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In its mutual evaluation, the Financial Action Task Force's (FATF) Asia/Pacific Group (APG) has accepted Pakistan’s stance on almost all contested issues, underscoring that the country has finally been able to plug many deficiencies in its anti-money laundering and combating terror financing regimes.
Pakistan had requested the APG to upgrade the country’s compliance status on at least 23 of the 40 global recommendations of the FATF, as per the second mutual evaluation follow-up report.
The APG accepted Pakistan’s stance on 22 recommendations, some of them “critical” including compliance with the UNSC resolutions, tightening of the weapons of mass destruction-related controls, actions against politically exposed persons and plugging loopholes for money laundering.
However, on one condition, the Mutual Legal Assistance (MLA) agreement, the APG has downgraded Pakistan to “non-compliant” from “partial compliant”.
The improvement on the implementation of the FATF recommendations may also strengthen Pakistan's case in this month's plenary of the global financial watchdog that will again review whether or not to keep the country in its grey list.
The chances of blacklisting Pakistan have diminished significantly after the second follow-up report by the APG.
The country is now “largely compliant” on 24 recommendations and “complaint” on another seven ones. It is “partially compliant” on seven recommendations and still “non-compliant” on two, including the MLA issue.
The finance ministry said on Friday that Pakistan had achieved the rating of “compliant” and “largely compliant” in 31 of the 40 FATF recommendations.
The ministry added that these results proved the sincerity along with resolve of the government in complying with FATF requirements.
It added that these results were also a “manifestation of the irreversibility and sustainability of the complete process in bringing Pakistan at par with Global AML/CFT standards”.
The FATF’s mutual evaluation report (MER) of jurisdictions is assessed in two domains: technical compliance/legal instruments (40 FATF recommendations) and demonstration of effectiveness (11 immediate outcomes).
Pakistan’s MER was adopted in October 2019 in which the country was rated “compliant” and “largely complaint” in 10 of 40 FATF recommendations for technical compliance.
The technical upgrades achieved will help manifest achievement of effectiveness in 11 immediate outcomes of the APG MER process, the ministry said.
As a result of this substantial progress, the APG has decided to move Pakistan from enhanced (expedited) to enhanced follow-up. The country will continue to report back to the APG on progress to strengthen its implementation of AML/CFT measures.
The APG said that it welcomed the steps that the country had taken to improve its technical compliance.
“Pakistan has been re-rated on many recommendations, however, insufficient progress has been made to justify a re-rating of R38, and R.37 has been re-rated to NC following the implementation of a new law which imposes restrictive conditions on the provision of mutual legal assistance,” the report read.
The FATF had downgraded Pakistan after it was found to be “unable to provide MLA to foreign countries in the absence of a treaty for ML offences”.
“There was also a lack of a legal basis to provide MLA in terrorism, terror financing and in most predicate offence cases,” the report read.
It added the law enforcement agencies “lacked powers to execute MLA requests”.
The mutual legal assistance law imposes restrictive conditions on the provision of MLA through the requirement to inform the subject of the request.
This is a significant deficiency noting the risk and context of Pakistan, including the risks of cross-border ML/TF and associated predicate, according to the APG.
Pakistan has been declared “compliant” on the recommendation of taking stringent measures against money or value transfer services (MVTS).
The APG said that Pakistan had amended the Anti-Money Laundering Act (AMLA) 2010 to capture CDNS as a reporting entity and identify the National Savings (AML/CFT) Supervisory Board for National Saving Schedules as the AML/CFT Regulatory Authority.
With respect to the insurance business Pakistan Post operated, a new entity “Postal Life Insurance Company Limited” has been established.
Pakistan is now declared compliant on this recommendation.
The country is also compliant on protections and actions related to reporting entities that file suspicious transactions with the Financial Monitoring Unit.
The APG said in February 2021, Pakistan had submitted its third progress report, requesting re-ratings for recommendations 10, 18, 26 and 34.
“A review team has been formed to assess compliance with these recommendations. Pakistan has not reported on its progress rectifying deficiencies identified in recommendation 15 and 33,” it added.
Pakistan has been declared largely compliant on the recommendation of identifying money laundering threat.
Since February 2020, Pakistan has amended the AMLA to include general obligations for reporting entities (REs), including DNFBPs, to identify, assess, and understand their risks and implement a compliance programme to address those risks.
In addition, the country has issued a number of sector-specific regulations that provide more specific obligations on those sectors to assess and understand their risks and take enhanced measures where required.
The AMLA provides that directors, officers, employees and agents of any reporting entity or intermediary who report suspicious transactions or CTRs pursuant to the Act are prohibited from disclosing any person directly or indirectly involved in the transaction that has been reported.
A violation of the section is a criminal offence and punishable by a maximum term of three years imprisonment or a fine which may extend to Rs500,000.
This has helped the country in achieving a compliant status on this recommendation.
The APG has also declared recommendation six as largely compliant. It said for UNSC resolutions numbered 1267/1989 and 1988, Pakistan had given domestic effect by issuing SROs under the UN Act 1948.
For UNSCR 1373 designations, the interior ministry designates organisations and persons by listing them on the 1st Schedule (organisations) and 4th Schedule (persons) of the Anti-Terrorism Act 1997 (ATA).
The proscription by the interior ministry results in an automatic freeze obligation at that point.
The APG also upgraded Pakistan on the recommendation of combating proliferation of weapons of mass destruction to largely compliant.
The report noted that the country had identified some risks and undertaken some steps on a targeted basis to higher risk licensed NPOs.
“[This] has improved and the rating has been upgraded on largely compliant.”
The rating about risks related to political exposed persons has also been upgraded on largely complaint after Pakistan introduced PEP measures for CDNS through the National Savings Regulations, which define PEPs, family members and associates of PEPs in keeping with the standards.
Law Minister Dr Farogh Naseem in a statement said the country had complied with 31 of the 40 FATF recommendations.
“This is indeed a gigantic task which Pakistan has achieved,” he added.
“FATF evaluation process is two-tiered. Firstly it focuses on the legal framework and later its effectiveness/implementation.”
The minister maintained that to ensure irreversibility and sustainability in Pakistan’s AML/CFT efforts, the law ministry “meticulously steered the important task of legal reforms, which not only entailed unending sessions of discussions with all stakeholders, including parliamentarians from the opposition benches, and driving of the legislative business through the cabinet committee on legislative cases, the cabinet and then parliament”.