Anti money laundering guidelines of FATF
By Ajmal Khan Yousafzai
ISLAMABAD: Despite the fact that Pakistan faces high risk of money laundering and requires to improve the understanding of these risks. Pakistan’s efforts to combat corruption, its recent initiative for prevention and detection of black money and country’s law enforcement efforts to address money laundering are commendable, yet need further improvement, says the final Mutual Evaluation Report of the Asia Pacific Group (APG), released yesterday.
The APG on money laundering released its Mutual Evaluation Report ten days before Financial Action Task Force’s plenary which is set to give its decision on Pakistan’s status in its Grey List.
Despite referring to certain reservations, the APG has applauded Pakistan’s efforts to carry out comprehensive war against black money. “Corruption is endemic across Pakistan economy, although Pakistan is to be commended for its recent initiative to prevent and detect corruption”, the report says.
The report underlined that Pakistan’s regulators – the State Bank of Pakistan and Securities and Exchange Commission of Pakistan – have very limited understating of the money laundering and terror financing regimes. “Pakistan should adequately identify, assess and understand its money laundering/terror financing risks including transnational risks and risks associated with terrorist groups. APG has applauded Pakistan’s efforts to combat corruption. “Corruption is endemic across Pakistan’s economy, although Pakistan is to be commended for its recent initiatives to prevent and detect corruption.”
The APG advised that Pakistan should significantly enhance the use of financial intelligence in money laundering, terror financing, and predicate crime cases, particularly the use of financial intelligence to target terrorist groups and higher- risk predicate crimes. It also sought improvement in asset confiscation that should commensurate with Pakistan’s money laundering and terror financing risks, including cross-border currency.
Pakistan’s capacity issues “Competent authorities have varying levels of understanding of the country’s money laundering and terror financing risks, and the private sector has a mixed understanding of risks,” according to the report. While Pakistan established a multi-agency approach to implementing its AML/CFT regime, it was not implementing a comprehensive and coordinated risk-based approach to combating money laundering and terror financing, it added.
For money laundering, there was no clear understanding among competent authorities, including LEAs. “Competent authorities are focused on predicate crimes and are unable to clearly differentiate money laundering from predicate offences which generate illicit proceeds.”
“For terrorism financing, Pakistani authorities have a mixed understanding of risk. Federal Investigation Agency has a low level of terror financing risk understanding, while provincial police, counter-terrorism departments (CTDs) have a better understanding of those risks within their provinces.
“The State Bank of Pakistan does not have a clear understanding of the money laundering and terror financing risks unique to the sectors it supervises,” stated the APG report.
The APG noted that some improvement in AML/CFT compliance was evident as a result of the SBP’s supervision but the value of monetary sanctions imposed was low. There was little evidence that the SECP’s supervisory activity was improving AML/CFT behaviour. Pakistan Post, CDNS, and DNFBPs were not supervised for AML/CFT compliance.
“All non-banking financial companies (NBFCs) have a limited understanding of these risks and are in the initial stages of implementing a risk-based approach. DNFBPs have a poor understanding of money laundering and terror financing risks and are yet to start implementing a risk-based approach,” it added.
“Regarding statistics, the Financial Monitoring Unit (FMU) is legally required to maintain statistics. However, not all statistics are comprehensive or detailed, and in many instances, AML- and CFT–related statistics across a broad range of supervision, law enforcement and regulatory areas are contradictory or inconsistent.”
Also, Pakistan’s law enforcement efforts to address money laundering were not consistent with its risks. Most banks and larger exchange companies had an adequate understanding of their AML/CFT obligations and had conducted internal money laundering and terror financing risk assessments, which underpinned a reasonable understanding of customer money laundering risk but not terror financing risk, according to the report. All other financial institutions had limited understanding of their money laundering and terror financing risks; they were in a nascent stage of implementing the risk-based approach and internal controls; smaller entities lacked proper systems to identify Politically Exposed Persons (PEPs). Pakistan had limited mitigating measures for legal persons and there was no supervisory oversight for AML/CFT purposes.
There were no measures in place to address the money laundering and terror financing risks posed by trusts, including foreign trusts, and waqfs in Pakistan, stated the report. Reporting entities were required to obtain beneficial ownership information before entering into a business relationship. Pakistan also had minor technical shortcomings in its framework for national coordination and minor technical shortcomings in its terror financing offence but fundamental improvements were needed in the investigation and prosecution of terror financing. “The terrorism financing is not fully integrated into Pakistan’s broader counter-terrorism approach particularly at an operational level and in all provinces besides Punjab. Pakistan did not demonstrate it was employing other measures to disrupt terror financing where it was not practical to secure a terror financing conviction,” it added.
