NationalVOLUME 16 ISSUE # 15

FATF: How to transit from grey to white list?

As against Pakistan’s expectations, the Financial Action Task Force has decided to keep the country on its “grey list”. Pakistan’s status will now be reviewed at an extraordinary plenary session in June 2021.

It may be recalled here that the Paris-based global watchdog (FATF) put Pakistan on its grey list in June 2018, because it found the country’s legal and other systems against money-laundering and terror financing deficient. Pakistan’s system to control money-laundering (ML) and terror financing (TF) was found wanting. The deficiencies were strategic in the areas of financial sector, border control, legal standards, investigations and prosecutions.

According to the FATF, when it places a country on the grey list, it implies that the country has committed to resolving swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring. Non-performance can lead to being described as high-risk jurisdiction, subject to a call for action, commonly called blacklist, which will entail penalties, like international financial exclusion.

Responding to the challenge, Pakistan committed to a 27-point action plan. Around 10 items on the 27-point action plan pertain to the strengthening of the financial sector’s security, regulator protocols and border controls. Nine points belong to targeted financial sanctions against proscribed organizations and eight cover robust investigation and prosecution mechanisms and systems. At least three dozen laws at the federal level had to be changed to meet the highest global standards along with upstream and downstream reporting networks.

Meeting the FATF’s benchmarks was no easy task. Pakistan has a longstanding culture of fundraising at various levels as evidenced by collection boxes found at shops and stores and door-to-door fundraising by all and sundry. The situation is further complicated by the fact that the country’s informal economy is as big as the formal one. Further, ours is a society where private armed mafias can operate with impunity as in our court cases remain undecided for generations.

Although Pakistan missed several deadlines, yet reaching a compliance level of 24 targets out of the 27-point action plan is an achievement. The government undertook a whole lot of reorganisation of the legal, security, financial, trading, religious, regulatory and law enforcement structures that have been nonexistent since long.

Pakistan has made progress across all action plan items and has now addressed 24 of the 27 action items. It simply means that Pakistan has fully or largely acted upon all 10 areas of the financial sector and border control. Eight out of nine milestones under targeted financial sanctions are also completed while six out of eight on investigations and prosecutions are covered. The remaining three items include two targets on investigations and prosecutions and one in targeted financial sanctions.

The outstanding three action points include (i) demonstrating that terror financing investigations and prosecutions target persons and entities acting on behalf or at the direction of the designated persons or entities, (ii) demonstrating that terror financing prosecutions result in effective, proportionate and dissuasive sanctions, and (iii) demonstrating effective implementation of targeted financial sanctions against all designated terrorists, specifically those acting for or on their behalf.

After the latest review, FATF President Dr Marcus Pleyer said,” Pakistan remains under increased monitoring.” The FATF has acknowledged Pakistan’s high-level political commitment since 2018 that led to significant progress. It was also noted by the FATF member countries that Pakistan is subject to perhaps the most challenging and comprehensive action plan ever given to any country, saying the country was also subject to dual evaluation processes of the FATF with differing timelines

The FATF President, however, added that while Islamabad had made “significant progress”, some serious deficiencies in mechanisms to plug terrorism financing still remain. Among other things, Pakistan is now required to improve the process of investigations and prosecutions of all groups and entities financing terrorists and their associates and demonstrate that penalties by courts are effective. According to the FATF, Pakistan “should continue to work on implementing the three remaining items in its action plan to address its strategically important deficiencies.”

The government’s focal person on FATF, Federal Minister Hammad Azhar, has averred that Pakistan had completed “almost 90 per cent” of its current FATF action plan with 24 out of 27 items rated as “largely addressed” and the remaining three items “partially addressed”. Pakistan is now working towards its commitment made to implement the illicit financing watchdog’s recommendations. As soon as Pakistan shows that it has completed these items, the FATF will verify the sustainability of the reforms and discuss the matter in the next plenary in June. Hopefully, Pakistan will have done enough to make it to the white list by that time.