Pakistan acting on regulations, with sanctions applied in cases where violations occur.
FATF would like to see examples of Pakistan taking enforcement action against illicit financial flows including the smuggling of currency. Furthermore, effective sanctions, including financial sanctions on persons and entities found guilty, will need to be demonstrated.
The past record of putting some people behind bars to lessen international pressure and then to set them free hasn’t gone well even with friendly countries who may continue to back Pakistan’s efforts for a certain time. Designated persons or their nominees, or entities to which they belong, continue to access and move financial resources – a practice which now needs to be effectively curbed.
From the point of view of Pakistani citizens, these developments remain discouraging.
Even when Pakistan was not under the FATF radar, there was a decent home grown National Action Plan, but the state’s inability to act on its own planning is worrisome.
Despite the presence of functioning institutions such as the National Security Division and National Counter Terrorism Authority, the state continues to raise supra institutions like the Financial Monitoring Unit (FMU) and Assets Recovery Unit to coordinate efforts. All this, despite knowing full well that such institutions may cease to exist after a certain time as their responsibilities overlap with existing bodies including the Federal Investigation Agency, State Bank of Pakistan, Securities & Exchange Commission of Pakistan and Federal Board of Revenue.
Solid efforts at FMU could help in Pakistan’s exit from the grey list, but what happens after that? What will be this unit’s status once responsibility to report to FATF on a recurrent basis is over?
Ultimately, compliance with FATF’s action points, over the longer term, is the responsibility of institutions where gaps related to capacity, coordination, commitment, and communication with external stakeholders continue to exist. A larger question remains about whether or not provincial governments now truly understand their responsibility towards anti-money laundering and countering terrorist financing. The capacity of the judiciary to effectively help in penalizing and prosecuting terrorist financing network is another area which should be prioritized.
Going forward, it will be important to provide orientation to the civil service and officials of regulatory bodies on ensuring compliance as part of the teaching syllabus at various institutions where they undertake training during their careers.
A stronger communication plan from the government’s side is needed to address the apprehensions of the business community who continue to fear higher future compliance costs and difficulties in banking transactions if Pakistan continues to remain on the grey list.
Branches of foreign banks operating in Pakistan also share these apprehensions.
It is surprising that no government department feels the need to go on a regular basis to business associations such as Federation of Pakistan Chamber of Commerce & Industry, and inform them of risks as well as the possibility of help required from Pakistan’s private sector.
Pakistani political scientists and academia have not come up with a more comprehensive answer to why Pakistan continues to be under the FATF radar now and then.
This should not be a ritual of normal and functional states. Unless the society as a whole starts to appreciate risks and understands why the FATF wishes Pakistan to be a safer place, it will be difficult to shape political will to sustain reforms against illicit financial flows over the longer term.