An Uneasy Relationship: the legal complexities between FATF and Pakistan

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February 17, 2021
Mehreen Naushad
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Pakistan has always had a tumultuous relationship with the Financial Action Task Force (FATF) since 2008. The placement of Pakistan on its ‘Jurisdiction under Increased Monitoring’ list, also known as the ‘grey list’ is another mark in the long relationship between FATF and Pakistan. FATF is an international policy making body that has developed a

Pakistan has always had a tumultuous relationship with the Financial Action Task Force (FATF) since 2008. The placement of Pakistan on its ‘Jurisdiction under Increased Monitoring’ list, also known as the ‘grey list’ is another mark in the long relationship between FATF and Pakistan. FATF is an international policy making body that has developed a set of international standards and measures to combat money laundering and counter-terrorist financing. It undertakes assessments of compliance and review the level of a country’s anti-money laundering (AML) and countering the financing of terrorism (CFT) system. A poor evaluation may result in the country being placed under FATF’s blacklist or grey list.

In the case of Pakistan, FATF recognises Pakistan as a country that represents a higher risk of money laundering and terrorism financing, but have committed to working with FATF to develop action plans that will address their AML/CFT structural deficiencies. Under this list countries are subject to increased monitoring by FATF. In case of a country failing to comply with the FATF standards, they may be placed under FATF’s ‘High-Risk Jurisdictions subject to a Call for Action’ or blacklist. Such a country is likely to face economic sanctions and other prohibitive measures by not only FATF member states, but also other international organisations such as International Monetary Fund and the World Bank.

Pakistan first figured in FATF’s grey list in February 2008. FATF claimed that Pakistan posed a high risk of money laundering and being non-cooperative in implementing international measures on terrorist financing. Pakistan was removed from the list soon after it made progress towards adopting certain technical measures such as the promulgation of anti-money laundering legislation i.e. the Anti-Money Laundering Ordinance. Despite being removed from the grey-list, FATF recognised that there still existed a number of remaining structural deficiencies in Pakistan’s AML/CFT regime and urged the country to continue its efforts towards improving its AML/CFT laws to come into closer compliance with international standards. It also encouraged Pakistan to work in close association with Asia Pacific Group to achieve the said standards.

Subsequently, in July 2009, the World Bank assessed the implementation of AML/CFT measures in Pakistan. The Mutual Evaluation Report highlighted concerns regarding the money laundering and terrorist financing risks emanating from Pakistan. In February 2010, FATF while appreciating Pakistan’s efforts to introduce a permanent AML/CFT framework through legislation remain concerned about the risk posed by structural deficiencies such as institutional capacity, and the expiration of the Anti-Money Laundering Ordinance. FATF encouraged Pakistan to establish and implement a comprehensive and permanent framework to regulate AML/CFT risks.

Pakistan in June 2010 gave FATF a high-level political commitment to cooperate with FATF and Asia Pacific Group to address the its strategic AML/CFT deficiencies including criminalization of money laundering and terrorist financing; establishing mechanisms to identify, freeze and confiscate terrorist assets; instituting an effective and fully operational Financial Intelligence Unit; developing regulation of money service providers, and an appropriate sanctions regime; and implementing effective control for cross border transactions.

In 2011, FATF claimed that they remain unsatisfied with Pakistan’s progress in implementing its action plan to address the deficiencies. Pakistan failed to provide a satisfactory response to FATF’s concern with regards to the lack of implementation. In response, FATF urged the Government of Pakistan to demonstrate specific action in this regard.

In 2012, FATF placed Pakistan on the list of countries who have “jurisdictions with strategic AML/CFT deficiencies that have not made sufficient progress in addressing the deficiencies or have not committed to an action plan developed with the FATF to address the deficiencies”. While FATF appreciated Pakistan’s efforts to improving its AML/CFT – through the enhancement of the Financial Investigation Unit’s capacity, promulgation of the United Nations Security Council (Enforcement) Order 2012, issuance of Statutory Regulatory Orders to increase the maximum monetary sanction for non-compliance with S/RES/1267, and amending the Anti-Terrorism Act to criminalize terrorist financing, promulgation of Anti-Terrorism Amendment Ordinance that establishes procedures for the identification and freezing of terrorist assets and allows Pakistan to implement UNSC 1373 – s it was not considered to be sufficient progress.

It was only in 2015 that Pakistan was “no longer subject to the FATF’s monitoring process under its on-going global AML/CFT compliance process”. In a statement by FATF, it welcomed Pakistan’s progress in improving its AML/CFT regime by establishing the legal and regulatory framework for the same.

However, this remained to be a short-lived reprieve as Pakistan was back on FATF’s grey list in 2018. FATF identified structural deficiencies in Pakistan’s regulatory framework. It cited weaknesses in the laws, regulations, oversight mechanisms, coordination between law enforcement agencies, prosecution agencies financial entities and regulators. Consequently, FATF in collaboration with the International Cooperation Review Group issued a 27 Point Action Plan for Pakistan to remedy these deficiencies.

Pakistan in order to implement the 27 Point Action Plan undertook several law enforcement operations including issuance of technical guidelines, and established governmental bodies and task forces. Till October 2019 Pakistan made significant legislative and administrative reforms. However, they only managed to become largely compliant on 05 out of the 27 points. Following this Pakistan amended key legislations such as the Anti-Terrorism Act 1997, and the Anti-Money Laundering Act 2010, therefore making Pakistan compliant on 14 out of 27 points by February 2020.

In 2020, Pakistan enacted fifteen new laws and several guidelines to ensure compliance with the Action Plan such as the Mutual legal Assistance (Criminal Matters) Bill 2020. In addition to this, Pakistan also demonstrated its compliance to curbing money laundering and terrorist financing by instituting a crackdown on proscribed terrorist organisations. This spurred Pakistan to be largely compliant on 21 out of 27 points at FATF last plenary meeting in October 2020.

FATF has urged Pakistan to achieve all of the 27 Action Points by February which is to be followed by an onsite assessment of its AML/CFT regime in order to finally remove Pakistan from the grey list. However, the question that arises now is whether Pakistan can successfully highlight its compliance with the remaining action points in the next plenary meeting. If not, would Pakistan be black listed by FATF or would it remain on the grey list with an extension to show compliance.