FATF Prejudice: Pakistan’s Challenges Vis-A-Vis Combating Money Laundering, Terror Financing

The post-cold war era witnessed a major paradigm shift in the global economic, political, and security architecture. The intervening imperatives such as technological advancement and rapid global interconnectedness has revamped the patterns of crimes and illicit activities. Notably, the expansion of transnational trading activities also created non-identical vulnerabilities for projecting illegal businesses and money laundering. Likewise, the drastic evolution of proxy warfare across the globe also introduced the covert financing of terrorist activities that have drawn ambiguous configurations for transparency and surveillance mechanisms.

This growing concern compelled the global stakeholders to introduce a mechanism for combating the illegal flow of money and also hold a sustainable check on the states involved in such kind of malpractices. Sensing the uptick of illicit money flow, G-7 states in the year 1989 established an intergovernmental organization, The Financial Action Task Force (FATF) agency to combat money laundering globally. Besides, it also guides countries to bring about national legislative reforms in the respective domain to overcome such vulnerabilities at the national level. The upsurge in counterterrorism and counter insurgency broadened the sphere of FATF as well, currently, 37-member states hold membership of FATF to date along with eight regional associate members. The FATF operates with two different categories- first non-complying countries to the practices of FATF usually includes the blacklisted countries after the review of the committee. Second, the states that make efforts to combat terrorist financing but due to numerous constraints and strategic deficiencies it is placed in the grey list.

As far as Pakistan is concerned, it has been under the radar of FATF for the past two decades and putting all of its efforts to fulfill the unconventional policy measures and plan of actions that have been subtle, discriminative. From being the frontline actor against the war on terror to the staunch advocate of global peace and prosperity it has contributed to the [cause] more than any other country in the world. Despite its resilient efforts and utmost cooperation in the year 2018, the global watchdog, the Financial Action Task Force (FATF) placed Pakistan on the so-called ‘grey list’ citing its measures minimum against the money laundering and terror financing Although, It has taken stringent reformative measures and able to address 21 of the 27 action items, nevertheless, to “avert grey list status,” FATF urged to overcome punitive residual strategic deficiencies through inclusive national policies aligned with the suggested recommendations in the given grace period till the next month. It is pertinent to highlight that the political and institutional commitment has never been taken into account by the FATF regional body by taking the final verdict against Pakistan. Over the period, different national institutional agencies- The NACTA, FIA FBR, State Bank of Pakistan, and the Securities and Exchange Commission of Pakistan has done a commendable job to ensure the enhanced surveillance over the money laundering and terror financing activities in the country.

NACTA has taken radical measures to further robust counterterrorism measures through developing an integrated strategy for addressing the plausible vulnerability of Terror Financing and Money Laundering all across the country at the regional and provincial levels. One of the key successes that Pakistan has attained in its aligned principles to FATF is the successful adoption of proscribed UNSCR resolutions 1267/1989/1988, and UNSCR 1373 through two drafting two different reformative measures. Pakistan gives domestic effect to UNSCR 1267 by issuing Statutory Regulatory Order (SROs) following an update to listings by the UN. Despite recent improvements in implementing UNSCR 1267 without delay, there are numerous instances where SROs were issued several days after changes to listing at the UN, Pakistan has banned the proscribed 66 entities and approximately held 7,600 individuals, but the public list on NACTA’s website included very limited identification information.

In the financial sector, Pakistan has established twofold technical compliance with FATF proposals, and crucial enhancements that required for the viable execution of preventive measures. Most banks and economic cooperation’s successfully apply record-keeping prerequisites and have risk-based arrangements and procedures. Banks and ECs implement interior controls and have AML/CFT compliance officials, screen new staff, and have on-going training programs and inward review capacities. Apart from this, the current government has been emphasizing the various reformative and constitutional reforms to ensure the FATF protocol compliance at its fullest. Prime Minister Imran khan was fully determined to uproot the menace of black money and terror financing from the country to ensure a transparent mechanism. Nevertheless, those efforts were declared insufficient by the FATF. It can be argued that what mechanism FATF adopting to access Pakistan’s compliance status to the FATF protocols. What are the probable challenges that Pakistan facing to ensure the complete implementation of the FATF points?

Firstly, the FATF policy framework is idealistic that is non-compatible to the given circumstances that vary from state to state and regions. For instance, the dynamics of challenges to the first world and third world states are different in terms of executing and implementing the policy framework.

Secondly, the FATF is relying upon a Utopian model, it must realize that no state in the world can curb the money laundering and terror financing activities completely because it is being associated with multiple aspects of the economic, social, and security impediments rooted in the interests of social classes. Furthermore, in recent years the Leaks, such as FinCEN, Panama Papers, and Russian Laundromat just highlight the ambiguous configuration of this globally spread network. FATF should consider this fact too while addressing the policy actions against Pakistan. This is a systematically widespread process with the engagement of countless covert actors that takes gradual, systematic policies to address. The criteria of short-term assignment based deadlines seemingly a coercive and myopic approach that needs to be alternated entirely.

Thirdly, The FATF has declared the UK AML policy model perfect in compliance with its policy reforms. However, on the other hand, the UK-based Royal United Services Institute (RUSI) and The US Department of State Bureau of International Narcotics and Law Enforcement Affairs designated the UK as one of the key actors in global illegal money inflow/ outflow. This creates a paradox and it also raises grave concerns regarding the FATF policy model. Given the assertion, the UK also hasn’t been able to curb the money laundering and terror financing activities completely because of its ambiguous configurations. Therefore, expecting Pakistan to implement 100 percent of its given policies is a wild goose chase in the dark. It has shown considerable improvement over the period and also vows full cooperation in the foreseeable future.

Fourthly, the FATF framework predominantly focuses on the intra-state combating of illicit activities partnering with ML and TF. The technological advancements, global interconnectedness has extended the sphere of businesses and trade. It has a very limited scope of multi-state cooperation and also offers no policy framework in accordance to the subjective/ international laws to provide offshore Jurisdiction to a state to act against the terror financing elements or the money launderers sitting in another country. Such is the case with Pakistan, it has successfully adopted and implemented the regulatory measures at the state level however the biggest challenge that Pakistan still dealing with the inflow of terror financing from its adversaries. There is no sustainable mechanism through which Pakistan can act and proceed to overcome the vulnerabilities stymieing from the actors in the territorial jurisdictions of other neighbor or regional states.

Fifthly, the FATF policy approach towards Pakistan is politically biased. This prejudice is discouraging the efforts of a state that proactively engaged in promoting the emblems of peace prosperity and a regional security environment. For instance, there are sufficient proves of Indian state-sponsored terrorism in Afghanistan, Pakistan, and Sri-Lanka but the FATF agency has unable to hold its account able. This duplicity towards Pakistan and favoring Indian deceitful acts seemingly associated with the economic interests of the FATF’s stakeholders associated with Delhi. Besides, the revelations by EU DisinfoLab, that exposed a “vast network of fake media outlets, think tanks and NGOs serving Indian propaganda against Pakistan over the past fifteen years went unchecked by the FATF. Furthermore, even after the revelation of this heinous criminal act the FATF hardly took any notice of the respective matter. This disparity entails the irrational behavior of FATF that favors the Indian interests and while pushing hard Pakistan serves the Indian regional interests.

Sixth, the majority of the FATF compliances are non- compatible with the social, normative, and social structure of Pakistan. Masses are unaware of the features that FATF declares illegal thus it’s a systematic process that would take time to contemplate and comprehend to the society and the intuitions.

Lastly, the pandemic escalation across the globe has jeopardized the endeavors of the state across the globe. The majority of states ensued with daunting challenges. Despite such a critical environment Pakistan has successfully enabled to plan and execute the majority of the FATF guiding policy reforms. This uncertain economic, political, and social environment hinders the full-scale prospects of implementation strategies.

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About Mushahid Hussain Naqvi 6 Articles
Mushahid Hussain Naqvi is the Assistant Editor at TAT and Sub-Editor at Melange International Magazine