Pakistan’s Banking Sector Fails to Stem Tide of Financial Crime as Risk Score Soars

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Pakistan has taken a step backwards in its fight against financial crime, with its risk score jumping up the Basel AML Index. The country’s risk score rose from 6.45 to 7.66 out of 10, according to the latest update of the index.

New Mutual Evaluation Report Published by FATF

The sudden increase in Pakistan’s risk score is attributed to a new Mutual Evaluation Report (MER) published by the Financial Action Task Force (FATF). The report assessed Pakistan’s anti-money laundering and counter-terrorism financing (AML/CFT) framework and found significant weaknesses.

Key Findings of the Report

• Only 3% of Pakistan’s efforts to combat AML/CFT were deemed effective.
• The country has failed to fully implement its AML/CFT measures, with only one recommendation fully complied with and several others partially or not at all implemented.
• The report identified several key risk areas, including:
  • Terrorist financing risks driven by Pakistan’s geographical proximity to Afghanistan and Iran.
  • The country’s informal economy and use of hawala and hundi systems as major concerns.

Consequences of Inaction

Pakistan’s inclusion on the FATF’s grey list since June 2018 has already led to increased scrutiny from international financial institutions. If Pakistan fails to complete its full action plan by February 2020, it could face further sanctions and decreased access to international lending instruments.

Banking Sector Challenges

The banking sector in Pakistan is facing significant challenges in stemming the tide of financial crime. The country’s risk score increase is a clear indication that more needs to be done to address these issues.