Urgency to fulfil FATF action plan

The success of the International Monetary Fund (IMF) bailout package depends on several factors however one that is not under much discussion domestically at least (though one would hope this is not reflective of the government's priorities) and which would have an overarching impact on the entire stabilization programme is, as per the Financial Action Task Force's (FATF) website, to "swiftly complete its action plan by October 2019 when the last set of action plan items are set to expire. Otherwise, the FATF will decide the next step at that time for insufficient progress."
The next FATF step is downgrading Pakistan from the gray to the black list with major implications on foreign direct investment inflows (which are less than a billion and a half dollars per annum at present though the Prime Minister and his team estimate a manifold rise subsequent to their meeting with investors from several friendly countries) as well as bilateral and multilateral assistance which the government has estimated at 38.6 billion dollars for 39 months (IMF programme duration) - pledged or yet to be pledged.
In June 2018, the caretaker set-up agreed to comply with a 27-point action plan relating to Anti-Money Laundering/Combating Financing of Terrorism (AML/CFT) by January 2019 failing which the country would be downgraded from gray to black list. The Pakistan Tehrik-e-Insaaf (PTI) government renegotiated the deadline for compliance and during the meeting of the Asia-Pacific Joint Group (APG) in Guangzhou, China on 15-16 May 2019, a regional affiliate of FATF, the 10-member Pakistan delegation led by the then Finance Secretary Younus Dagha defended Pakistan's efforts to meet the action plan by citing the following actions having been taken: (i) establishment of a directorate of Cross Border Currency Movement to maintain a data base of currency seizures with regular reporting by customs on a fortnightly basis which would then be shared with FMU and FBR on a monthly basis; (ii) a Data and Risk Analysis Cell to regularly analyse data pertaining to currency seizures, currency declarations, banking transactions, benami accounts, transactions etc. and to continuously update measures to combat money laundering; data from advance declarations from airports, airlines, ports and borders also to be gathered; (iii) nine entities were placed on the list of proscribed organisations, taking the total to 71. Seven were proscribed for affiliation with Jamaatud Dawa, while two were affiliates of Falah-i-Insaniyat Foundation (FIF). In March 2019, law enforcement agencies launched a major crackdown on Jaish-e-Mohammad, JuD, FIF and other banned outfits and took over control of their assets throughout the country; and (iv) internal controls of banking and non-banking financial institutions, insurance companies and stock exchanges was strengthened to check and curb the possibility of money laundering and terror financing.
The Dagha-led delegation returned to Pakistan and, like other high powered visits of our officials abroad, claimed success though a statement issued by the APG revealed that Pakistan had been asked to do more on 18 out of the 27-point action plan. And this was confirmed by the following statement issued at the conclusion of FATF's plenary meeting in Orlando, Florida (June 16-21): "not only did Pakistan fail to complete its action plan items with January deadlines, it also failed to complete its action plan items due May 2019" adding that the country "does not demonstrate a proper understanding of Pakistan's transnational TF risk."
The FATF statement further detailed areas of concern while urging Pakistan to "continue to work on implementing its action plan to address its strategic deficiencies, including by: (1) adequately demonstrating its proper understanding of the TF risks posed by the terrorist groups, and conducting supervision on a risk-sensitive basis; (2) demonstrating that remedial actions and sanctions are applied in cases of AML/CFT violations, and that these actions have an effect on AML/CFT compliance by financial institutions; (3) demonstrating that competent authorities are cooperating and taking action to identify and take enforcement action against illegal money or value transfer services; (4) demonstrating that authorities are identifying cash couriers and enforcing controls on illicit movement of currency and understanding the risk of cash couriers being used for TF; (5) improving inter-agency coordination including between provincial and federal authorities on combating TF risks; (6) demonstrating that law enforcement agencies (LEAs) are identifying and investigating the widest range of TF activity and that TF investigations and prosecutions target designated persons and entities, and persons and entities acting on behalf or at the direction of the designated persons or entities; (7) demonstrating that TF prosecutions result in effective, proportionate and dissuasive sanctions and enhancing the capacity and support for prosecutors and the judiciary; and (8) demonstrating effective implementation of targeted financial sanctions (supported by a comprehensive legal obligation) against all 1267 and 1373 designated terrorists and those acting for or on their behalf, including preventing the raising and moving of funds, identifying and freezing assets (movable and immovable), and prohibiting access to funds and financial services; (9) demonstrating enforcement against TFS violations including administrative and criminal penalties and provincial and federal authorities cooperating on enforcement cases; and (10) demonstrating that facilities and services owned or controlled by designated person are deprived of their resources and the usage of the resources."
Many independent economists based on a dated understanding of FATF argue that the Fund had no business to include the FATF action plan as a structural benchmark for the July 2019 Extended Fund Facility (EFF) programme. Perhaps they are unaware that the June 2019 FATF open ended plenary session included the 205 members of the FATF Global Network, the IMF, UN, World Bank and others and it was agreed that "FATF will receive reports from organizations including the IMF, World Bank, United Nations..."
The IMF also uploaded a policy paper five months ago in February 2019 titled Review of the Fund's Strategy on AML/CFT and specified that "the Fund plays an important role in the global AML/CFT architecture, which also includes the FATF, the AML/CFT standard setter,....to avoid duplication of efforts, synergies have been built among the activities of the different stakeholders and staff actively coordinates with others as needed.....the Fund's AML/CFT programme has assisted member counties in strengthening their AML/CFT frameworks and increasing their resilience to ML, TF, PF and other crimes."
The Memorandum on Economic and Financial Policies of the EFF dated July 2019, with the Advisor to the Prime Minister on Finance and Governor State Bank signing off on it, commits the country to meeting the FATF action plan by end October 2019 and claims that the "National Executive Committee is monitoring and coordinating efforts to implement the FATF action plan. The Asia Pacific Group on Money Laundering is expected to discuss Pakistan's mutual evaluation report in August 2019. The authorities will work with technical assistance providers, including the IMF, to complete the action plan."
On 17 July, 2019 Hafiz Saeed, founder of the Lashkar-e-Taiba (LeT) armed group and head of JuD was arrested though it is unclear whether it was to ease US concerns prior to the visit of the Prime Minister to the US or to meet the FATF action plan but perhaps both. By 25 July it was reported that the FBR had constituted a FATF cell to ensure implementation of the action plan. However there is still a long way to go to meet the 'do more' requirements before FATF would be satisfied that Pakistan has implemented all the remaining points of the action plan.
US Marshall Billingslea is no longer the FATF President (appointed for one year) and has been replaced with Mr. Xiangmin Liu of the People's Republic of China (China was one of the three countries that blocked the FATF move to black list Pakistan - Turkey and Malaysia being the other two); however the President merely convenes and chairs the meetings of the FATF Plenary and the Steering Group, and oversees the FATF Secretariat. In other words, the danger is not past and one would hope that the immediate focus of the civilian and military establishment remains on getting Pakistan out of the gray list.