FATF, Pakistan and International Law

Zoya Azhar

The Financial Action Task Force(FATF) is an inter-ministerial body, formed in 1989 under the European Commission and G7 Summit in Paris. The FATF’s goals are to establish standards and support the successful implementation of legal, regulatory, and operational strategies to tackle money laundering, terrorist financing, and other risks to the international financial system’s legitimacy. The FATF analyzes nations’ progress in enforcing the FATF Recommendations, examines money laundering and terrorist funding strategies and counter-measures, and promotes the acceptance and implementation of the worldwide FATF recommendations while beginning with its members.

FATF, Pakistan and International Law
Initially, its purpose was to combat money laundering, however, in 1996, the FATF broadened the scope to prevent drug trafficking. In 2001, FATF expanded to make efforts in fighting against terrorist financing and launched eight recommendations of Anti-Money Laundering. The ninth recommendation was added to it in 2004. Furthermore, 40 recommendations were made to fight against governmental corruption and voluntary tax compliance programs. In February 2012, to strengthen the integrity of the financial system the FATF revised the set of recommendations and provided stronger tools to fight against financial crime. The FATF expanded to resolve the issues related to the financing of proliferation of mass destruction. Furthermore, it reviews the money laundering and terrorist financing techniques to eliminate new threats and risks.

The FATF oversees and investigates countries to assure the implementation of the recommendations fully and inspects the countries that do not conform. Currently, the FATF comprises 37 member jurisdictions and two regional organizations that represent the majority of the world’s main financial centers. The FATF president is a senior official appointed by the FATF plenary. The president oversees the FATF secretariat and he/she assembles the meetings of the FATF completely. On 1st July 2020, Dr. Marcus Pleyer was given the position of FATF president.
The FATF Secretariat is centered in Paris, at the headquarters of the Organization for Economic Cooperation and Development (OECD), and employs legal, regulatory, and enforcement professionals as well as administrative employees. The Secretariat’s main responsibilities include supporting the FATF and its working groups, facilitating cooperation between members, associate members, and observers, while ensuring effective communications, managing FATF records, correspondence, and websites, and performing other tasks and responsibilities by the FATF president or Plenary.

Pakistan and FATF:

Since 2000, the Task Force’s review committee has published a list of blacklisted countries. The non-complying countries are mentioned in the list which either do not follow the FATF recommendations, unable to formulate effective strategies or get fail in compliance with FATF rules and policies. The list is named as “grey list”.

In 2012, Pakistan was placed on the grey list due to its lack of structural deficiencies. In 2019, Pakistan progress was observed by the global community as it was compliant with 5 targets on a 27-target plan. In February 2020, FATF declared Pakistan fully compliant on 14 points. The AML/CFT has given the deadline to comply with the remaining points. The Prime Minister of Pakistan, Imran Khan has taken strict action against corrupt politicians. PM’s efforts, which include tax changes, financial data collection, and severe financial transaction monitoring, will assist in combat money laundering but is likely to take time to eradicate such activities by empowering institutions.

Sources used for Money Laundering and Terrorism Financing:

Various terrorist organizations, independent individuals, non-state actors or, extremists are responsible for the escalation in money laundering and terrorism financing. The major sources of the crimes are Hawala / Hudi system, theft, robberies, kidnapping, funding via fraud NGOs, illegitimate business, and other petty crimes.Some people use methods of transferring money such as Hawala / Hundi or Chiti Banking (used in Thailand) to save money and not to be detected and reported. In this system, money is not transferred physically but by a trustful Hawaladar so there is no record of such transferred money.In 2002, the US Treasury Department studied the Hawala system and its role in money laundering. It declared that Pakistan is having the Hawala system for not only money laundering but drug trafficking or other crimes as well.

Consequences of ML/FT:

The countries that are listed in the grey list, face economic complications on an international level. They encounter economic sanctions from World Bank, IMF and ADB. The countries that are enlisted in the grey list face problems in getting loans from World Bank, ADB, IMF and other countries. One of the major Drawbacks is the reduction in international trade. Other countries lose trust and avoid investing in any project. The reduction in international trade and problems in obtaining loans can lead to serious economic distress. Such countries have higher risks and threats of getting boycott internationally.
How Pakistan can be out of Grey List?
The FATF enforces Pakistan to implement an action plan for getting excluded from the grey list.

FATF, Pakistan and International Law

Following are the strategies proposed by the FATF:

• Pakistan has to investigate the terrorist financing risks and supervise to counter them
• It is to ensure whether the authorities are taking sufficient action to enforce anti-money laundering rules and policies
• It is to verify that authorities are tracking down cash couriers and enforce rigorous limits on the unlawful flow of capital that could be used to fund terrorism
• The level of coordination between the federal and provincial agencies to be increased
• UNSCR-1267 and UNSCR-1373 to put a freeze on the resources of recognized terrorist groups
Pakistan’s Progress in Combat Financial Crime
National Counterterrorism Authority (NACTA) took the lead in regulating the movement of money after Pakistan got grey listed in FATF between 2012 and 2015. NACTA legislated the progression of money by cooperating with the financial institutes of Pakistan that include State Bank of Pakistan (SBP), Federal Board of Revenue (FBR), Federal Investigation Agency (FIA), and The Securities and Exchange Commission of Pakistan (SECP) to control the money laundering and terrorism financing within the country.

The SBP and FBR initiated the Money Declaration Forms for international bound passengers, requiring the passengers to declare their amount of money brought in and out from the state to keep a limit to the amount of money inbound and outbound from Pakistan. The collection donation for the NGOs is under observation to eliminate the element of corruption. The fundraising events are also kept under observation by the regional investigators. To further assure security within these institutions, the SECP has constituted an Anti-Money Laundering Unit and an Anti-Money Laundering Consultative Group in self-regulatory entities such as industrial development groups and financial institutions.

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