Explained: Why FATF kept Pakistan on Enhanced Follow-up
Islamabad, Oct 13: Noting that Pakistan's measures against money laundering and terror financing "is not yet sufficient to justify a re-rating", a regional affiliate of the Financial Action Task Force on Monday retained the country on its 'Enhanced Follow-up' list, according to a media report.
The development came only a few weeks ahead of the meeting of the FATF -- the Paris-based global money laundering and terrorist financing watchdog -- to decide on Pakistan's grey list status.
The first Follow-Up Report on Mutual Evaluation of Pakistan released by the Asia-Pacific Group (APG) underlined that the country's progress on the 40 FATF recommendations on the effectiveness of anti-money laundering and combating financing terror (AML/CFT) system largely remained unchanged -- non-compliant on four counts, partially compliant on 25 counts and largely compliant on nine recommendations, the Dawn News reported.
Pakistan has improved its full compliance on only two of the 40 FATF recommendations, the APG report noted.
Pakistan will remain in enhanced (expedited) follow up, and will continue to report back to the APG on progress to strengthen its implementation of AML/CFT measures, the APG concluded in its 12-page report.
The APG Mutual Evaluations is a peer-review system to determine whether countries meet the compliance standards for money laundering and terror financing.
After a country submits a Mutual Evaluation report, APG members can decide to place a member either through regular or enhanced follow-up. While a regular follow-up means just biennial reports, a country put under enhanced follow-up has to send four reports of compliance the following year.
The APG report noted that though the country has taken measures on recommendations pertaining to money laundering and terror financing, the progress is not yet sufficient to justify a re-rating.
Pakistan had requested for re-ratings on three areas declared partially compliant by the APG in October last year. The request was accepted on one count and rejected on two due to "insufficient" progress to the satisfaction of international experts.
The 41-member APG in August last year had downgraded Pakistan's status to 'Enhanced Follow-up' category from 'Regular Follow-up' over technical deficiencies to meet normal international financial standards by October 2018.
'Enhanced follow-up' is an intensive process of correction that deals with members with significant deficiencies (for technical compliance or effectiveness) in their AML/CFT systems.
The APG's report came ahead of the virtual FATF plenary scheduled for October 21-23 during which it would be decided if Pakistan should be excluded from its grey list, based on a review of Islamabad's performance to meet global commitments and standards on fight against money laundering and terror financing (ML&TF).
FATF had placed Pakistan on its grey list in June 2018 and asked Islamabad to implement a plan of action to curb money laundering and terror financing by the end of 2019 but the deadline was extended later on due to COVID-19 pandemic.
Seeking to wriggle out of the FATF's grey list, debt-ridden Pakistan in August imposed financial sanctions on 88 banned terror groups and their leaders, including 26/11 Mumbai attack mastermind and Jamaat-ud-Dawa (JuD) chief Hafiz Saeed, Jaish-e-Mohammed (JeM) chief Masood Azhar and underworld don Dawood Ibrahim.
In February, the FATF gave Pakistan, which missed 13 targets, a four-month grace period to complete its 27-point action plan against ML&TF committed with the international community.
In its third plenary held virtually in June, the FATF decided to keep Pakistan in the grey list as Islamabad failed to check flow of money to terror groups like Lashkar-e-Taiba (LeT) and Jaish-e-Mohammed (JeM).
With Pakistan's continuation in the 'grey list', it is increasingly becoming difficult for the country to get financial aid from the International Monetary Fund (IMF), World Bank, Asian Development Bank (ADB) and the European Union, thus further enhancing problems for the nation which is in a precarious financial situation.
The APG report noted that Pakistan considered 12 terrorist organisations, including eight UN-designated entities of concern (EOCs), for threat profiles but only in terms of inflows and not outflow of funds to support terrorist activities.
It also noted that the National Risk Assessment (NRA) 2019 has confirmed that abuse of non-profit organisations for terror financing purposes continued to pose a significant threat both domestically and externally and that charities and fund-raising was a source of funds for almost all EOCs.