Financial Crime World

Pakistan Races Against Time to Avoid Anti-Money Laundering Blacklist

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Pakistan is facing a looming threat of being added to a list of countries deemed non-compliant with anti-money laundering (AML) and terrorist financing regulations by the global watchdog, the Financial Action Task Force (FATF). This could have devastating consequences for its already fragile economy.

A Country on the Brink

Pakistan has been categorized as a Country/Jurisdiction of Primary Concern in respect of Money Laundering and Financial Crimes by the US State Department. The country’s economy is vulnerable to illicit financial activities, including corruption, smuggling, drug trafficking, fraud, kidnapping for ransom, and extortion from businesses.

National Risk Assessment

Identifying Substantial Demand

A National Risk Assessment conducted in 2017 identified substantial demand for money laundering and illicit financial services due to a black market, informal financial system, and permissive security environment. The assessment highlighted the need for robust AML measures to combat these threats.

Pakistan’s Current Situation

Pakistan is already on the FATF List of Countries with strategic Anti-Money Laundering (AML) deficiencies. To address this issue, the government enacted the Anti Money Laundering Act 2010 (the Act), which provides a legal framework for preventing money laundering and combating terrorism financing.

Key Provisions

  • Established the Financial Monitoring Unit (FMU) to receive and analyze Suspicious Transactions Reports (STRs) and Currency Transactions Reports (CTRs)
  • Disseminates financial intelligence to concerned law enforcement agencies
  • Ensures compliance with FATF recommendations on AML and terrorist financing

Strengthening Banking Regulations

Pakistan’s banking regulations have been strengthened, with the State Bank of Pakistan (SBP) and Securities and Exchange Commission of Pakistan (SECP) establishing AML units to enhance oversight of the financial sector. The SBP has introduced regulations consistent with FATF recommendations on:

Key Regulations

  • Know Your Customer policy
  • Record retention
  • Due diligence of correspondent banks
  • Reporting of suspicious transactions

Progress and Challenges

Pakistan has completed 26 out of 27 action items in its 2018 action plan, with the remaining item pending completion. According to the last Follow-up Mutual Evaluation Report undertaken in 2021, Pakistan was deemed Compliant for eight and Largely Compliant for 27 of the FATF 40 Recommendations.

The Consequences of Non-Compliance

  • Further economic sanctions and isolation
  • Exacerbation of its already fragile economy

With time running out, Pakistan is racing against the clock to demonstrate its commitment to combating money laundering and terrorist financing before being added to the black list.