As part of its ongoing review of compliance with the AML/CFT (Anti Money Laundering/ Combating the Financing of Terrorism) standards, the Paris-based global anti-terror financing watchdog, FATF (Financial Action Task Force) has in its review statement issued on Feb 22, expressed some satisfaction on the steps taken by Pakistan towards improving its AML/CFT regime [See Box for details]. Nevertheless, the FATF also identifies 10 "jurisdiction deficiencies" that pose a risk to the international financial system and demands more steps to be taken to fulfil the commitment that Pakistan has made since June 2018.

The FATF statement says, "Pakistan has revised its TF (Terror Financing) risk assessment; however, it does not demonstrate a proper understanding of the TF risks posed by Da’esh, AQ [al-Qaeda], JuD [Jamaat-ud-Dawa], FIF [Falah-i-Insaniyat Foundation], LeT [Lashkar-e Taiba], JeM [Jaish-e-Muhammad], HQN [Haqqani Network], and persons affiliated with the Taliban." Moreover, the FATF urges Pakistan to swiftly complete its action plan, particularly those with timelines of May 2019.

The latest review is based on the report submitted by the Asia-Pacific Group (APG), an associate firm of the FATF, in January to the International Country Risk Guide (ICRG) -- Political Risk Services (PRS) group. The meeting was held in Sydney, Australia in which a high-level delegation from Pakistan participated and tried to satisfy the FATF regarding the steps the government had taken under the given guidelines.

On February 21, a day before the FATF released its recent statement, Pakistan’s National Security Committee (NSC) reinstated a ban on the JuD and FIF. At the same time, the Punjab government took over control of a campus comprising Madrassatul Sabir and Jamia Masjid Subhan Allah in Bahawalpur, allegedly the headquarters of Jaish-e-Muhammad and appointed an administrator to manage its affairs. By putting the names of these two organisations, the total number of banned organisations in Pakistan increased to 69 from 60 at the time of the announcement of National Action Plan (NAP) on December 24, 2014.

Both JuD and FIF were declared proscribed groups by former president Mamnoon Hussain through an ordinance amending the Anti-Terrorism Act in this regard. Nevertheless, after the ordinance became ineffective in October 2018, the names of both organisations were transferred from the list of proscribed organisations to the "Under Watch" list.

Before the latest development, JuD and FIF were under the watch of Interior ministry along with two other organisations "Ghulaman-e-Sahaba (GS) and Maymar Trust" under Section 11-D-(1), read with Schedule-II of the Anti-Terrorism Act.

Interestingly, the NSC has notified JuD and FIF as proscribed organisations through the Ministry of Interior but both organisations are still shown under the watch list of NACTA (National Counter Terrorism Authority) on its website.

Security analyst and director Pakistan Institute for Peace Studies, Muhammad Amir Rana, says that the step taken by Pakistan a day before the FATF review statement should have been taken much earlier. "In June 2018, Pakistan made a high-level political commitment to work with the FATF and APG to strengthen its AML/CFT regime to address its strategic counter-terrorist financing-related deficiencies. The lethargic attitude must be abandoned now because time is running short to get our name removed from the grey list.

"It appears the act of slapping a ban on Jud and FIF was more to avoid India’s pressure after the Pulwama incident rather than fulfilling the commitment made with FATF. The action against JeM’s seminaries in Bahawalpur was certainly the result of India’s pressure to defuse tension between the two countries."

In addition, Rana says, Pakistan is going to see the IMF (International Monetary Fund) soon for loan approval. "The steps taken against these organisations will surely help Pakistan to make to the negotiation table uninterrupted."

The FATF statement further says: "The FATF and the FATF-style regional bodies (FSRBs) will continue to work in the jurisdictions noted below [see Box] and report on the progress made in addressing the identified deficiencies. The FATF calls on these jurisdictions to complete the implementation of action plans expeditiously and within the proposed timeframes. The FATF will closely monitor the implementation of these action plans and encourages its members to consider the information presented below [Box]," the statement adds.

Two parallel FATF monitoring processes are presently underway, one from the Asia Pacific Group (APG) that has given 40 recommendations and FATF’s own Action Plan whose total 27 recommendations need to be followed till September 2019. If Pakistan does not fulfil all the 27 recommendations by September 2019, it will get a year’s extension to achieve this target. But if FATF finds Pakistan’s work unsatisfactory, it can be blacklisted, which can have serious repercussions for the country and make the financial situation even worse.

The Pakistani business community has already started facing problems at the international level. Chairman Pakistan Industrial & Traders Association (PIAF) Mian Nauman Kabir says "the international buyers are already reluctant to accept our LCs (Letter of Credit); obligatory for export business. The consistent position in FATF’s grey list and its unsatisfactory statements are badly hitting our credibility. We are facing serious difficulties in payments to even China.

"If FATF keeps us in the grey list for the next one year; mark-up rates will increase, the process to send money abroad will be more complicated. This situation will discourage foreign investments, can frustrate multi-national companies working in Pakistan and eventually compel them to find an alternative market."

According to the State Bank of Pakistan (SBP), foreign remittances sent by overseas Pakistanis have increased by 13 percent, 5.4 billion US dollars, in the first quarter of the 2018-2019 fiscal year. Mian Kabir believes these remittances are providing oxygen to our struggling economy but the consistent position in the grey list will create lots of problems for people overseas in sending money to Pakistan. "Government must consider all the threats aimed at us, and practically show to the world and FATF that we are seriously trying to eliminate miscreants from our soil; otherwise increasing financial complications can drag us to complete darkness," says Kabir.

Amir Rana says there is not much time left to act against terrorist groups and organisations. "The gravity of FATF’s recent statement puts heavy burden on us and demands quick and serious action to get out of the grey list. Considering, the repercussions, government must give up its sluggish approach. The state has the capacity to eradicate such miscreants within the given deadline."

FATF’s latest review 

FATF demands that Pakistan continues to work on implementing its action plan to address its strategic deficiencies which include: (1) adequately demonstrating proper understanding of the risks posed by the terrorist groups mentioned above; (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) demonstrate that competent authorities are cooperating and taking action to identify and take enforcement action against illegal money or value transfer services (MVTS); (4) demonstrate that authorities are identifying cash couriers and enforcing controls on illegal 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) demonstrate 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) demonstrate 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 TF 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.