FATF ‘grey list’: Pakistan gets time, but not out of the woods yet

The Paris-based Financial Action Task Force (FATF) — which had placed Pakistan on a money laundering “grey list” early in 2018, but given it time to take action before a further downgrade — on Friday issued its appraisal of Pakistan’s progress with regards to combating money laundering and terrorism financing and urged it to move quickly to meet a May 2019 deadline if it wishes to be de-listed.

“Since June 2018, when Pakistan made a high-level political commitment to work with the FATF and APG to strengthen its AML/CFT [anti money laundering/combating financing of terrorism] regime and to address its strategic counter-terrorist financing-related deficiencies, Pakistan has taken steps towards improving its AML/CFT regime, including by operationalising the integrated database for its currency declaration regime,” the FATF acknowledged in the statement.

The statement, however, was critical with respect to the work that remains to be done.

“Pakistan has revised its TF [terrorism financing] risk assessment; however, it does not demonstrate a proper understanding of the TF risks posed by Da’esh, Al Qaeda, Jamaatud Dawa, Falah-i-Insaniyat Foundation, Lashkar-e-Tayyaba, Jaish-e-Muhammad, the Haqqani Network, and persons affiliated with the Taliban,” it said.

Read more: Indian officials try to create problems for Pakistani team at FATF meeting

In order to qualify for a de-listing, the FATF has recommended that, “Pakistan should continue to work on implementing its action plan to address its strategic deficiencies, including by:

1. Adequately demonstrating its proper understanding of the TF risks posed by the terrorist groups above, and conducting supervision on a risk-sensitive basis;
2. Demonstrating that remedial actions and sanctions are applied in cases of AML/CFT violations, and that these actions have an effect on AML/CFT compliance by financial institutions;
3. Demonstrating that competent authorities are cooperating and taking action to identify and take enforcement action against illegal money or value transfer services (MVTS);
4. Demonstrating that authorities are identifying cash couriers and enforcing controls on illicit movement of currency and understanding the risk of cash couriers being used for TF;
5. improving inter-agency coordination including between provincial and federal authorities on combating TF risks;
6. Demonstrating that law enforcement agencies (LEAs) are identifying and investigating the widest range of TF activity and that TF investigations and prosecutions target designated persons and entities, and persons and entities acting on behalf or at the direction of the designated persons or entities;
7. Demonstrating that TF prosecutions result in effective, proportionate and dissuasive sanctions and enhancing the capacity and support for prosecutors and the judiciary; and
8. Demonstrating effective implementation of targeted financial sanctions (supported by a comprehensive legal obligation) against all 1267 and 1373 designated terrorists and those acting for or on their behalf, including preventing the raising and moving of funds, identifying and freezing assets (movable and immovable), and prohibiting access to funds and financial services;
9. Demonstrating enforcement against TFS violations including administrative and criminal penalties and provincial and federal authorities cooperating on enforcement cases;
10. Demonstrating that facilities and services owned or controlled by designated person are deprived of their resources and the usage of the resources.

“Given the limited progress on action plan items due in January 2019, the FATF urges Pakistan to swiftly complete its action plan, particularly those with timelines of May 2019,” concluded the statement.

The last sentence would have come as a surprise to Pakistani officials, who had been under the impression that the FATF had been appreciative of the steps they had taken by January.

Indian interference

“For the first time, our delegation felt that FATF is appreciating our performance so far,” a senior official had told Dawn in January this year on the basis of feedback received from Sydney on the conclusion of a three-day conference that had examined Pakistan’s performance.

Officials had said that the FATF team had gone through the report dispatched by Pakistan in the first week of January and appeared convinced over the steps and measures taken by the authorities to combat terror financing and money laundering in line with the United Nations resolutions.

However, officials had also reported that India had kept asking questions about the measures Pakistan had taken against Lashkar-e-Taiba, Jaish-e-Mohammad and other such organisations and demanding that they be made public.

The Pakistani delegation had explained that all actions recommended by the FATF had been taken and a compliance report submitted to its headquarters. The delegation had also made it clear that it would be Pakistan’s decision whether or not to publicise actions taken against banned organisations and that it would not bow to pressure from an adversarial state.

Pakistani officials had, however, said they would be ready to provide comprehensive responses if written queries were submitted, after which the Indian delegates had filed a total of 28 questions.

Pakistan had assured the FATF that responses to those questions would be provided in the review meeting scheduled to be held in Paris in February.

The latest FATF plenary and its various group meetings were held from Feb 18 to 22.

A four-member Pakistani delegation in Paris had been witnessing since Monday a review of Islamabad’s performance by an expert group of the FATF on its compliance with global guidelines against terror financing and money laundering.

The Asia-Pacific Group (APG), an associate firm of the FATF, presented Pakistan’s report and responses to five specific queries it was asked last month to the International Country Risk Guide (ICRG) — Political Risk Services (PRS) group.

Any further demotion from the so-called “gray list”, it is feared, could deter foreign investors and hinder Pakistan’s access to international markets amid a fiscal crisis.

A day before the announcement, Pakistan’s National Security Committee had reinstated a ban on the Jamaatud Dawa and Falah-i-Insaniyat Foundation while authorising accelerated action against extremist groups in the country.