FATF lauds Pakistan's progress on countering terrorism financing; gives new six-point action plan on money laundering

Pakistan remains under "increased monitoring" with one item related to combating financing of terrorism to address; FATF hands govt six new anti-money laundering areas to work on

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President of the FATF, Dr Marcus Pleyer, addressing a press conference, on June 25, 2021. — FATF
President of the FATF, Dr Marcus Pleyer, addressing a press conference, on June 25, 2021. — FATF
  • Pakistan remains under "increased monitoring" with one CFT-related item to address.
  • FATF develops six new areas for government to work on, largely pertaining to money laundering risks.
  • FATF President Dr Marcus Pleyer thanks the Pakistani government "for their continued strong commitment to this progress".

The Financial Action Task Force has said that it recognises Pakistan's progress and efforts to address items in its country action plan that pertain to combating financing of terrorism and has encouraged it to continue progress and address as soon as possible "the one remaining CFT-related item".

It has also handed the government six new anti-money laundering areas to work on.

Addressing a press conference after the June 21-25 plenary meeting concluded in Paris, FATF President Dr Marcus Pleyer said that Pakistan remains under "increased monitoring".

"The Pakistani government has made substantial progress in making its counter-terrorist financing systems stronger and more effective. It has largely addressed 26 out of 27 items on the action plan it first committed to in June 2018," he said.

Dr Pleyer said that the plan focused on terrorist financing issues.

He said that the one key action item still needs to be completed "which concerns the investigation and prosecution of senior leaders and commanders of UN designated terror groups".

The FATF president highlighted that Pakistan has "made improvements" after the Asia Pacific Group highlighted issues in 2019 during its assessment of Pakistan's entire anti-money laundering and counter terrorist financing system.

"These include clear efforts to raise awareness in the private sector to Pakistan's money laundering risks and to develop and use financial intelligence to build case.

"However Pakistan is still failing to effectively implement the global FATF standards across a number of areas. This means the risks of money laundering remain high which in turn can fuel corruption and organised crime," he said.

Dr Player said that this is why the FATF has worked with the Pakistan government on new areas that still need to be improved as part of a new action plan that largely focuses on money laundering risks.

This includes increasing the number of investigations and prosecutions and making sure law enforcement agencies cooperate internationally to trace, freeze and confiscate assets, he said.

"This is about helping authorities stop corruption and prevent organised criminals from profiting from their crimes and undermining the financial system and legitimate economy in Pakistan," Dr Pleyer added.

Six new areas for Pakistan to work on

The FATF outlined six areas where Pakistan should continue to work to address its strategically important AML/CFT deficiencies:

(1) enhancing international cooperation by amending the MLA (Mututal Legal Assistance) law;

(2) demonstrating that assistance is being sought from foreign countries in implementing UNSCR 1373 designations;

(3) demonstrating that supervisors are conducting both on-site and off-site supervision commensurate with specific risks associated with DNFBPs (Designated Non-Financial Business and Professions), including applying appropriate sanctions where necessary;

(4) demonstrating that proportionate and dissuasive sanctions are applied consistently to all legal persons and legal arrangements for non-compliance with beneficial ownership requirements;

(5) demonstrating an increase in ML (money laundering) investigations and prosecutions and that proceeds of crime continue to be restrained and confiscated in line with Pakistan’s risk profile, including working with foreign counterparts to trace, freeze, and confiscate assets; and

(6) demonstrating that DNFBPs (Designated Non-Financial Business and Professions) are being monitored for compliance with proliferation financing requirements and that sanctions are being imposed for non-compliance.

He went on to say he wishes to "thank the Pakistani government for their continued strong commitment to this progress".

The FATF president said substantial progress has already been made "and I know the authorities will continue to work to make the necessary changes".

The next plenary meeting is due to take place in October.

Responding to a question over whether it would prove discouraging for other countries that "despite unprecedented progress", Pakistan was still placed on the grey list, he said: "Our rules and procedures are very clear — all deficiencies must be addressed."

Dr Pleyer said an earlier exit "would be also discouraging for other countries that had fully completed the action plan and then got off the list".

"The expectation is clear, we treat all countries equally."

On the recent events of uranium theft in India and whether FATF would take action, he said: "I am aware of the media reports, but I am not going to comment on something we haven't assessed. The FATF assesses countries on AML frameworks and comments on the strength of their systems following an assessment."

Speaking about mutual evaluations for India, he said there is a clear schedule for all the countries and due to COVID-19, the evaluations were delayed, but as soon as the COVID-19 situation improves, the mutual evaluation will be done for India.

FATF recognises continued political commitment

In a statement issued after the meeting, the FATF said that since June 2018, when Pakistan made a high-level political commitment to work with the FATF and APG to strengthen its AML/CFT regime and to address its strategic counter-terrorist financing-related deficiencies, "Pakistan’s continued political commitment has led to significant progress across a comprehensive CFT action plan".

"The FATF recognises Pakistan’s progress and efforts to address these CFT action plan items and notes that since February 2021, Pakistan has made progress to complete two of the three remaining action items on demonstrating that effective, proportionate and dissuasive sanctions are imposed for TF (terror financing) convictions and that Pakistan’s targeted financial sanctions regime was being used effectively to targeted terrorist assets," the statement read.

FATF noted that Pakistan has now completed 26 of the 27 action items in its 2018 action plan.

"The FATF encourages Pakistan to continue to make progress to address as soon as possible the one remaining CFT-related item by demonstrating that TF (terror financing) investigations and prosecutions target senior leaders and commanders of UN designated terrorist groups," said the statement.

According to the anti-money laundering watchdog, in response to additional deficiences later identified in Pakistan’s 2019 APG Mutual Evaluation Report (MER), "Pakistan has made progress to address a number of the recommended actions [...] and provided further high-level commitment in June 2021 to address these strategic deficiencies pursuant to a new action plan that primarily focuses on combating money laundering".

Path out of list in sight

Pakistan was hopeful that compliance in 26 out of 27 conditions in the Country Action Plan would provide sufficient grounds for its exit from the Task Force's grey list.

The matter, however, was never so simple. There are complicated categories which determine a country's compliance and real progress.

There are four possible levels of technical compliance: compliant (C), largely compliant (LC), partially compliant (PC), and non-compliant (NC).

The fear or possibility that Pakistan would not be given a clean chit in the FATF plenary meeting was already there, given past outcomes.

This is because there is another process that goes alongside the FATF's country action plan, and this is the Asia Pacific Group plan, which has its own 40 conditions Pakistan has to meet.

APG is an affiliate of the FATF. It is a regional group that acts as a bridge between FATF and Pakistan because Pakistan is not a member of FATF. The total number of FATF members is 39. There are 37 countries besides organisations of regional cooperation, including the European Commission and the Gulf Cooperation Council.

The FATF relies on its network of regional groups and these groups forward the case of that country to the FATF based on the technical assessment of a country and the International Co-operation Review Group, in light of the recommendations of the regional group, evaluates a country's performance.

Since 2018, when Pakistan was put on the grey list, this group has been giving its input in Pakistan's Mutual Evaluation report.

On the recommendations of this group, Pakistan has remained on the grey list for the last three years.

However, now the Asia Pacific Group has also confirmed that Pakistan has complied with 30 of its own 40 conditions. And with this latest development, the path out seems in sight.