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Last updated: 26 Oct 04:00 PM Pakistan

Finance Ministry Hoping Pakistan will Evade FATF Blacklist

ISLAMABAD, OCT 12 – The Financial Action Task Force International Cooperation Review Group will start reviewing on Tuesday Pakistan’s progress on regulations in curbing money laundering and terrorism financing.

The report and proposal for Pakistan will be submitted to FATF, which will hold another meeting in Paris from October 21 to 23 to decide whether or not to remove Pakistan from its grey list.

According to Finance Ministry officials, the meeting will be attended by members from China, the US, UK, France, Germany, New Zealand and India. The ministry says significant progress has been made on 21 of FATF’s 27 conditions, including recent legislation against money laundering and terror financing. Officials said they are optimistic.

Meanwhile, the National Counter Terrorism Authority, State Bank, Securities Exchange Commission of Pakistan and Financial Monitoring Unit have met all targets set by the multilateral body.

On the other hand, the Asia Pacific Group released a progress report on Pakistan up to February 2020. It acknowledged Pakistan for taking significant measures against money laundering and terror financing. According to the report, out of 40 recommendations, Pakistan partially implemented 25 points, well on course to meet another nine recommendations and fully implemented two recommendations.

The Financial Action Task Force is an inter-governmental body that combats threats to international financial system. A potential downgrade to FATF ’s blacklist has serious implications for Pakistan and here is why it matters.

Being on the blacklist means our banking system will be regarded as one with poor controls over Anti-Money Laundering (AML) and Countering Financing of Terrorism (CFT) standards. The FATF doesn’t impose any sanctions directly, but its guidelines are taken seriously by global financial institutions.

This means overseas Pakistanis who send remittances to Pakistan will be subject to more scrutiny. The traders who deal in imports and exports will suffer because they have to make and receive payments with the help of international banks that may either increase the cost for our banks or simply not do business with us.

 The implications for the economy as a whole can be far more serious. Being placed on FATF’s blacklist can affect capital inflows and lower investment to Pakistan, thus hurting the ongoing IMF programme.

Raising funds from global capital markets will be difficult, which will undermine our ability to pay foreign debt. Deficiencies in our banking system got us here, but this is not the first time we have been on the FATF ’s grey list. We were removed from the grey list in February 2015 and placed on its white list, the one with no risk of sanctions. It put us on the blacklist again in June 2018 because of deficiencies in our AML and CFT regulations, which threaten the international financial system.

For example, Pakistan’s largest bank, Habib Bank Limited, was kicked out of New York with a fine of $225 million after it failed to comply with anti-money laundering regulations. “The Department of Financial Services (DFS) will not tolerate inadequate risk and compliance functions that open the door to financing of terrorist activities that pose a grave threat to the people of this State [New York] and the financial system as a whole,” the American regulator had said.

FATF is a global watchdog for illicit financial activities and comprises experts from Indonesia, China, the UK, Maldives, US, and Turkey. Since Pakistan is a member of the Asia Pacific Group on money laundering, which falls under the FATF’s purview, it has to ensure technical compliance with the AML and CFT standards.

Money laundering and terrorist financing is a crime in Pakistan, but the country has not been able to enforce this law effectively. Despite making progress on the global AML and CFT index, Pakistan remains on the list of countries with significant risk.

Pakistan’s rank dropped to 23 in the global AML Index 2019, two levels below the previous year’s position. The country improved its score by 0.04 points to 6.45 points in 2019 on the Basel AML Index, an independent annual ranking that assesses the risk of money laundering and terrorist financing around the world.

Among 125 countries assessed for the 2019 report, Pakistan was among the 74 countries with a risk score of 5.0 or above. These were the countries that could be loosely classified as having a significant risk of money laundering and terrorist financing, the report said. With 2.68 points, Estonia has the lowest level of risk, while Mozambique faces the highest risk with 8.22 points.

Money laundering and terrorist financing continue to cripple economies, distort international finances and harm citizens around the globe, says Basel AML Index Report 2018. It estimates the amount of money laundered worldwide ranges from $500 billion to a staggering $1 trillion.

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