The Asia-Pacific Group (APG) on Money Laundering has retained Pakistan on its “Enhanced Follow-Up” list for a meagre progress on technical recommendations of the Financial Action Task Force (FATF) to fight money laundering and terror financing.
The first Follow-Up Report (FUR) on Mutual Evaluation of Pakistan released by APG — a regional affiliate of the Paris-based FATF — showed Pakistan improving its full compliance on two of the 40 FATF recommendations on the effectiveness of anti-money laundering and combating financing terror (AML/CFT) system.
It was compliant on one item exactly a year ago. Pakistan’s progress largely remained unchanged – non-compliant on four counts, partially compliant on 25 counts and largely compliant on nine recommendations.
“Pakistan will remain in enhanced (expedited) follow up, and will continue to report back to the APG on progress to strengthen its implementation of AML/CFT measures,” concluded the APG in its 12-page report.
Overall Pakistan has made some progress in addressing the technical compliance deficiencies, identified in its mutual evaluation report and has been re-rated on one recommendation.
FATF’s affiliate understands country has made robust progress on 27 action points, including legislation in 15 areas
Based on this progress, Recommendation-29 has been re-rated to ‘compliant’. This improvement is based on amended Income Tax Ordinance 2001 (section 216) which now allows Financial Monitoring Unit (FMU) to have access to tax records and information maintained by Federal Board of Revenue (FBR). Also, the provincial counterterrorism departments (CTD) have been designated as investigation and prosecution agencies under AML Act. This would allow the FMU to disseminate information to the CTD without a court order.
The report noted that measures had been taken on Recommendation-1 pertaining to vulnerability of the national savings, Pakistan Post and real estate dealers to money laundering and terror financing, but said the progress “is not yet sufficient to justify a re-rating”. It also said the analysis and rating for Recommendation-6 were subject to a “major disagreement and consistent with APG procedures” had been referred for ‘in-session discussion at the next APG plenary” and hence not considered for this report. This pertains to targeted financial sanctions related to terrorism and terrorist financing.
In the Mutual Evaluation Report, published in October 2019, Pakistan was compliant on one, non-compliant on four, partially compliant on 26 and largely compliant on nine recommendations. The only change over the last one year has been graduation on one partially compliant recommendation to compliant status.
Pakistan had requested for re-ratings on three areas declared partially compliant by the APG in October last year. The request was accepted on one count and rejected on two due to ‘insufficient’ progress to the satisfaction of international experts.
While the APG report has come only a couple weeks before FATF’s virtual review meeting, scheduled to be held from October 21 to 23, it has no immediate bearing on the upcoming assessment of Pakistan whether it should be retained or moved out of the grey list.
The APG’s performance review is based on the country’s performance as of February this year on technical recommendations. The country in recent months is understood to have made robust progress on 27 action points, including necessary legislation in 15 areas.
The 41-member APG had adopted the third Mutual Evaluation Report on Pakistan during the August 13-18 meetings in Canberra, Australia and downgraded the country to “Enhanced Follow-up” category over technical deficiencies to meet normal international financial standards by October 2018. As a result, Pakistan has since been required to submit quarterly progress reports, instead of biannual, to the APG, to show improvements in its technical standards on AML/CFT.
The report said Pakistan had taken a number of steps to more comprehensively identify and assess the money laundering and terror financing risks by conducting a Terrorist Financing Risk Assessment (TFRA) and a sectoral risk assessment on cash smuggling.
This will be upgraded every two years. Finally, in November 2019, Pakistan issued a confidential paper on transnational terror financing threat profiles of key terrorist organisations. However, the risk assessments associated with Designated Non-Financial Business and Professions (DNFBPs) as well as legal persons and legal arrangements are still very general in nature and appear to be based on limited data.
The report also noted that Pakistan authorities considered 12 terrorist organisations, including eight UN-designated entities of concern (EOCs), for threat profiles but only in terms of inflows and not outflow of funds to support terrorist activities.
It said the NRA 2019 confirmed that abuse of non-profit organisations for terror financing purposes continued to pose a significant threat both domestically and externally and that charities and fund-raising was a source of funds for almost all EOCs.
Also, it noted, terrorist organisations were known to use non-profit organisations, including registered charities e.g Falah-i-Insanyat Foundation (FIF) was a registered NPO, established by associates of Lashkar-i-Taiba.