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This article is more than 1 year old.

39 Shades of Grey: The significance of FATF's rebuke of Pakistan terror funding

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The 'grey list' that the Financial Action Task Force (FATF) plenary in Paris decided to hold Pakistan back on turned far darker shades of grey than anyone anticipated earlier.

39 Shades of Grey: The significance of FATF's rebuke of Pakistan terror funding
The 'grey list' that the Financial Action Task Force (FATF) plenary in Paris decided to hold Pakistan back on turned far darker shades of grey than anyone anticipated earlier. On the list of requirements for Pakistan, it got 14 marks out of 27, over matters of concern to the FATF hat have been "largely addressed." So that is progress, that was duly noted. But that still does not place Pakistan in the middle of the grey zone. The mark sheet doesn’t quite tell the story.
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On the brighter or lighter side of the grey, the FATF meeting noted: "Since June 2018, when Pakistan made a high-level political commitment to work with the FATF and APG (Asia Pacific Group) to strengthen its anti-money laundering and countering terrorist financing regimes and to address its strategic counter-terrorist financing-related deficiencies, Pakistan’s political commitment has led to progress in a number of areas in its action plan." But clearly not all 27 requirements are each as significant as the other, they hardly could be. Many of these are relatively minor regulatory matters that Pakistan has complied with.
So what Pakistan was found to have made progress over "risk-based supervision" and "pursuing domestic and international cooperation to identify cash couriers." The Pakistani government appears to have instituted supervising regulations and limited cash availability from its institutions. But going by the concerns raised by 39 FATF members at the meeting, Pakistan’s score reads more like two out of ten than 14 out of 27. Every one of the 39 members had its own views that weighed down heavily against Pakistan in the end.
After pointing to a couple of ticked boxes, consider what the FATF announced Pakistan must still do. Pakistan, the FATF said, must address continuing "strategic deficiencies". Pakistan has been asked to demonstrate the following ahead of the next FATF plenary in June:
  • that remedial actions and sanctions are applied in cases of AML/CFT (anti-money-laundering and countering terrorist financing) violations.
  • that competent authorities are cooperating and taking action to identify and take enforcement action against illegal money or value transfer services.
  • the implementation of cross-border currency and bearer-negotiable instrument controls at all ports of entry, including applying effective, proportionate and dissuasive sanctions. So the FATF says in effect that Pakistan has much to do yet even over cash transactions and hawala systems of money transfer.
  • that law enforcement agencies are identifying and investigating the widest range of terrorist financing activity and that such investigations and prosecutions target designated persons and entities, and those acting on behalf or at the direction of the designated persons or entities.
  • that terrorist financing prosecutions result in effective, proportionate and dissuasive sanctions
  • effective implementation of targeted financial sanctions, supported by a comprehensive legal obligation, against all 1,267 and 1,373 designated terrorists and those acting for or on their behalf, including preventing the raising and moving of funds, identifying and freezing assets, and prohibiting access to funds and financial services.
  • enforcement against targeted financial sanctions violations including administrative and criminal penalties and provincial and federal authorities cooperating on enforcement cases.
  • that facilities and services owned or controlled by designated persons are deprived of their resources and the usage of the resources.
  • In giving Pakistan all this to do over the next four months, the FATF noted that "all deadlines in the action plan have expired" and that it now "strongly urges Pakistan to swiftly complete its full action plan by June 2020." And that’s followed by a stern warning. "Otherwise, should significant and sustainable progress especially in prosecuting and penalising terrorist financing not be made by the next plenary, the FATF will take action, which could include the FATF calling on its members and urging all jurisdiction to advise their financial institutions to give special attention to business relations and transactions with Pakistan."
    That effectively would be blacklisting then, though FATF does not officially use colour-coded language. What is commonly called the grey list translates officially as a list of monitored jurisdictions. The FATF is not warning Pakistan that if it does not comply by June, and comply on the big issues, it would continue to remain a monitored jurisdiction. It is warning Pakistan that it will advise financial institutions to give "special attention" to business dealings with Pakistan. From the FATF this could be the last chance given to Pakistan to reform.
    London Eye is a weekly column by CNBC-TV18’s Sanjay Suri, which gives a peek at business-as-unusual from London and around.
    Read his columns here.
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