Pakistan sends Terror Financing: Risk Assessment Report to FATF today

ISLAMABAD: Pakistan has dropped its initial idea to amend the Anti-Terrorism
Act (ATA) 1997 after the lapse of presidential ordinance arguing that the
Ministry of Foreign Affairs could freeze assets of prescribed organizations/
individuals through a notification of SRO for complying with the UN Security
Council Resolutions of 1267 and 1373.

The last PML-N-led government had promulgated a presidential ordinance to

amend the ATA 1997 in February 2018 in order to freeze assets of prescribed
organizations and individuals.

The measure was taken to comply with 27 conditions placed by Financial Action
Task Force (FATF).

Now the ministries concerned under dispensation of PTI-led regime after

through deliberations finalized that there was no need to amend the ATA 1997
because Ministry of Foreign Affairs (MoFA) possessed powers to notify SRO for
moving ahead with prescribed organizations and individuals to comply with
UNSC resolutions of 1267 and 1373.

So the idea of amending ATA has been dropped and it will be conveyed to FATF
in upcoming meeting scheduled to be held next week from January 8 to 10 at
Sydney Australia.

“Probably, it was a mistake or done without well-thought-out strategy because

it did not benefit our Law Enforcing Agencies (LEAs) in any way,” said one top
official who is dealing with FATF issues.

When former finance minister Miftah Ismail was asked about reasons behind
promulgation of ordinance during their tenure, he replied that it was discussed
in detail at that time and their government had taken decision to issue an
ordinance for bringing more clarity with regard to blacklisting the prescribed
organizations in line with UNSC resolutions and FATF requirement.

He said if the government had brought bill for amendments into ATA then the
PML-N might have supported changes in the law for sake of the country.
However, he was amazed that why the government was not bringing
amendments into ATA 1997.
However, the sources said that Pakistan has also prepared Terror Financing Risk
Assessment Report in line with the FATF conditions that would be scrutinized in
face to face upcoming meeting of the FATF scheduled to be held next week at
Sydney.

“We will dispatch Terror Financing Risk Assessment Report to FATF on Friday
(today) that basically identifies both domestic and foreign sources of funding
being utilized for execution of terrorists’ activities,” confirmed by one top
official.

Pakistan’s 12 member delegation headed by Federal Secretary Finance Arif

Ahmed Khan will be attending the upcoming FATF plenary meeting at Sydney.

The Financing Risk Assessment Report has found that terror financing threats in
Pakistan emanate both from foreign and domestic sources. This includes
predicate crimes such as cash smuggling, kidnapping for ransom, narco-
trafficking, extortion, etc. Channels for TF include Hundi/Hawala, Unregistered
Charities, Virtual Currencies, depending on the corresponding threats and
preventive controls. Long and porous borders with Afghanistan & other
neighboring countries provide key pilferage points for terrorism and terrorist
financing. Terrorism is also funded externally by hostile intelligence agencies
and other anti-state elements.

Regarding different levels of AML/CFT compliance, the report states that some
sectors are more compliant in frameworks and procedures such as banking,
NBFIs, securities, insurance, etc: others require enhancement of supervisory
controls or oversight mechanisms. Terrorist Financing Threat (Medium) and
Terrorist Financing Vulnerability (Medium), assesses the National Terrorist
Financing risk as ‘Medium’.

The officials conceded that the last mutual evaluation was done in 2009 but
required legal, procedural and enforcement was not taken care of properly that
had resulted into falling into another mutual evaluation now in 2018-19.

The Federal Investigation Agency (FIA) lacks capacity to tackle investigation of

terror financing properly although they had done good work on account of
money laundering.

“There are only few cases investigated by FIA that resulted into prosecution and
penalizing on allegation of terror financing,” said the official.
However, the CTDs (Counter Terrorism Departments) at provincial levels have
performed well in 2018 but capacity building at both federal and provincial
levels as well as better coordination is required to achieve the desired results.

Pakistan formally placed on FATF grey list

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By Shahbaz Rana
Published: June 30, 2018
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ISLAMABAD:
The Financial Action Task Force (FATF) on Friday formally placed Pakistan on the
grey list due to ‘strategic deficiencies’ in its anti-money laundering and terrorism
financing regime.
The decision came despite Islamabad showing progress in the majority of areas
identified as threat the international terror financing watchdog.
The highly anticipated decision was taken by the FATF Plenary that met in Paris
from June 24 to 29. The global body took the decision on the basis of a
monitoring report of the International Cooperation Review Group (ICRG).

Pakistan has been placed among the jurisdictions (states) with strategic
deficiencies Ethiopia, Serbia, Sri Lanka, Syria, Trinidad and Tobago, Tunisia and
Yemen.
Pakistan remains on FATF grey list with ‘no chances’ of being put on blacklist
The FATF called on all those jurisdictions to complete implementation of the
action plans expeditiously and within the proposed timeframes, vowing to
closely monitor the implementation of those action plans.
However, the ICRG report showed that Pakistan did show progress on three out
of four major areas of concerns. Cross-border smuggling of cash was the only
major area where Pakistan admitted deficiencies.
Finance Minister Dr Shamshad Akhtar represented Pakistan at the meeting.
Pakistani authorities refuted the allegation of lax supervision of the financial
sector, terming it unjustified.
The FATF and the ICRG were informed that Pakistan had already asked banks to
drop the ‘good guy’ list.
“Pakistan made a high-level political commitment to work with the FATF and
APG to strengthen its AML/CFT regime and to address its strategic counter-
terrorist financing-related deficiencies,” according to the announcement.
Action Plan
The statement added that Pakistan will work to implement its action plan to
accomplish these objectives by demonstrating that terrorism financing risks are
properly identified, assessed, and that supervision is applied on a risk-sensitive
basis.
The FATF said Pakistan will also be demonstrating that remedial actions and
sanctions are applied in cases of AML/CFT violations, and that these actions have
an effect on AML/CFT compliance by financial institutions.
“It will be demonstrating that competent authorities are cooperating and taking
action to identify and take enforcement action against illegal money or value
transfer services.”
The country will also demonstrate that authorities are identifying cash couriers
and enforcing controls on illicit movement of currency and understanding the
risk of cash couriers being used for terrorism financing.
Also, Pakistan will improve inter-agency coordination between provincial and
federal authorities to combat terror financing risks. It will demonstrate that law-
enforcement agencies (LEAs) are identifying and investigating the widest range
of terrorism financing activity and that terrorism financing investigations and
prosecutions target designated persons and entities, and persons and entities
acting on behalf or at the direction of the designated persons or entities.
Pakistan will also demonstrating that terrorism financing prosecutions result in
effective, proportionate and dissuasive sanctions and enhancing the capacity
and support for prosecutors and the judiciary.
Finance minister to defend Pakistan as FATF weighs placement on blacklist
It will also demonstrate enforcement against TFS violations. Pakistan will
demonstrate that facilities and services owned or controlled by designated
persons are deprived of their resources and the usage of the resources.
Actions Already Taken
The ICRG report showed that Pakistan has already made some progress in those
areas but this was not duly acknowledged.
“Pakistan reported that banks in Pakistan are not providing any financial services
to designated entities and individuals and are continuously conducting ongoing
transaction monitoring for terrorism financing concerns,” according to the ICRG
report.
Since October 2017, Pakistan has frozen 177 additional accounts in the amount
of Rs48.2 million due to indirect linkages and association of customers with the
UNSC-listed persons and entities.
However, despite noting those improvements, the country has been placed on
the grey list and will come out of it only when it will implement the Action Plan.
As per the plan approved by the FATF, nine targets have to be met in January
next year, about 13 by May 2019 and the remaining in September 2019.
The action plan requires Pakistani authorities to proactively cooperate with
counterpart bilateral agencies to choke financing to Da’ish, Al Qaida, Jamaat-ud-
Dawa, FIF, LeT, JeM, Haqqani Network and persons affiliated with the Taliban.
“While Pakistan has the regulatory and legal framework, there is a serious risk
of bulk cash smuggling across the borders, including related to the existence and
operation of UN-designated individuals and groups,” according to the ICRG
report.
On the issue of terrorism financing risks, Pakistan reported that during the
investigation of terrorism cases, law-enforcement agencies identify the role of
financiers, abettors and facilitators in terrorist acts.
During the last three years LEAs have registered 150 cases relating to terrorism
financing offences, abetment and facilitation, according to the report.
But the ICRG argued in its report that “Pakistan did not demonstrate that the
financing element was pursued consistently and the difference between
terrorism and terrorism financing cases in the provinces raised questions”.
Out of over 740 terrorism cases in Sindh, there were nine terrorism financing
cases. In Khyber-Pakistan, out of over 1,400 terrorism cases, 37 were terrorism
financing cases.
The ICRG showed dissatisfaction over the manner the federal and provincial
governments provided statistics about the terrorist incidents and terrorism
financing cases.
The FATF Action Plan
“It is unclear that Pakistan is pursuing terrorism financing proportionate to its
risk,” according to the ICRG report.
Pakistan has provided information that two of the provinces have 30 terrorism
financing case convictions against 41 individuals and the range of penalties
issued for 36 out of the convicted individuals.
But the ICRG noted that there was no further information on the charges they
were convicted of under the Anti-Terrorism Act and which UN terrorist groups
were involved.
On the issue of actions under the UNSC resolutions, Pakistan reported that on
February 10, 2018, moveable and immoveable assets of JuD and FIF as well as
the welfare services operated by the two entities were seized.
The government of Punjab has frozen 190 assets belonging to JuD and FIF. The
educational and other institutions operated by JuD and FIF have been seized and
will be controlled and managed by the respective provincial governments.
Pakistan has appointed administrators for overseeing the operations of the
institutions seized by it.
Pakistan reported that the SBP has advised banks to screen their relationships
on a regular basis. A few of the inspected banks maintaining the ‘good guy list’
were advised not to maintain any such list.
The FATF was informed that Pakistan was also currently undertaking thematic
review of stock market brokers after a few incidences of non-compliance were
noticed.
Non-bank financial institutions have been advised not to maintain business
relations in cases where Know Your Customer (KYC) requirements are not met.
However, Pakistan admitted that illegal money remitters, known as
money/value transfer services (MVTS), were a significant threat to money
laundering and terrorism financing.
The SBP has developed a legal and regulatory framework to counter the MVTS
threat, but it has not been implemented yet.
Pakistan enacts ambitious reforms to comply with FATF
Illegal money remitters were largely operating in Peshawar and Karachi.
Pakistan informed the FATF that since January, the FIA registered 1,038 cases of
illegal MVTS operators, of which convictions have been secured in 144 cases
while 440 cases are under investigation and 394 cases are at trial stage. Pakistani
courts imposed Rs8 million penalties on the 144 illegal money remitters.
According to the ICRG’s view, Pakistan has not demonstrated that it has an
understanding of how many illegal money remitters exist in Pakistan and how
many are operating in each region, including higher risk regions where the
Haqqani Network and the Taliban are active.
Pakistan admitted that it is impossible to determine the exact number of illegal
MVTS operators but it would continue to explore various options to dissuade
and prosecute such elements in the system.
Based on intelligence reports and a survey, the SBP is aware of high-risk
areas/regions where the use of unauthorised MVTS is comparatively higher.
Approximately, 430 individuals and entities are suspected to be conducting
unauthorised foreign exchange transactions and their details were shared with
the FIA.
Pakistan on FATF’s grey list: what, why, and why
now?

The grey listing should be placed in the larger picture of US-Pakistan

relations that have had many ups and downs.

Usman Hayat | Shahid KarimUpdated Jul 06, 2018 01:00pm

The international watchdog against money laundering and financing of

terrorism, the Financial Action Task Force (FATF), has put Pakistan on a
list of “jurisdictions with strategic deficiencies”, also known as the grey
list.
FATF’s reasoning is Pakistan’s “structural deficiencies” in anti-money
laundering (AML) and combating financing of terrorism (CFT).
The other countries on the list, in alphabetical order, are Ethiopia, Serbia, Sri
Lanka, Syria, Trinidad and Tobago, Tunisia and Yemen.

This is not the first time Pakistan has found itself on one of FATF’s list of not-
so-good guys; the country was there in 2008 and from 2012 to 2015.

But Pakistan stands out as the most significant name on the list with the largest
population and the largest economy, not to forget the largest military.

Pakistan now has 15 months to implement an action plan to be able to negotiate

an exit from the grey list.

Entry and exit from FATF’s grey list is an ongoing exercise. In the past, some
countries perceived to be particularly weak in money laundering and financing
of terrorism, such as Panama, Kenya and Nigeria, have been able to find an exit
from the grey list.

Here we break down Pakistan’s placement on FATF’s grey list by answering a

set of questions.

What does FATF mean by money laundering

and financing of terrorism?
Both are financial crimes. In simple terms, money laundering pertains to
disguising money earned from a crime as money earned through legitimate
sources.
The crime could be corruption, drug trafficking, fraud or tax evasion. Terrorist
financing involves collection of funds to support acts of terror or terrorist
organisations.

A key difference between the two is that, in money laundering, the source of
funds has to be a crime.
In the financing of terrorism, funds may come from perfectly legitimate sources,
such as donations from ordinary citizens, but the purpose has to be a crime.

What is FATF looking for in AML and CFT?

FATF has formulated a set of 40 recommendations which have become
international standards on AML and CFT

Over time, these recommendations have been and will continue to be updated.
The recommendations list out the essential measures that countries should have
in place to:

 identify the risks, and develop policies and domestic coordination;

 pursue money laundering, terrorist financing and the financing of
proliferation;
 apply preventive measures for the financial sector and other designated
sectors;
 establish powers and responsibilities for the competent authorities (e.g.,
investigative, law enforcement and supervisory authorities) and other
institutional measures;
 enhance the transparency and availability of beneficial ownership
information of legal persons and arrangements; and facilitate international
cooperation.

FATF evaluates a country’s performance based on its assessment

methodology that covers:

1. technical compliance, which is about legal and institutional framework and

the powers and procedures of the competent authorities, and
2. effectiveness assessment, which is about the extent to which the legal and
institutional framework is producing the expected results.

A lot of these recommendations and methodology are nothing but the dry
financial jargon that is characteristic of multilateral bodies and compliance
professionals, such as a “risk based approach”, “structural deficiencies”,
“materiality”, “customer due diligence”, “suspicious transaction report” etc.
Is Pakistan really one of the worst performers
on money laundering and financing of
terrorism?
Money launderers and terrorists do not report their crimes. It is very difficult, if
not impossible, to measure these crimes directly.

FATF and others try to take an indirect route to measure the vulnerability of a
country to these crimes by evaluating laws and their implementation.

Pakistan’s assessment by different entities is not going to be the same.

Take for instance the ranking of Pakistan by the Basel Anti-Money Laundering
Index. This index seeks to measure the risk of money laundering and terrorist
financing.

It uses 14 indicators dealing with regulations, corruption, financial standards,

political disclosure and the rule of law, which are aggregated into one overall
risk score.
This index currently ranks Pakistan 46 out of 146 countries in 2017, better than
Tajikistan (4), Mali (7), Kenya (11), Sierra Leone (26), and Panama (30) — all
of which are currently not on FATF’s monitoring list.
This index is developed by the Basel Institute on Governance that describes
itself as “an independent not-for-profit competence centre” that is associated
with Basel University.

Chances are that it is far less political in nature than FATF. However, this index
is also partially based on FATF. Now that FATF has placed Pakistan on the
grey list, it would affect Pakistan’s ranking on this index as well.

Regarding terrorism, many in Pakistan disagree with FATF and see the country
as a victim of terrorism that has already suffered and sacrificed much.

The Global Terrorism Index 2017 by Institute for Economics & Peace, which
describes itself as “an independent, non-partisan, non-profit think tank”, ranks
Pakistan as the fifth-most affected country from terrorism, behind Iraq,
Afghanistan, Nigeria and Syria.

What are the implications for Pakistan?

FATF uses peer pressure through the age-old technique of name-and-shame.
There are many factors at play and it remains unclear how negative Pakistan’s
placement on the grey list will eventually turn out to be.
There is, however, no debate that it is indeed a negative. Here are some of the
ways in which grey listing could affect Pakistan.

Pakistan’s banking channel could be adversely affected as it is inevitably linked

with the international financial system.

The impact on Pakistan’s economy could be relatively wide, touching imports,

exports, remittances and access to international lending.

Foreign financial institutions may carry out enhanced checking of transactions

with Pakistan to avoid risk of violations pertaining to money laundering and
financing of terrorism.

They may ask more questions and apply more checks. Some such institutions
may also avoid dealing with Pakistan’s financial system altogether.

Cover story: Black into white — inside money laundering

Another affectee is the sentiment of foreign investors. That Pakistan has been
placed on the grey list has been covered in international news media and the fact
will not go unnoticed by potential investors. Stock prices at Pakistan Stock
Exchange appear to have already felt this impact.

Perhaps the biggest threat from being placed on the grey list is Pakistan could
be pushed further down to the black list.
This black list comprises Iran and North Korea, the two countries West loves to
hate. But placing Pakistan on the black list is probably a step too far to be on the
cards at this stage.
These potential implications of grey listing need to be balanced against past
experience.

Pakistan was on FATF grey list from 2012 to 2015, when it completed an IMF
programme and also raised funds from international bond markets.

The country has also survived far graver financial challenges, such as those
posed by nuclear explosions in 1998.

Are FATF’s concerns regarding Pakistan about

money laundering or financing of terrorism?
It seems FATF’s concerns are mainly regarding financing of terrorism.

The FATF’s public statement issued on 29 June, 2018 begins by saying, “In
June 2018, Pakistan made a high-level political commitment” to “strengthen its
AML/CFT regime and to address its strategic counter-terrorist financing-
related deficiencies [emphasis added].”

This is also made clear when we look at the actions Pakistan is being asked to
take to exit the list:

1. terrorism financing risks are properly identified, assessed, and supervised;

2. remedial actions and sanctions are applied in cases of money laundering
and financing of terrorism violations;
3. competent authorities are coordinating to identify and take enforcement
action against illegal money or value transfer services;
4. authorities are identifying cash couriers and enforcing controls on illicit
movement of currency and understanding the risk of cash couriers being
used for financing of terrorism;
5. improving inter-agency coordination including between provincial and
federal authorities on combating financing of terrorism risks;
6. law enforcement agencies are identifying and investigating financing of
terrorism and prosecuting related designated persons and entities;
7. financing of terrorism prosecutions result in applicable sanctions and
enhancing the capacity and support for prosecutors and the judiciary;
8. effective implementation of targeted financial sanction against all
designated terrorists;
9. enforcement against financing of terrorism violations including
administrative and criminal penalties and authorities cooperating on
enforcement cases; and
10.facilities and services owned or controlled by designated persons are
deprived of their resources.

Is this a financial or a political issue?

If the commentary by international news media is any indicator, Pakistan’s
placement on FATF’s grey list is far more political than financial in nature.

It is being seen as one of the several ways the US is attempting to pressure

Pakistan to “do more” on issues related to terrorism.
The long-winded, jargon-filled recommendations and methodology used by
FATF leave plenty of flexibility for the team of assessors to exercise their
“informed judgement”.

That is, based on the same information, assessors could reach more than one
judgement, including the one sought by the politically powerful.
US is also a major financier of FATF and the current president of FATFis an
Assistant Secretary from the US Department of the Treasury who heads the
Office of Terrorist Financing and Financial Crimes.

If US can have Pakistan placed on the grey list, it may also make it difficult for
Pakistan to exit the list.
Bottom line is that FATF’s grey listing of Pakistan should not be looked at in
isolation but placed in the larger picture of US-Pakistan relations that have had
many ups and downs.