FATF keeps Pakistan on grey list until June despite ‘significant progress’

The Financial Action Task Force (FATF) on Thursday decided to keep Pakistan on its ‘grey list’, with the country’s status set to be reviewed next at an extraordinary plenary session in June 2021.

The announcement was made by FATF President Dr Marcus Pleyer at a press briefing from Paris on the outcomes of the FATF’s four-day virtual plenary meeting.

“Pakistan remains under increased monitoring,” Pleyer said, adding that while Islamabad had made “significant progress”, there remained some “serious deficiencies” in mechanisms to plug terrorism financing.

“Three out of 27 [points] need to be fully addressed,” he said, referring to the action plan agreed to by Pakistan.

While reiterating that Pakistan has made “progress”, the FATF president said: “[We] strongly urge completion of the plan [by Pakistan].”

He said Pakistan “must improve their investigations and prosecutions of all groups and entities financing terrorists and their associates and show [that] penalties by courts are effective. As soon as Pakistan shows it has completed these items, FATF will verify and members of FATF will vote.”

Responding to a question by an Indian journalist about prosecution of terrorists in Pakistan, Pleyer clarified that the FATF was not an investigative organisation. “What we assess is the entire system of anti-money laundering [and] the framework. This does not change with incidents per se,” he said.

“What is now essential is that Pakistan completes the action plan.”

The FATF president noted that Pakistan was working towards its commitment made at a high level to implement the illicit financing watchdog’s recommendations, saying “that is not the time to put a country on the blacklist”.

He added that as soon as Pakistan completed the action, the watchdog “will verify the sustainability of the reforms and discuss in next plenary in June”.

Answering another question about alleged funding of terrorism by India, the FATF president declined to comment on specific incidents, reiterating that the watchdog was not an investigative agency. “India is subject to [the] same rules as any other country and FATF will assess India as any other country when the time comes,” he added.

Meanwhile, a note on the FATF website said Pakistan “should continue to work on implementing the three remaining items in its action plan to address its strategically important deficiencies”, namely by:

• 1) demonstrating that TF (terrorism financing) investigations and prosecutions target persons and entities acting on behalf or at the direction of the designated persons or entities;
• 2) demonstrating that TF prosecutions result in effective, proportionate and dissuasive sanctions; and
• 3) demonstrating effective implementation of targeted financial sanctions against all 1267 and 1373 designated terrorists, specifically those acting for or on their behalf.

“The FATF takes note of the significant progress made on the entire action plan. To date, Pakistan has made progress across all action plan items and has now largely addressed 24 of the 27 action items,” the statement read. “As all action plan deadlines have expired, the FATF strongly urges Pakistan to swiftly complete its full action plan before June 2021.”

Reacting to the FATF decision, the government’s point man on FATF, federal minister Hammad Azhar, said Pakistan had completed “almost 90 per cent” of its current FATF action plan with 24 out of 27 items rated as ‘largely addressed’ and the remaining three items ‘partially addressed’.

“FATF has acknowledged Pakistan’s high-level political commitment since 2018 that led to significant progress. It was also noted by FATF member countries that Pakistan is subject to perhaps the most challenging & comprehensive action plan ever given to any country,” he tweeted, saying the country was also subject to dual evaluation processes of FATF with differing timelines.

Azhar said Pakistan remained committed to complying with both the FATF evaluation processes. “I would like to commend the hard work done by dedicated teams in multiple government departments at Federal & provincial tiers,” he added.

Senegal, Morocco, Caymans added to grey list

The FATF during its plenary kept North Korea and Iran as the only two countries on its blacklist but added four new places to its watch list for increased monitoring, according to Pleyer.

The countries added to the grey list are Morocco, Burkina Faso, Senegal and the Cayman Islands.

With the four additions, the list now has 19 countries and territories that FATF said were only partially fulfilling international rules for fighting terrorism financing and money laundering.

North Korea and Iran remain the only two countries on the blacklist. The designation means international financial transactions with those countries are closely scrutinised, making it costly and cumbersome to do business with them. International creditors can also place restrictions on lending to blacklisted countries.

The FATF said that the Covid-19 pandemic had not stopped criminals from exploiting it for their financial gain.

Performance review

Ahead of the plenary which began on Monday, the FATF had updated the overall performance of all countries.

Based on this update, Pakistan has been shown improving compliance on two out of 40 recommendations of the FATF on effectiveness of anti-money laundering and combating financing terror (AML/CFT) systems.

It found Pakistan’s progress non-compliant on four counts, partially compliant on 25 counts and largely compliant on nine recommendations. Pakistan’s evaluation at the plenary will be based on the 27-point action plan and not on these 40 recommendations.

Diplomats said they had not seen this time the kind of aggressive diplomatic effort Islamabad had been making in the past, particularly before the October 2020 plenary review. They said the plenary could discuss all options, including blacklisting Pakistan, keeping it in the grey list or removing it from the grey list.

There are, however, no chances that Pakistan could be put in the blacklist because it has at least three members of the FATF — China, Turkey and Malaysia — who can sustain all pressures against any downgrade.

This is not only based on friendly bilateral relations but performance as well. “From our perspective, we have completed all action points and complied with what the country was required to do, but sometimes some influential members can raise objections on a point that one can think is not justified,” said an official.

Pakistan fully complied with 21 out of 27-point action plan last year, leading the FATF to soften its stance from previously aggressive threats and yet it kept it in the grey list in October last year. Following robust progress on anti-money laundering and terror financing laws, rules, regulations and updating inter-agency and inter-provincial cooperation, the FATF narrative shifted towards Islamabad to “demonstrate” seriousness on ground through results and prosecutions.

In October last year, the FATF had announced that Pakistan had made progress across all action plan items and “largely addressed 21 of the 27 action items”. As all action plan deadlines stood expired, the FATF had said it strongly urged Pakistan to swiftly complete its full action plan by February 2021 appreciating that it took “note of the significant progress made on a number of action plan items”.

It had asked Pakistan to continue to work on implementing its action plan to address its strategic deficiencies by “demonstrating” that law enforcement agencies are identifying and investigating the widest range of terror financing (TF) activity and that TF investigations and prosecutions target designated persons and entities, and those acting on behalf or at the direction of the designated persons or entities.

Secondly, it was required to “demonstrate” that TF prosecutions result in effective, proportionate and dissuasive sanctions and thirdly to “demonstrate” effective implementation of targeted financial sanctions against all 1,267 and 1,373 designated terrorists and those acting for or on their behalf, preventing the raising and moving of funds, including in relation to non-profit organisations (NPOs), identifying and freezing movable and immovable assets and prohibiting access to funds and financial services.

Fourth and finally, it had asked Islamabad to “demonstrate” enforcement against terror financing sanctions (TFS) violations, including in relation to NPOs, of administrative and criminal penalties and provincial and federal authorities cooperating on enforcement cases.

The Foreign Office spokesman had said last week that Pakistan had made substantive progress on the remaining six items of the FATF action plan and was duly acknowledged by the wider FATF membership.

Pakistan has been on the FATF’s grey list for deficiencies in its counter-terror financing and anti-money laundering regimes since June 2018.

Until the last assessment, Pakistan was found deficient in acting against the organisations allegedly linked to the terror groups listed by the UN Security Council, prosecuting and convicting banned individuals and tackling smuggling of narcotics and precious stones.

Recently, the authorities had taken further steps including the prosecution of Lashkar-e-Taiba chief Hafiz Saeed and his associates in terror financing cases.