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FATF Review – When there’s no will, there’s no way

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October 22, 2019 (MLN): Pakistan took a much-needed breather when the decision-making body of FATF, in its plenary meeting held from Wednesday to Friday, decided to maintain its status under the grey list, rather than put the country into the deep, dark dungeons of blacklist.

Unfortunately, this stay in the grey list is momentary as Pakistan has been given time till February 2020 to comply with all the necessary conditions set by FATF to ‘successfully’ evade the black-list. Lest the country fails to comply with the conditions, the FATF will be left with no other choice but to call on its members and urge all jurisdictions to advise their FIs to give special attention to business relations and transactions with Pakistan.

Now that we know the implications and consequences of FATF’s verdict and the future outlook of Pakistan, let’s have a look at where exactly the country went wrong. As per the official statement provided by FATF, Pakistan made progress towards improving its AML/CFT regime, including the recent development of its ML/TF risk assessment.

However, FATF expressed serious concerns with the overall lack of progress by Pakistan to address its TF risks, including remaining deficiencies in demonstrating a sufficient understanding of Pakistan’s transnational TF risks, and more broadly, Pakistan’s failure to complete its action plan in line with the agreed timelines and in light of the TF risks emanating from the jurisdiction.

To date, Pakistan has only largely addressed five of 27 action items, with varying levels of progress made on the rest of the action plan, the official statement explicitly mentioned. Besides, FATF has also handed out a list of key strategic deficiencies that Pakistan must address,

Furthermore, the Asia Pacific Group (APG) expressed dissatisfaction over State Bank of Pakistan’s (SBP) lack of clear understanding of the overall Money Laundering (ML) and Terror Financing (TF) risks, as well as a clear understanding of the ML and TF risks unique to the sectors it supervises.

“SBP is improving its understanding and is implementing a risk-based approach. SBP conducts regular on-site inspections and thematic AML/CFT supervision relating to internal controls, trade-based money laundering, and transaction monitoring systems. Based on these activities, SBP imposes a range of sanctions. Some improvement in AML/CFT compliance is evident as a result of SBP’s supervision, but the value of monetary sanctions imposed is low” the official report by APG said. 

Equal amount of blame was accorded to the Securities and Exchange Commission of Pakistan (SECP) for lacking a clear understanding of ML and TF risks. “SECP has not implemented a risk-based supervisory approach. And it has not conducted any AML/CFT supervision of the insurance sector. AML/CFT supervision of other sectors has been limited to KYC/CDD requirements. Sanctions for non-compliance are limited. There is little evidence that SECP’s supervisory activity is improving AML/CFT behavior” the statement added. 

The above-mentioned reasons are just 2 out of the total 64 factors that the APG has highlighted in its written verdict. Since June 2018, when Pakistan made a high-level political commitment to strengthen its AML/CFT regime and to address its strategic counter-terrorist financing-related deficiencies, it has only been able to address 5 of the 27 action items. So one has to wonder if, in a span of just four months, Pakistan can succeed in satisfying the additional requirements or will it be powerless to stop what seems like the inevitable.

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Posted on: 2019-10-22T09:50:00+05:00

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