WHAT HAPPENED IN THE FEBRUARY 2021 PLENARY MEETING?

On 25th February 2021, the taskforce stated that it decided to keep Pakistan on its grey list during the Plenary meeting. It also gave Pakistan time till June 2021 to complete the set of recommendations.

Marcus Pleyer, President of FATF praised Pakistan’s progress, however, he also mentioned that ‘serious deficiencies’ remain regarding mechanisms related to terror financing. He urged Pakistan to ‘improve their investigations and prosecutions of all groups and entities financing terrorists and their associates and show that penalties by courts are effectives’.

According to FATF’s official statement, Pakistan has made high level political commitment with FATF and APG to strengthen its AML/CFT regime and to address its strategic counter terrorist financing related deficiencies.

It urged Pakistan to work on implementing the three recommendations left which are :

• Demonstrating that TF investigations and prosecutions target persons and entities acting on behalf or at the direction of the designated persons or entities
• Demonstrating that TF prosecutions result in effective, proportionate and dissuasive sanctions
• Demonstrating effective implementation of targeted financial sanctions against all 1267 and 1373 designated terrorists, specifically those acting for or on their behalf.

WHAT IS FATF?

The Financial Action Task Force or FATF is an intergovernmental organization founded in 1989 by the Group of Seven (G-7) Summit in Paris, France. The summit recognized the growing threats of money laundering and set up FATF to develop national and international policies to eliminate the threats.

OBJECTIVES

Main objectives of FATF are to work towards promoting effective implementation of legal, regulatory and operational measures against crimes such as money laundering, terrorist financing and other related threats to the international financial system.  FATF was involved in combating drug and money laundering related crimes only but changed its mandate soon after 9/11.

FATF helps authorities go after the money of criminals who deal in drugs, human trafficking and criminal activities. It also works to stop funds for weapons of mass destruction. FATF continues to strengthen its standards to address new risks by reviewing money laundering and terrorist financing techniques. It also monitors countries to make sure they implement the FATF recommendations effectively and holds countries accountable if they fail to do so.

WHAT DO THE FATF RECOMMENDATIONS SAY?

The FATF Recommendations set out a comprehensive framework of policies and measures which each country has to implement in order to combat money laundering and terrorist financing along with financing of proliferation of weapons of mass destruction.

FATF has created 40 recommendations on money laundering and terrorist financing which include AML/CFT policies, preventive measures such as designated non financial businesses and professions (DNFBPs) etc, methodology for assessing compliance of 2013 and different practice guidelines.

In 2012, FATF introduced a revised version of its standards which included requirement for countries to undertake a national risk assessment, measures regarding proliferation financing, tax crimes as a predicate offence to money laundering, measures regarding domestic politically exposed persons and requirement for countries to ratify the UN Convention against Corruption.

In 2017, FATF introduced new procedures which would bypass regional groups in cases of countries who have ‘strategic deficiencies threatening the international system’ in which case, countries would be placed on the grey list.

 Each country needs to investigate and prosecute money laundering and terror financing. They need to criminalise both these crimes and create laws and law enforcement agencies to deal with such crimes. FATF recommends a risk based approach as the foundation of an effective AML and CTF program.

Furthermore, each country needs to make sure that businesses and professions implement measures which detect and prevent money laundering and terror financing. This can be done by preventing criminals from operating anonymously or through  a false identity by identifying customers and keeping a check and balance on them. FATF recommends that countries recognize and be aware of how criminals use new technology for terror financing.

Each country also needs to come up with a mechanism that will deprive criminals of their resources. This way, terrorist groups will not be able to finance their activities. Each country also needs to ensure that financial institutions and businesses comply with AML/CFT requirements.

It is also important to ensure transparency of legal persons and arrangements by ensuring that authorities have accurate and timely information regarding ownership and control over legal persons and arrangements.

Mechanisms have to be implemented for effective cooperation with countries for investigation and prosecution over charges of money laundering and terror financing. Countries should have proper and adequate measures to detect cross border transportation of currency and other items.

The standards set by FATF are widely regarded as the benchmark for anti money laundering, anti terrorist financing and anti proliferation financing measures by International bodies such the United Nations, International Monetary Fund, World Bank, Asian Development Bank and other organizations.

THE LISTS 

If any country refuses to comply with the recommendations, they are first put on a grey list officially referred to as Jurisdictions Under Increased Monitoring,  and given specific policies to implement. They are also given a specific timeframe. A country on the grey list can also be denied funding by the IMF, World Bank and ABD. They may also face a reduction in international trade, can be denied access to financial markets and may be boycotted internationally.  Such countries are subject to increased monitoring by FATF which is done either directly by the organization or through FATF style regional bodies (FSRBs) who report on the country’s progress regarding AML/CFT goals. As of February 21 2020,  countries on the grey list include Ghana, Iceland, Jamaica and Pakistan.

If a country still fails to comply, they are put on the blacklist also known as High-Risk Jurisdictions subject to a call for Action,which includes mandatory sanctions and international isolation. Countries on the blacklist are considered to be countries who are non-cooperative towards combating money laundering and terrorist financing. FATF describes countries in this list as ‘having significant strategic deficiencies in their regimes to counter money laundering, terrorist financing, and financing of proliferation’. Current countries which are on the black list are Iran and North Korea.

The blacklisted and grey listed countries require firms to have risk based AML/CFT protections to mitigate the threat. These firms screen customers against the blacklist and grey list during onboarding and throughout their business relationships. They also have to monitor transactions and ensure that customer due diligence measures are effective. When a suspicious activity is detected, firms have to submit a suspicious activity report (SAR) to the authorities for action.

FATF AND PAKISTAN

Pakistan was under evaluation in 2005, 2009 and 2018. In 2005 and 2009, there was a need for National legislation regarding money laundering and terror financing. Thus, Pakistan was blacklisted in 2010-2012 for non compliance.  In 2012, Pakistan was upgraded to grey last after it enacted the Anti-Money Laundering Bill and by setting up the Financial Monitoring Unit.

Currently, FATF stated that Pakistan completed the 21 out of 27 points of action and has decided to keep Pakistan on the grey list until February 2021. The statement, made in October 2020, discussed the four areas that need to be addressed by the country which includes demonstrating that law enforcement agencies are identifying and investigating terror financing, effective implementation of targeted financial sanctions against designated terrorists and those acting on their behalf, preventing moving and raising of funds, freezing assets and prohibiting access to funds. The country also needs to demonstrate that terrorist financing prosecutions result in effective sanctions. It needs to show enforcement against violation of terror financing sanctions which include NPOs, administrative and criminal penalties and cooperation of provincial and federal authorities on enforcement cases.

WHY THE RECOMMENDATIONS SHOULD BE TAKEN SERIOUSLY :

The Recommendations presented by FATF should be taken seriously by all countries, It should be treated as law. Being on the grey list or black list can lead to grave outcomes  such as global isolation. It is important for countries to comply with FATF Recommendations as it will help a country develop as its main aims are to combat terror financing and money laundering, both crimes which carry with themselves serious circumstances.