Pakistan’s FATF panel ranking gets better

ISLAMABAD, AUG 14: The Asia Pacific Group (APG) on Money Laundering has improved Pakistan’s rating on four more of the 40 technical recommendations of the Financial Action Task Force (FATF) against money laundering and terror financing (AML/CFT) but retained it on ‘Enhanced Follow up’ to meet the outstanding requirements.

“Pakistan has 35 recommendations rated compliant or largely compliant (C/LC). Pakistan will remain on enhanced follow-up, and will continue to report back to APG on progress to strengthen its implementation of AML/CFT measures,” announced APG, a regional affiliate of the Paris-based FATF.

Overall, Pakistan is now fully ‘compliant’ with eight recommendations and ‘largely compliant’ with 27 others, according to third Follow-Up Report (FUR) on Mutual Evaluation of Pakistan released by APG. The re-rating to compliant status was one-notch up and three others on largely compliant status.

The country is ‘partially compliant’ with three recommendations compared to seven in June this year and ‘non-compliant’ with two (unchanged against June) out of total 40 recommendations. All in all, Pakistan is now compliant or largely compliant with 35 out of 40 recommendations of the FATF.

“Pakistan has made good progress in addressing the technical compliance deficiencies identified in its Mutual Evaluation Report (MER) and has been re-rated on R.10, R.18, R.26 and R.34,” the APG said.

As such, Pakistan showed satisfactory progress on one recommendation and upgraded to be compliant. This re-rating came about as Pakistan introduced comprehensive AML/CFT obligations for Central Directorate of National Savings (CDNS) and the entities that provide the financial activities previously provided by Pakistan Post are subject to the same AML/CFT obligations as other SBP and SECP regulated persons. 

Microfinance Banks (MFBs) and Exchange Companies (ECs) are also now subject to the same AML/CFT obligations as other SBP regulated persons.

Likewise, on three counts where Pakistan was re-rated to ‘largely compliant’ status from ‘partially compliant’ pertained to recommendations 18, 26 and 34. Recommendation 18 is about screening of staff and employees relating to financial institutions, CDNS, MFBs and ECs etc.

This meant Pakistan also addressed deficiencies with respect to the employee screening requirements for banks and DFIs with new nine provisions in SBP and SECP Regulations. 

Amendments have been passed in the CDNS and Pakistan Post Regulations to provide enforceable AML/CFT requirements. However, minor deficiencies remain with the SBP Regulation coverage of requirements for financial groups.

On Recommendation 26, the APG noted that deficiencies remained with respect to obligations for financial groups and a lack of explicit provisions for SBP to revise risk assessments of REs or financial groups in response to developments in their management and operations. 

Gaps will remain with Pakistan Post until the transfer of its business banking has concluded. However, it was re-rated to the category of largely compliant.

Similarly, on R-34, the APG said Pakistan issued a wide range of guidance and conducted feedback sharing sessions with REs to support implementation of their obligations, which largely aligns with ML/TF risk. 

Minor deficiencies remain with respect to the limited sector specific feedback and guidance issued to lawyers, and with the quality of the red flag indicators issued to REs but was re-rated to largely compliant.

The reporting date for this evaluation was February 1, 2021 which means that Islamabad may have made further progress since then that would be evaluated at a later stage. In February 2021, Pakistan submitted its third progress report, requesting re-ratings for R.10, 18, 26 and 34. 

The APG welcomed the steps Pakistan had taken to improve its technical compliance with all the four recommendations.

The Ministry of Finance and head of the task force on FATF Hammad Azhar separately welcomed the re-rating saying Pakistan was well placed in technical compliance in comparison to many other countries. 

For example, if Pakistan’s position is compared against G20 countries, then Pakistan is on the fourth after Italy (38), Kingdom of Saudi Arabia (38) and the United Kingdom (38).

“Pakistan is now in the top tier of countries that have achieved a rating of C/LC for over 35 of the 40 FATF Recommendations,” the finance ministry said, adding that the country also achieved the rating of largely compliant or compliant in all the six major recommendations of the FATF. 

The money laundering offence, terror financing offence, targeted financial sanctions related to terrorism and terrorist financing, customer due diligence, record keeping and reporting of suspicious transactions.

Pakistan would continue this momentum in addressing the remaining gaps identified in the MER-2019 and would seek upgrades in the remaining five recommendations, in the fourth follow-up report, the finance ministry added.

Pakistan’s MER was adopted in August 2019 in which the country was rated compliant and largely complaint in 10 of the 40 FATF recommendations for technical compliance.

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