Financial Action Task Force (FATF)

Introduction

Financial Action Task force (FATF) is an intergovernmental organization  established by G-7 summit ,held in Paris in 1989.After terrorist attacks in United States on December  11,2001 ,the organization added countering terrorism financing to it's mandate.

 It was founded to combat the threats posed to the banking system and financial institutions. The G-7  Heads of state and President European Union convened the task force from G-7 members ,European Commission and eight other countries. The FATF decision making body ; the FATF plenary meets three times a year.

Mandate of FATF

To set standards and promote effective implementation of legal ,regulatory and optional measures for combating

•  Money Laundering
• Terrorist Financing
• Other threats posed to International Financial System (IFS)
• Financing of proliferation of nuclear weapons for mass destruction

Money Laundering and Terrorist Financing

Both money laundering and terrorist financing are financial terms. Subtly money laundering pertains to distinguishing money earned from crime ,corruption, tax evasion ,drug trafficking and fraud.

Terrorist Financing is the collection of funds from legitimate sources and individuals but applied on crimes like terrorist organizations.

What is FATF looking for in Anti Money Laundering (AML) and Combating Terrorist Financing (CFT)?

FATF formulated a set of 40 recommendations which later have become international standards. The recommendations over the period of time enhanced and are updated accordingly. They were first issued in 1990 ,then in 2001,2003 and 2012 to ensure that they remain up to date and relevant for universal application.

FATF Recommendations:

In a nutshell the FATF recommendations are as under:

•  Identify the risk ,develop policies and        domestic coordination.
•  Pursue money laundering ,terrorist financing and financing of nuclear proliferation.
•  Apply preventive measures for financial sector and other designated sectors.
•  Establish powers and responsibilities for the  competent authorities i.e law enforcement,       investigatory and supervisory authorities.
•   Enhance transparency and availability of beneficial ownership, information of legal persons and arrangements and facilitate international corporation.

FATF Assessment Methodology 

• Technical compliance about legal and institutional framework ,power and procedures of competent authorities. 
•  Effective assessment to the extent to which legal and institutional framework is producing expected results.

FATF and Pakistan

FATF has put Pakistan on a list of "Jurisdiction and strategic deficiencies" also known as the Grey List.  It is not the first time Pakistan has been put  in grey list but it was there in 2008 ,and from 2012 till 2015 when it completed an IMF program and also raised funds from international bond markets. Other countries in grey list includes Ethiopia ,Serbia, Srilanka, Tunisia and Yemen.

Pakistan has been the most significant in the list due to comparatively big population ,economy and large army. It has been placed in grey list because of structural deficiencies in  Anti-Money Laundering (AML)and combating Financing of Terrorism (CFT).

Entry and exit from grey list is on and off exercise for Pakistan. The countries like Panama ,Kenya and Nigeria remained successful to get exit from grey list if history is unveiled.

Is Pakistan really the worst Performer ?

Basel Anti money Laundering Index is a watchdog with 14 indicators to check for regulation, corruption and financial standards. It kept Pakistan at 46 place out of 146 countries in total. Pakistan remained way better then Kenya ,Panama and Tajikistan. All the three are not present in Grey List of FATF.

Global Terrorism Index 2017 by Institute of Economics and Peace ranks Pakistan 5th most affected country due to terrorism after Syria ,Iraq, Afghanistan and Nigeria. Besides this Pakistan is striving hard to pull itself out of the quagmire of terrorism. At some fronts it improved far better.

Implications for Pakistan of being placed on Grey List

If Pakistan stays in grey list for longer period of time then banking system  of Pakistan could be adversely affected. It will defame Pakistan on international arena ,social and electronic media. Foreign direct Investment will be at stake. Financial Institutions will carry out enhanced checking and scrutiny. Imports and Exports will be badly affected. Perhaps the biggest peril of being on grey list for Pakistan is, it could be pushed to black list like Iran and North Korea.

Is this financial or Political Issue?

Ostensibly  the  placement of Pakistan in grey list is a political issue in nature because US being the major financier of FATF wants Pakistan to "do more" against terrorism specially terrorist financing. The biggest name US and India always claim to have shelter from Pakistan is Hafiz Saeed but Pakistan proved it baseless as the story was picked up by BBC News.

BBC news reported in 13 February ,2020 An anti-terrorism court in Pakistan has sentenced hard line Islamist cleric Hafiz Mohammad Saeed to 11 years in jail for financing terrorist operations.

The man accused of masterminding the 2008 Mumbai terror attacks that killed 161 people is to serve two five-and-a-half prison terms concurrently.

Saeed has been wanted by India for years, and is designated as a global terrorist by both the UN and the US, which has a $10m bounty on his head. He's the founder of one of Pakistan's largest militant groups, Lashkar-e-Taiba (LeT).

Significantly, Saeed's conviction comes a week before the Paris-based FATF discusses Pakistan's progress in curbing terror financing.

Pakistan still at risk of being placed on Black list

Out of 27 points action plan given by FATF, it had declared Pakistan fully compliant on 14 points. Pakistan will have to comply with remaining crucial 13 points till June 2020, including prosecution and conviction of banned outfits and proscribed persons, for which the list already provided to Islamabad in order to come out of grey list of Financial Action Task Force (FATF)

The 13 points of 27 action plan Pakistan needs to work on are as under :

• Pakistan will have to demonstrate effectiveness of sanctions including remedial actions to curb terrorist financing in the country.
• Pakistan will have to ensure improved effectiveness for terror financing of financial    institutions  with particular to banned outfits.
• Pakistan will have to take actions against illegal Money or Value Transfer Services (MVTS)  such as Hundi-Hawala
• Pakistan will have to place sanction regime against cash couriers.
• Pakistan will have to ensure logical conclusion from ongoing terror financing investigation of law enforcing agencies (LEAs) against banned outfits and proscribed persons.
• Pakistani authorities will have to ensure international cooperation based investigations and convictions against banned organizations (list provided to Pakistan) and proscribed persons (list provided to Pakistan).
•  The country will have to place effective domestic cooperation between Financial Monitoring Unit (FMU) and LEAs in investigation of terror financing.
•  Prosecution of banned outfits and proscribed persons (list provided to Pakistan).
•  Demonstrate convictions from court of law of banned outfits and proscribed persons (list      provided to Pakistan).
•  Seizure of properties of banned outfits and proscribed persons (list provided to Pakistan);
•  Conversion of madrassas to schools and health units into official formations (list provided to Pakistan).
• To cut off funding of banned outfits and proscribed persons;
• Pakistan will have to place permanent mechanism for management of properties and assets owned by the banned outfits and proscribed persons (list provided to Pakistan).

Pakistan has met most of the conditions set by the Financial Action Task Force (FATF) – an intergovernmental organization that aims at making policies to combat money laundering and terrorism financing, Minister for Interior Ijaz Shah told Prime Minister Imran Khan in a meeting on June 11,2020.Lets hope to see Pakistan's exit from grey list soon.