Pakistan’s high-level commitment to work with the Financial Action Task Force (FATF) and Asia Pacific Group (APG) to strengthen its AML-CFT Regime and to address its strategic and counter-terrorist financing deficiencies took another turn when at the June 2021 plenary meeting, it was assigned with an additional six-point action plan.

This requires addressing issues related to international cooperation through mutual legal assistance, implementation of United Nations Security Council Resolution 1373, addressing risk associated with designated non-financial businesses and professions (DNFBPs) and implementation of sanctions, application of sanctions for non-compliance of beneficial ownership, aligning money laundering (ML) prosecution, and investigation with risk profile including tracing, freezing and confiscating of assets with collaborating foreign counterparts.

The new action plan specifically requires monitoring for compliance of DNFBPs and imposition of sanctions in case of violations.

Pakistan was also asked to investigate and prosecute targetted senior leaders and commanders of UN-designated terrorist groups. However, because of rapid changes in the affairs of our neighbouring country, Afghanistan, where a walkover has been given to the Taliban by the US and its coalition partners, the situation has taken an interesting turn for Pakistan.

Pakistan has a long history of involvement in Afghanistan, both “on field” and “off field” with our political leadership and military establishment being involved in different roles, sometimes as friends to Taliban and sometimes as adversaries. This perplexity has created lots of problems for Pakistan, both at the domestic and international levels.

Though Pakistan was not given importance in the “peace deal” and evacuation process, in the wake of most recent events, it is again gearing up to play its cards to restore its influence and confidence over the new regime in Afghanistan.

Meanwhile, the next plenary of the FATF is approaching and Pakistan is working with the AGP and the FATF to address the new action plan. The new developments have changed the entire scenario. The agreement executed between the parties says that the United States (US) and coalition partners will refrain from using threats or force against them. Moreover, the US has agreed to release the Taliban prisoners. The US will also collaborate with members of the United Nations Security Council and Afghanistan to remove Talibans’ names from the sanctions list.

The FATF recommends that every country implement the targetted financial sanctions regimes and comply with the United Nations Security Council resolutions (UNSCRs) relating to the prevention and suppression of terrorist financing, e.g. UNSCR 1267(1999) and its successor resolutions (the Al Qaida/ Taliban sanctions regimes) and UNSCR 1373(2001) requires countries to freeze, without delay, the funds or other assets of, and to ensure that no funds or other assets are made available, directly or indirectly, to or for the benefit of, any person or entity designated by UNSC under Chapter VII of the Charter of the United Nations.

To date, Pakistan has made a substantial effort to address deficiencies identified in the MER regarding its UNSCR 1267/1989 and 1988 and UNSCR 1373 designations framework. The targetted financial sanctions are implemented without delay and the scope of freezing obligations and prohibitions is aligned with FATF requirements. Financial institutions and mostly DNFBPs are required to promptly report any assets frozen or actions taken to comply with the prohibition requirements of the relevant UNSCRs, including attempted transactions.

Following the recent developments, it has been widely reported in the media that Afghanistan wants to be a part of the landmark China-Pakistan Economic Corridor (CPEC) and Belt and Road Initiative (BRI), earlier called the One Belt, One Road (OBOR) initiative.

This may sound like music to some ears but at the same time, we must be very cautious while developing any trade ties with Afghanistan because it neither has developed institutions nor is competent or respectful towards such global best practices. Any illegal activity in Afghanistan can therefore leave a footprint on Pakistan’s financial and corporate framework. Hence, we must be aware of our risk profile and appetite.

After the peace agreement and US withdrawal from Afghanistan, what will be the reaction of the global community regarding treatment of the Taliban once considered terrorists or threat to global peace; particularly when the second phase of the implementation of the agreement requires that US collaboration with the UN Security Council members to remove their names from the sanctions list?

If the UN Security Council considers removing the Taliban names from the sanctions list, the objectivity and need of the action plan assigned to Pakistan might not remain valid. The next plenary meeting of the FATF will clear most of the doubts regarding its action plan. However, as a responsible state, we should keep working on addressing the risk related to terrorist financing.

We should keep in mind that our institutions, both in the public and private sectors, should design their framework which not only detects threats and secures them from being vulnerable to and exploited by criminals to facilitate their activities, but also educates our financial institutions and the DNFBPs and our law enforcement agencies about the terrorist financing methods so that they can identify the potential terrorist financing risk which includes gathering of information, such as funding needs and role of the non-profit organisations operating in conflict zones.

Moreover, we should continue to monitor terrorist financing-related threats even in the absence of potential threats on our western borders. Pakistan needs to improve its mechanism of detecting potential terrorist financing-related threats posed through cross-border transactions. The main drivers of cross-border terrorist financing risks are the financial institutions and money and value transfer services sectors. The exploitation of natural resources is one of these as well, including cross-border smuggling, movement of funds, illegal trade, including material support by offering training, recruitment, and facilitation.

The only way forward is for us to revisit our currency transactions reporting requirements and align them with our national risk profile. Moreover, we should devise a system of monitoring large amounts as well as the low volume transactions which are comparatively hard to detect by the transaction monitoring system.

Our financial institutions need to make sure that their suspicious transactions reporting is aligned with the mandates set by the financial monitoring unit as addresses all the concerns raised in the recent Mutual Evaluation Report. Though we are trying to regulate DNFBPs, they are still unaware of the reporting requirements.

Financial Monitoring Unit ensures issuance of proper guidance and offers training related to the potential threats. The financial institutions, money or value transfers services, as well as DNFBPs, need to be closely monitored about their reporting regimes to minimise the potential risks.

Though we got one year for the implementation of the new action plan, the recent developments in our neighbouring country are challenging. Therefore, we must implement the risk-based approach for assessing potential threats and mitigation strategies to reduce cross-border and sector-specific terrorist financing risks.

Huzaima Bukhari & Dr Ikramul Haq, lawyers and partners of Huzaima, Ikram & Ijaz, are adjunct faculty at Lahore University of Management Sciences (LUMS), members of the Advisory Board and visiting senior fellows of Pakistan Institute of Development Economics (PIDE). Abdul Rauf Shakoori is a corporate lawyer based in the USA and an expert in white collar crimes and sanctions compliance