The FATF challenge

The FATF was formed by the 1989 G7 Summit in Paris to combat the growing problem of money laundering. The task force was charged with studying money laundering trends, monitoring legislative, financial and law enforcement activities taken at the national and international level, reporting on compliance, and issuing recommendations and standards to combat money laundering. At the time of its formation, the FATF had 16 members; by now the number has grown to over 37.

The mandate of the organisation was expanded to include terrorist financing following the September 11 terror attacks in 2001. The FATF is seen as the Lender of the Last Resort for curbing terror funding, globally.

The FAFT is often applied on smaller countries for arm twisting by global powers for political gains and double standards in its application have been blatantly applied.

In the case of Pakistan, it is both arm twisting and gaps in our fiscal discipline. These gaps have made terror financing, proxy ethnic conflicts, money laundering and flight of capital much easier and over the years Pakistan has immensely suffered on this count.

Pakistan is in a grey list with a looming threat of being placed in a black list and is struggling since quite some time to move out of it. Over the years it has complied with many milestones and is still in the process of doing so.

The reforms and compliance by Pakistan in its fiscal discipline are more to its own advantage than anything else. Our overseas and inland money flow and transaction systems are too liberal with little controls and have been blatantly exploited.

The next meeting of the Financial Action Task Force (FATF) is scheduled to be held in Paris from Oct 12 to 15 and Pakistan has prepared its compliance report, which will be presented by Minister for Economic Affairs Division Hammad Azhar.

To align itself with the FATF's standards and its 40 recommendations, the Security Exchange Commission of Pakistan (SECP) developed a set of regulations. It conducted 167 inspections, focusing on AML/CFT (Anti-Money Laundering/ Combating Financing of Terrorism) compliance in the cases of 72 securities brokers, 27 non-banking financial companies, 13 insurance companies and 55 high risk non-profit organisations.

The SECP report has said that apart from penalties imposed for non-compliance, the financial institutions have also undertaken remedial measures to ensure effective compliance with the regulations.

But reforms in Pakistan alone are not good enough. Bad money finds its way into Pakistan from overseas accounts and likewise bad money flows out from Pakistan to overseas accounts - used as safe havens, mostly in Europe. These countries are aiding and abetting criminals but standards are applied and their questionable conduct is condoned due to their political and economic might.

Over the years their banking systems have taken some measures in conducting due diligence of account holders and surveillance of existing accounts. But this is as far as it goes.

Prime Minister Imran Khan in his recent address at the United Nations highlighted the issue of illicit financial flows.

Every word that the prime minister uttered on the subject was meaningful. He, for example, emphasized:

"Every year billions of dollars leave the poorer countries and go towards rich countries, siphoned off by the ruling elites of the western world. This is devastating the developing world. It is impoverishing them. The rich-poor gap is growing because of them. Our country was plundered by the ruling elite. And they could easily get their money out. And when we locate properties in western capitals bought by this money through corruption and money laundering by these corrupt leaders, we find it so difficult to retrieve it. But it is so difficult [owing to] the laws protecting these criminals. We do not have the sort of money to have expensive lawyers and spend millions and millions of dollars. We need help from the rich countries. It is critical. The rich countries must show political will. They cannot allow this to happen. Corrupt elites must not be allowed to park their money (abroad). Why do we have these tax havens?"

Be that as it may, to make the FAFT truly meaningful, same level of application of FAFT compliance needs to be applied on these safe havens in the West who derive benefits from bad money but do little to curb its flows.

(The writer the former President of Overseas Investors Chambers of Commerce and Industry)