Pakistan, while agreeing to comply with the Financial Action Task Force (FATF)'s anti-money laundering and combating financing of terrorism measures, has been rather lackadaisical in implementing them, according to a report of the Asia Pacific Group which has given Pakistan a "low" rating in 10 out of 11 measures.
Ahead of the FATF plenary meeting, the APG, in its detailed report released on Sunday, shows how Islamabad's financial institutions have been largely slack in implementing the measures in curbing terrorist financing/money laundering.
The report, which casts a dark shadow over Pakistan's seriousness in wanting to curb terror financing and money laundering, is damaging to Islamabad's reputation as it struggles to emerge from the grey list, which looks unlikely.
It says that while Pakistan has established a multi-agency approach to implement its AML/CFT (anti-money laundering/combating financial terrorism) regime, "it is not implementing a comprehensive and co-ordinated risk-based approach to combating money laundering and terrorist financing (ML TF)".
It also says that Pakistan is using its financial intelligence "only to a minimal extent" to combat ML and TF.
Its financial monitoring units (FMU) "cannot spontaneously or upon request disseminate information, and the results of its analysis to provincial counter-terrorism departments, which are designated as TF investigation authorities".
One telling para says: "Pakistan law enforcement agencies have undertaken 2,420 money laundering investigations, resulting in 354 prosecutions (primarily self-laundering cases) and the conviction of ONE natural person for self-laundering related to corruption. Proportionality and dissuasiveness of the sanctions against natural persons could not be assessed due to a lack of information. Pakistan's law enforcement efforts to address ML are not consistent with its risks."
Pakistan law enforcement agencies have measures to freeze, seize, and prevent dealing with property subject to confiscation, but are not seizing property in money laundering cases. "Overall, the value of confiscated funds is not commensurate with Pakistan's ML/TF risk profile," it says.
"Pakistan faces a significant terrorist financing (TF) threat. TF cases are identified by a number of mechanisms but not via financial intelligence. Pakistan has registered 228 TF cases and convicted 58 individuals (Pakistan has not undertaken any TF investigations of legal persons), which is not consistent with Pakistan's overall level of TF risk. The vast majority of investigations and all of convictions were obtained at the provincial level including 49 convictions in Punjab. A total of nine TF convictions for all other provinces in Pakistan is not consistent with province specific TF risks."
It says that Pakistan has given domestic effect to the UNSC Resolution 1267 (relating to the prevention and suppression of terrorism and terrorist financing) by issuing a Statutory Regulatory Order, "but despite recent improvements, there are numerous instances where Statutory Regulatory Order were not issued "without delay".
It also says that most banks and larger economic hubs have automated screening systems for all customers and transactions, and "have frozen some funds".
The non-banking sector and designated non-financial businesses and professions (DNFBPs) are "conducting manual screening during customer on-boarding at best and have not frozen any funds, which is not consistent with Pakistan's TF risks". All the financial institutions and DNFBPs "are not screening for persons acting on behalf of, or at the direction of, a designated/proscribed person or entity; and most FIs and all DNFBPS are not applying terrorist financing screening to designated persons that are beneficial owners", it says.
"The State Bank of Pakistan does not have a clear understanding of the ML and TF risks unique to the sectors it supervises", while the "Securities and Exchange Commission of Pakistan has a limited understanding of ML/TF risks and has not implemented a risk-based supervisory approach", it says, in more damning findings.
Pakistan has "limited mitigating measures for legal persons and there is no supervisory oversight for AML/CFT purposes. There are no measures in place to address the ML and TF risks posed by trusts, including foreign trusts, and waqfs in Pakistan".
Pakistan has made over 140 outgoing mutual legal assistance (MLA) requests, but the low numbers of outgoing money laundering-related and terrorist financing-related MLA and extradition requests "is not consistent with Pakistan's risk profile".
"Pakistan seeks and provides informal international cooperation on some occasions; however, law enforcement agencies are not using the financial monitoring units to seek financial intelligence from foreign financial intelligence units (FIUs) effectively. Pakistan's ability to share beneficial ownership information is severely limited," it says.