In September, the FATF plenary reviewed the country’s assessment. The country was also visited by a FATF team to review the actions taken by the government to implement its plan of action. The findings of the visit will be discussed at the next meeting. The Foreign Office hailed the decision as “much-awaited good news.”
FATF action plan to curb money laundering and terrorism financing
The Financial Action Task Force (FATF) is an international standard-setting and policy-making body devoted to preventing money laundering and terrorism financing. The organization was created by the G-7 Summit in Paris in 1989 and is tasked with developing international standards to combat these crimes.
The organization is in the forefront of efforts to combat abuse of the financial system. It has issued a series of money laundering recommendations since 1990, as well as special recommendations on the growing threat of terrorism financing in 2001. These recommendations are now bundled into a single, universal instrument called the 40+9 Recommendations.
The FATF also works with regional groups that have agreed to implement certain policies. For example, the Asia-Pacific Group on Money Laundering was created in the 1990s to ensure universal anti-money laundering standards in Asia. The group’s scope of work has since expanded to include countering terrorism financing and the universal adoption of FATF special recommendations.
Although the recommendations are not legally binding, many countries have committed to implementing them. The recommendations were initially published in 1990, but were updated in 1996 and 2003 to reflect emerging trends in money laundering. The United Nations has strongly urged all Member States to comply with these standards.
As part of its commitment to the FATF, Yemen has a high-level political commitment to work with the organization to improve its AML/CFT regime. Its recent progress on the MER’s recommendations, including criminalising money laundering, identifying terrorist assets, enhancing customer due diligence, developing supervisory authorities’ capacities, and establishing a financial intelligence unit, is encouraging.
In June 2018, the FATF placed Pakistan on the ‘Grey List’ – a list of countries considered a safe haven for money laundering and terrorism financing. The country was previously placed on the Grey List in 2008 but removed from it in 2009. However, the country was also placed under increased monitoring from 2012 to 2015. Countries on the Grey List are considered safe havens for money laundering and terrorism financing, and their inclusion on the list serves as a warning to other countries in the region.
The DRC’s action plan to curb money laundering and terrorism finance outlines a series of steps the country must take in order to implement the FATF action plan. Its first step is to finalise its National Risk Assessment on ML and TF. Its second step is to implement a comprehensive AML/CFT national strategy. The country must also designate supervisory authorities for all DNFBP sectors, develop a risk-based supervision plan, and strengthen its FIU.
Impact of greylist designation on Pakistan’s economy
In June 2018, the Financial Action Task Force (FATF) put Pakistan on the greylist, a designation that requires countries to improve their money laundering and anti-terrorism laws. The organization, which was founded in 1989, monitors international financial transactions to help prevent the financing of terrorism and other serious crimes.
The greylist designation had serious consequences for Pakistan’s economy. In its first year on the list, the country lost over $38 billion in real GDP, according to the FATF. In 2016 alone, the country lost $13.4 billion in GDP, and another $1.54 billion in 2015. However, when Pakistan was taken off the greylist, its economy increased significantly. It is unclear whether the economy is back to where it was before the greylist designation.
In the case of Pakistan, a greylist designation would impact its banking channel, which is directly linked to the international financial system. This could have a wide-ranging effect on the country’s economy. For one thing, it would make it more difficult for the country to borrow money from foreign countries, and it would deter some from doing business with it.
However, Pakistan’s economy is in dire need of foreign investors. A blacklist designation would negatively impact imports and exports, as well as remittances. It would also make it more difficult for Pakistan to access international lending. Furthermore, banks would have to tighten their compliance procedures in order to keep their access to the SWIFT system, a global communication network of financial institutions.
The negative impact of the greylist designation on Pakistan’s economy is also evident from the report. The government has not done enough to crack down on terrorist financing in Pakistan. The government is downplaying this potential negative impact, citing recent economic growth figures. The country boosted its foreign reserves in 2012-2015 and increased GDP by over four per cent in 2014.
The FATF’s greylist placement has severe financial and reputational implications for Pakistan, as the country faces stringent sanctions from the FATF if it remains on the list. In addition, it could lead to a blacklist designation by the organization, which would impose severe financial restrictions and discourage foreign direct investments. However, even if Pakistan is delisted from the greylist, it might not lead to the country’s economic recovery. As the World Bank report noted, the country’s economy is still suffering from structural problems that need to be addressed before it can attract more investment and trade.
Strengthening of country’s AML/CFT regime
Strengthening a country’s AML/CFT regime has a variety of benefits. It can help a country fight international financial crime. It is the responsibility of a country’s government to make AML/CFT measures as effective as possible. International organisations, such as the World Bank and IMF, have been active in researching effective AML/CFT measures.
To build an AML/CFT regime, a country must enact legislation and train its financial sector. These laws should criminalize money laundering and terrorist financing and establish effective mechanisms for asset freezing. In addition, financial regulators should ensure that banks adhere to know-your-customer rules and other best practices. They should also provide training for judges and prosecutors to help enforce AML/CFT laws.
One important question is the ability of international organizations to impose sanctions on non-compliant states. This is not an easy task. However, it is possible to establish if a country is complying with the rules and regulations of the AML/CFT regime.
Moreover, strengthening the country’s AML/CFT regime requires addressing the public’s concerns. Financial institutions should develop effective tools to comply with customer due diligence regulations and a central national database that allows for effective analysis and dissemination of information. To do this, a country must have an effective interagency committee to address AML/CFT concerns.
International cooperation can also help strengthen a country’s AML/CFT regime. For example, the United States could help the country address cross-border issues. Assistance from the U.S. Customs Service may help the country track suspicious cross-border transactions. In addition to international cooperation, training and resources are needed for the country to build a strong AML/CFT regime.
Another way to strengthen a country’s AML/CFT regime is to develop a specialized agency that will collect and analyze financial information. These institutions must report any transactions that raise suspicion. The IMF and the World Bank have both recognized the need for FIUs as an essential part of an AML/CFT strategy.
The IMF is concerned about the implications of the financing of terrorism and money laundering on member economies. These problems can affect the soundness of financial institutions, stability of financial systems, and foreign direct investment. A strong AML/CFT regime will help prevent such threats.
Failure of Pakistan to prosecute “proscribed individuals”
Pakistan has failed to prosecute “proscribed individuals” for acts of terror. There are key convictions of members of the Lashkar-e-Taiba (LeT) and Jamaat-ud-Dawa (JuD) groups, but Pakistan has failed to prosecute individuals who are members of other organizations that are proscribed by the government. Jamaat-ud-Dawa is a religious education and humanitarian relief organization that is also a designated front for LeT.
The law of Pakistan is based on the legal system of British India and is a hybrid of Common Law and Sharia. It has two levels of courts, civil and criminal, with trial and appellate courts. It is based on the principles of the Common Law and is administered by a judicial system that is based on those principles.
Pakistan has made significant progress in preventing money laundering and countering terrorism. It has also taken action to identify illegal money transfer services. But it still needs to take further steps to implement the FATF action plan. Pakistan is aiming to finish all action items in 2020 and upgrade from the grey list to the white list.
While Pakistan has implemented a number of best practices in its tax administration, the country continues to face challenges. Its revenue base is low and government borrowing from the State Bank of Pakistan is at astronomical levels. Revenue administration is further compromised by the lack of a social accountability system. While the rich class can avoid paying their taxes, the poor continue to bear the burden.
The failure of Pakistan to prosecute “proscribed individuals”, by contrast, is a troubling issue. The country’s legal system was influenced by colonisation, and Pakistan adapted the common law after independence. This resulted in Pakistani law being more liberal.
