NEW DELHI: The Asia Pacific Group (APG) on Money Laundering, the regional affiliate of the Financial Action Task Force (FATF), has found that Pakistan has failed to take enough action to stop terror financing by the country, according to a report made public by the group this week. The report was adopted by the APG in September, but was released this week. With Pakistan achieving “significant deficiencies” on both “effectiveness ratings” and “technical compliance ratings”, the chances of Pakistan being put on the “black-list” may have increased. The FATF had placed Pakistan on its “grey list” in June 2018, giving the country a 15-month deadline to implement its 27-point action plan, a deadline which ended last month. The final review of Pakistan will likely be taken up at the next meeting of the FATF in Paris between 13 and 18 October.
Of the 11 parameters that constitute the “effectiveness ratings”, that show how the country has performed while dealing with money laundering and combating the financing of terror, Pakistan got “low” rating in 10 of the 11 parameters, while it got “moderate” for “international cooperation”.
The other 10 parameters that constitute “effectiveness ratings” for which Pakistan was given “low” rating are: risk, policy and coordination, supervision, preventive measures, legal persons and arrangements, financial intelligence, investigation and prosecution, confiscation, terror funding investigation and prosecution, terror funding preventive measures and financial sanctions and proliferation financing financial sanctions.
Significantly, Pakistan has also performed poorly when it comes to technical compliance ratings that are based on 40 parameters, which reflect the extent to which a country has implemented the technical requirements of the FATF recommendations. These ratings are divided into four: C (compliant), LC (largely compliant), PC (partially compliant) and NC (non-compliant).
Out of these 40, Pakistan has been adjudged “LC” only for nine heads.
It was found to be “NC” in four categories: mutual legal assistance-freezing and confiscation, regulation and supervision of designated non-financial business or profession (DNFBPs), transparency and beneficial ownership of legal arrangements, and customer due diligence.
For 26 parameters, it was found to be “partially compliant”. It was found to be compliant (C) for only one compliance—financial institution secrecy laws.
The APG’s report is based on information provided by Pakistan and the field visit undertaken by an assessment team in October last year. The six-member team had experts from China, Indonesia, Maldives, Turkey, United States and the United Kingdom
In its report, the APG has said that at the time of its visit to Pakistan there were 66 organisations and approximately 7,600 individuals proscribed under its Anti-Terrorism Act, which was brought pursuant to UN Security Council resolution 1373.
The assessment team has clearly stated in its report that terror groups are still easily raising funds in the country.
“Terrorist groups operating in Pakistan are reported to include, but not limited to, ISIS-Khorasan, Tehrik-e Taliban Pakistan, Quetta Shura Taliban, Haqqani Network, and Lashkar-e-Taiba (including its affiliates Jamaat-ud-Dawa and Falah-i-Insaniat Foundation), which raise funds through a variety of means including direct support, public fund raising, abuse of Non-Profit Organizations (NPOs) and through criminal activities. Funds are moved via informal (including hawala/hundi) and formal channels and cash smuggling.”
The report has also raised questions on the competence of the Pakistani authorities dealing with terror on their understanding of how terror financing works.
“Pakistan competent authorities (federal and provincial) have a mixed understanding of risks in relation to Terrorist financing (TF). The Federal Investigation Agency (FIA) demonstrated a low level of understanding of TF risks, while provincial Counter-Terrorism Department (CTDs) had a better understanding. Punjab CTD, in particular, has a reasonable understanding of TF risks within the Punjab province, while the CTD Balochistan primarily focused on the terrorism offence due to the lack of resources and forensic expertise to focus on TF as a financial crime-type,” said the report.
According to the experts Pakistani authorities are clueless on various important issues. “There is no breakdown of risks associated with the various terrorist groups operating in Pakistan and how those groups raise, move, and use funds. There was also a lack of understanding by officials to recognize the difference between TF and a terrorist act.”
“Significantly, although hawala/hundi are rated as high risk channels to move funds (the sole rating of ‘high’ in the National Risk Assessment (NRA), there is a lack an understanding of how use of this delivery channel may occur in relation to terrorist groups and/or the geographical location of fund raisers and end-users”, the experts wrote.
It further noted that: “Pakistan does not take a risk-based approach due to lack of detailed information on current methodology or knowledge of delivery channels used. No information has been provided to show an effective response to the risks identified in the NRA. Law Enforcement Agencies (LEA) activities, including prioritisation and allocation of resources, although broadly consistent with the predicate crimes identified , little effort and success has been achieved in focusing resources and mitigating measures in relation to the secondary money laundering (ML) offences associated with those predicate crimes. The assessment team saw no specific evidence of how the objectives and activities aligned with ML and TF risks.”
The APG also found that Pakistan was found wanting when it came to tackling Terror Financing (TF).
“In relation to TF, and notwithstanding the number of terrorist attacks in Pakistan in 2018, authorities do not appear to be actively using the TF offence to combat TF. Pakistan does not circulate TF-related typologies to support a wider response to TF. Pakistan has, however, proscribed a number of individuals and organisations under the UNSC resolution 1373 provisions. The authorities generally demonstrated a low level of understanding of the unique nature of the specific risks facing sectors to enable them to respond accordingly.”
As per the experts, even though Pakistan has established a multi-agency approach in implementing its Anti-Money Laundering (AML) regime, it provided “no examples of how the above mechanisms were used to facilitate AML/CFT policy development or ML/TF operational coordination or cooperation. In particular, Pakistan did not demonstrate the above mechanisms were used for LEA coordination or cooperation in ML investigations of higher risk predicate crimes including with provincial authorities.”
Another significant finding of the group was that Pakistan, unlike local media reports, had taken no effective action against Lashkar-e-Taiba and its affiliates. “Pakistan did not demonstrate to the assessment team that it has established effective asset management of this frozen property. Furthermore, Pakistan did not demonstrate that these actions are supporting broader CT/CFT strategy. For example, Pakistan provided no information on the prosecution of individuals and entities associated with the frozen property relating to TF, and continued freezing actions against JuD, FIF and other regional terrorist networks.”
The report has also talked about the trio of Pakistan-Iran-Korea under the head: “Exposure to WMD-related sanction evasion”.
“Pakistan has some exposure to DPRK and Iran financial activity and possible sanctions evasion. DPRK diplomats are present in Pakistan and have accounts in Pakistani banks. Pakistan’s geographical context with Iran presents WMD proliferation and PF vulnerabilities, and Pakistan and Iran have trade relations.”