What is FATF and why Pakistan is on its grey list?
Pakistan compliance on 21 points out of 27 points plan of FATF
What is FATF?
According to the statement on website
of FATF, the Financial Action Task Force (FATF) is the global money laundering
and terrorist financing watchdog. The inter-governmental body sets
international standards that aim to prevent these illegal activities and the
harm they cause to society. As a policy-making body, the FATF works to generate
the necessary political will to bring about national legislative and regulatory
reforms in these areas.
With more
than 200 countries and jurisdictions committed to implementing them. The
FATF has developed the FATF recommendations, or
FATF Standards, which ensure a coordinated global response to prevent
organised crime, corruption and terrorism.
They help
authorities go after the money of criminals dealing in illegal drugs, human
trafficking and other crimes. The FATF also works to stop funding for
weapons of mass destruction.
The FATF
reviews money laundering and terrorist financing techniques and continuously
strengthens its standards to address new risks, such as the regulation of
virtual assets, which have spread as crypto currencies gain
popularity. The FATF monitors countries to ensure they implement the
FATF Standards fully and effectively, and holds countries to account that do
not comply.
The Financial Action Task Force
(FATF) was established in July 1989 by a Group of Seven (G-7) Summit in Paris,
initially to examine and develop measures to combat money laundering. In
October 2001, the FATF expanded its mandate to incorporate efforts to combat
terrorist financing, in addition to money laundering. In April 2012, it
added efforts to counter the financing of proliferation of weapons of mass
destruction.
Since its
inception, the FATF has operated under a fixed life-span, requiring a specific
decision by its Ministers to continue. Three decades after its, creation,
in April 2019, FATF Ministers adopted a new, open-ended mandate for
the FATF.
FATF is an
inter-governmental organisation that was established in 1989 and comprises 35
member states, the European Commission and the Gulf Cooperation Council. Its
recommendations are deemed to be the international standard for steps required
for AML/CFT.
The objectives of FATF
The objectives of the FATF are to set
standards and promote effective implementation of legal, regulatory and
operational measures for combating money laundering, terrorist financing and
other related threats to the integrity of the international financial system.
Starting with its own members, the FATF monitors countries' progress in
implementing the FATF Recommendations; reviews money laundering and terrorist
financing techniques and counter-measures; and, promotes the adoption and
implementation of the FATF Recommendations globally.
FATF's role
in combating terror financing became prominent after the 9/11 terror attacks in
the US. In 2001 its mandate expanded to include terrorism financing. Financing
of terrorism involves providing money or financial support to terrorists.
As of 2019,
FATF has blacklisted North Korea and Iran over terror financing. Twelve
countries are in the grey list, namely: Bahamas, Botswana, Cambodia, Ethiopia,
Ghana, Pakistan, Panama, Sri Lanka, Syria, Trinidad and Tobago, Tunisia and
Yemen.
Black
List: Countries
known as Non-Cooperative Countries or Territories (NCCTs) are put in the
blacklist. These countries support terror funding and money laundering
activities. The FATF revises the blacklist regularly, adding or deleting
entries.
Grey
List: Countries
that are considered safe haven for supporting terror funding and money
laundering are put in the FATF grey list. This inclusion serves as a warning to
the country that it may enter the blacklist.
A list
of high-risk and other monitored jurisdictions is maintained by FATF of countries
which, in the organisation's opinion, need to take further actions and provide
more cooperation in relation to AML/CFT. The current list includes countries
such as Iran, Iraq, Sri Lanka, Syria and Yemen.
Pakistan is
not a member state of FATF: instead, it is a FATF Associate Member of the
Asia/Pacific Group on Money Laundering (APG).
Why Pakistan is placed on FATF watch
list?
The US had spearheaded the move that led to the FATF plenary to first
propose that Pakistan be assigned to the ‘grey list’ in three months in 2018.
The US wants Pakistan to take decisive action against JUD of Hafiz Saeed and
other militant groups. Pakistan took some actions against proscribed
organisations but failed to satisfy America and some European powers.
Pakistan was included in the grey list for the first time in 2012 and
remained in it till 2015. It was removed from
the watch list in 2015 after Pakistan complied with FATF standards and plan of
action. On 29 June, 2018 FATF Grey listed Pakistan for the second time.
The process began in February 2018 when FATF approved the nomination of
Pakistan for monitoring under its International Cooperation Review Group (ICRG)
commonly known as the 'Grey list'.
It was removed from the watch list in 2015 after Pakistan complied with FATF standards and plan of action. On 29 June, 2018 FATF Grey listed Pakistan for the second time. The process began in February 2018 when FATF approved the nomination of Pakistan for monitoring under its International Cooperation Review Group (ICRG) commonly known as the 'Grey list'.
Pakistan had
first figured in a FATF statement after the plenary of February 2008. At
that time, FATF had noted Pakistan’s recent progress in adopting anti-money
laundering legislation but urged financial institutions to be aware of the
“remaining deficiencies” that could constitute vulnerability in the
international financial system.
The FATF
in 2012 listed Pakistan among countries that have “Jurisdictions with
strategic AML/CFT deficiencies that have not made sufficient progress in
addressing the deficiencies or have not committed to an action plan developed
with the FATF to address the deficiencies”. A senior minister in then Nawaz
Sharif government and opposition leader Khawaja Asif described this move as a
“black list”.
The FATF’s
main concern was that Pakistan did not have appropriate legislation to identify
terror financing, as well as, confiscate terrorist assets. Pakistan went out of
the Public Statement to the second statement of “Improving public compliance”
from June 2014, which noted that the country had made “significant
progress”.
The terror financing and money laundering for terrorism purpose is the main concern of FATF.
Pakistan was placed on watch list of FATF called Grey List in June 2018 soon after the end of PML-N government’s five year term. It was the second time that Pakistan was placed on grey list.
A public
statement from FATF on February 27, 2015, which announced the removal of
Pakistan from the watch-list, had stated the following:
“The FATF
welcomes Pakistan’s significant progress in improving its AML/CFT regime and
notes that Pakistan has established the legal and regulatory framework to meet
its commitments in its action plan regarding the strategic deficiencies that
the FATF had identified in June 2010.
"Pakistan
is therefore no longer subject to the FATF’s monitoring process under its
on-going global AML/CFT compliance process.
"Pakistan
will work with APG as it continues to address the full range of AML/CFT issues
identified in its mutual evaluation report, in particular, fully implementing
UNSC (United Nations Security Council) Resolution 1267.”
The
reference to APG in the statement is important as it highlights that FATF does
not and cannot directly impose conditions on Pakistan since it is not a member
state. Instead, it is the APG (and international financial institutions such as
the World Bank) which have worked with Pakistan in the past to address FATF’s
concerns.
What are
the main areas of concern for FATF/APG
There are certain specific steps that
FATF wants the countries to undertake to support the existence of a universal
system of AML/CFT. These typically include:
Legislative action to
criminalise money laundering and terrorist financing;
Harmonising criminalisation of money
laundering across different laws and to streamline definitions of related
offences;
Establishing legal framework for
freezing assets deemed to be linked to proscribed terrorist organisations;
Developing and implementing
procedures for the confiscation of assets identified in the AML/CFT context;
Establishing and enhancing suspicious
transaction reporting procedures;
Implementing systems to be able to
identify beneficial ownership of companies and assets; and
Ensuring the legal and prosecution frameworks
are working effectively to achieve convictions of offenders before local
courts.
Rukhsana Manzoor Deputy Editor
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