In continuation to my last piece which was primarily to create an awareness cum understanding on Pakistan’s case as it stands today with the Financial Action Task Force (FATF) and on assessing the implications if Pakistan continues to remain in the grey or if it gets relegated to the Black list, this current one now covers on the progress made since our last warning in October, as the deadline of February 2020 draws closer. Our submissions for the February’s meeting, by the way need to be submitted much earlier than that. While the FATF’s decision in its October 2019’s meeting to retain Pakistan on the grey list may have come as a relief to us, the reality is that this it was the first time since February 2018 that the global money-laundering and terror-financing watchdog issued such a warning to Pakistan that it could not only be blacklisted, but also that FATF could advise its member states to in-turn advise their foreign investors to give “special attention” to business relations and transactions with Pakistan, unless of course Pakistan makes quick and significant progress in addressing the four NC (Non Compliances) and improving further on the 26 PC (Partial Compliances) before the next review in February. To quote FATF President, Mr. Xiangmin Liu, “Pakistan needs to do more and it needs to do it faster. Pakistan’s failure to fulfill FATF’s global standards is an issue that we take very seriously. The FATF is giving a very clear warning that if by February 2020 the country has not made significant progress, we would consider further actions, which potentially include placing the country on the Public Statement, also referred to as the Blacklist.”

So what mainly needs to be done? Well quite a bit, as our actions plan (given by FATF) is perhaps the most ambitious and challenging ever handed out to any country. The October’s mutual evaluation report found money laundering and terror financing as high-risk category areas in Pakistan. The report showed that of the 40 recommendations from the FATF on curbing money laundering and combating terror financing, Pakistan was fully compliant on only one. It was ‘largely compliant’ on nine, ‘partially compliant’ on 26 and ‘non-compliant’ on 4 recommendations. On anti-money laundering/combating financing of terrorism (AML/CFT), Pakistan was found moderately effective only on one benchmark while on the remaining nine its effectiveness was declared low as of the cut-off date of October 2018. Due to these adverse findings, the APG placed Pakistan on its expedited enhanced follow-up reporting list. And for us what this means is that while overall a lot of efforts may have been underway to ensure compliance to FATF directives, they don’t seem to being carried out in a consolidated way and certainly not under a transparent, independent and a professional Apex body – A problem typically associated with most of Pakistani national and international efforts. For example, had there been an independent apex corporate body under a private-public partnership to negotiate and implement CPEC projects, the national exchequer could perhaps have saved billions of dollars – A proposal consistently given on nearly all forums by the writer from the very onset of the CPEC agreement! Today, even in successfully meeting the FATF challenge, an overriding compliance failure tends to come from the absence of an overreaching organization for consolidated enforcement of FATF’s policies and procedures, since the provinces, the federal government and related independent agencies have all been found working in isolation.

Creating such an apex controlling structure, which is independent, competent, accountable in accordance with corporate governance principles, and fully empowered will automatically lead to also addressing the second most important non-compliance, as pointed out by the FATF: A lack of understanding of international standards, as established by FATF, in the government circles, thereby leading to a general culture of non-seriousness or un-professionalism. Interestingly, even the third non-compliance somehow connects back to the deficiency of management and leadership, since it relates to the very failure to implement domestic laws on anti-money laundering and combating the financing of terrorism. This failure seems to be apparently stemming at the Financial Monitoring Unit (FMC), which what one is proposing to be instead converted into the proposed apex corporate structure. One can gauge the lack of competence at the FMC from the fact that surprisingly it was unable to detect and report transactions that ironically the FATF monitors could detect easily? Naturally, in its latest directive, the FATF now wants Pakistan to practically demonstrate that competent authorities are cooperating and taking action to identify and take enforcement action against illegal money or value transfer services. The fourth non-compliance points to a lack of political will or legal hurdles in implementing ‘freezing and confiscation’ where a breach has been found. In FATF’s own words, Pakistan should also demonstrate that facilities and services owned or controlled by designated person are deprived of their resources and the usage of the resources, including preventing the raising and moving of funds, identifying and freezing assets (movable and immovable), and prohibiting access to funds and financial services. Once again, the problem relates to a controlling structure that at present is not entirely free from governmental pressures and national foreign policy limitations, and therefore needs to make compromises that in-turn lead to some glaring non-compliances in the FATF’s book.

Finally, if one really looks at all the 4 main non-compliances attributed to Pakistan in a holistic manner, one can easily determine that they are all somehow connected to a single weakness of the absence of an apex professional structure possessing the independence, authority, skills and capacity to overcome the practical challenges in meeting the laid down directives of the FATF. The sooner we create such a body the better it will be for our chances in February 2020, since in essence, like majority of governance weaknesses and economic woes of Pakistan, most part of the FATF non-compliance saga also largely depicts a management problem, which to address will essentially require a management solution!