Pak­istan races to avoid fi­nan­cial watch­dog black­list

The Pak Banker - - FRONT PAGE - KARACHI -APP

The Pak­istani Se­nate is rac­ing to ap­prove mul­ti­ple bills to pre­vent money laun­der­ing and ter­ror­ist fi­nanc­ing-and ful­fill a twenty-sev­en­point plan from global watch­dog Fi­nan­cial Aid Task Force (FATF). With thir­teen re­main­ing con­di­tions and an eye on the mid-Oc­to­ber dead­line, Pak­istan is hop­ing to avoid a de­mo­tion from the FATF's grey list to the black­list, join­ing coun­tries such as Iran and North Korea.

Placed on the grey list in June of 2018, if Pak­istan does not meet the cri­te­ria laid out by the FATF, it could fall to the black­list, po­ten­tially be­ing un­able to re­ceive fi­nan­cial as­sis­tance from the World Bank, the In­ter­na­tional Mon­e­tary Fund (IMF), the Asian Devel­op­ment Bank (ADB), and sev­eral other in­ter­na­tional or­ga­ni­za­tions.

Over the last two years, Pak­istan has made progress by ful­fill­ing four­teen of the cri­te­ria re­quired by the FATF, such as de­vel­op­ing an in­te­grated data­base at air­ports for en­hanced co­or­di­na­tion across fi­nan­cial, ad­min­is­tra­tive, and law en­force­ment agen­cies, and es­tab­lish­ing suc­cess­ful outreach and reg­u­la­tory safe­guards aimed at coun­ter­ing ter­ror­ist fi­nanc­ing within the coun­try's fi­nan­cial sec­tor.

Pak­istan was orig­i­nally placed on the grey list in 2018 due to its fail­ure to com­ply with re­quire­ments such as reg­u­lat­ing money laun­der­ing and com­bat­ting the fi­nanc­ing of ter­ror­ism. The FATF found that Pak­istan lacks the nec­es­sary mech­a­nisms to en­sure that tax­payer money is not go­ing to ter­ror­ist or­ga­ni­za­tions, and that Islamabad was un­able to mon­i­tor cash­flow to these groups. In many ways, the FATF ex­tend­ing Pak­istan's orig­i­nal com­pli­ance dead­line by six months due to the COVID-19 pan­demic gives the govern­ment some much-needed breath­ing room to im­ple­ment ad­di­tional re­forms.

To lever­age the op­por­tu­nity pre­sented by the ex­tended dead­line, the Pak­istani govern­ment needs to be able to co­op­er­ate with other gov­ern­ments to coun­ter­act ter­ror­ist fi­nanc­ing and other or­ga­ni­za­tions banned by FATF, and Pak­istan must be able to demon­strate fi­nan­cial trans­parency and a clear sys­tem for fi­nan­cial trans­ac­tions in or­der to evade pro­hi­bi­tions on busi­ness.

It's not all bad news. In a pos­i­tive move, the Pak­istani Se­nate unan­i­mously ap­proved two bills on July 30; The United Na­tions Se­cu­rity Coun­cil Amend­ment Bill and the Anti-Ter­ror­ism Act Amend­ment. Ad­di­tion­ally, late last week, five other bills re­lated to com­ply­ing with FATF trav­elled from the Pak­istani Se­nate to com­mit­tees within Par­lia­ment for fur­ther de­lib­er­a­tion, in­clud­ing the Islamabad Cap­i­tal Ter­ri­tory Trust Bill and the Lim­ited Li­a­bil­ity Part­ner­ship (Amend­ment) Bill. As Pak­istan's govern­ment con­tin­ues to­ward the fin­ish line to reach FATF's guide­lines, the coun­try needs to be able to demon­strate ef­fec­tive­ness in a mul­ti­tude of ar­eas, such as tak­ing ac­tion against il­le­gal money or value trans­fer ser­vices (MVTS), trans­form­ing madras­sas into schools and health units into of­fi­cial es­tab­lish­ments, cut­ting off fund­ing to banned or­ga­ni­za­tions, and much more.

Given out­cry from the op­po­si­tion, this has not been an easy task for Pak­istani Prime Min­is­ter Im­ran Khan's PTI govern­ment, even as Pak­istan seems to make a good faith ef­fort to com­ply with out­stand­ing FATF re­quire­ments.

Pak­istan's sta­tus on the FATF grey list inevitably im­pacts the coun­try's abil­ity to at­tract for­eign in­vestors. This is in­cred­i­bly im­por­tant in the cur­rent eco­nomic cli­mate of the pan­demic where there are se­ri­ous bar­ri­ers to eco­nomic growth glob­ally. Gen­er­ally, Pak­istan's grey list sta­tus could im­pact im­ports, ex­ports, re­mit­tances, and its abil­ity to bor­row money from in­ter­na­tional lenders, such as the IMF and the ADB. How­ever, more specif­i­cally, COVID-19 has forced busi­nesses to sup­port re­mit­tances, e-com­merce, and on­line sys­tems in a way that busi­ness mod­els were not pre­pared for. Glob­ally, busi­nesses have been forced to rely less on in-per­son op­er­a­tions and have had to adapt and de­velop an on­line pres­ence, re­ly­ing on dig­i­tal ser­vices.

How­ever, dig­i­tal of­fer­ings re­quire mech­a­nisms that sup­port fraud pro­tec­tion, anti-money laun­der­ing, and coun­tert­er­ror­ism ef­forts. There­fore, in­dus­tries which rely on on­line pay­ment sys­tems and on­line money trans­fers may be hes­i­tant to in­vest in Pak­istan due to its FATF grey list sta­tus. If Pak­istan can­not make the nec­es­sary re­forms for FATF com­pli­ance, it will be hard-pressed to con­vince the in­ter­na­tional com­mu­nity that it can and will make nec­es­sary re­forms for in­vestors.


Pres­i­dent Dr. Arif Alvi ad­dress­ing at the 75th Na­tional Coun­cil Meet­ing 2020 of Pak­istan Boy Scouts As­so­ci­a­tion at Sindh Boy Scouts Pro­vin­cial Head­quar­ters.

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