Financial Crime Statistics in Pakistan Show Alarming Rise: Country Jumps Up the Basel AML Index
Pakistan’s Risk Score Surges on Money Laundering and Terrorist Financing Concerns
Pakistan has witnessed a significant surge in its risk score for money laundering and terrorist financing (ML/TF), jumping from 6.45 to 7.66 out of 10, according to the latest update of the Basel AML Index. This drastic increase in Pakistan’s risk score indicates that the country’s financial system is now among the most vulnerable globally to illicit activities.
FATF Report Reveals Deficiencies in AML/CFT Framework
The Financial Action Task Force (FATF), a global body that sets standards for combating ML/TF, published a Mutual Evaluation Report (MER) assessing Pakistan’s AML/CFT framework. The report found significant deficiencies, particularly with regards to the country’s effectiveness in preventing terrorist financing.
Key Findings of the FATF MER:
- Non-Compliance: Pakistan has not fully complied with any of the 40 Recommendations.
- Partially Complied: Only 9 recommendations were largely complied with, while 26 were partially complied with.
- Missed Parameters: 4 parameters were missed in the AML/CFT framework.
Experts Attribute High ML/TF Risk Score to Geographical and Internal Factors
Experts point out that Pakistan’s geographical proximity to Afghanistan and Iran, as well as its internal weak regulations and supervision, contribute significantly to its high ML/TF risk score. The FATF report also highlighted the prevalence of terrorist financing risks driven by corruption, drug trafficking, fraud, tax evasion, smuggling, human trafficking, and organized crimes.
Challenges in Addressing ML/TF Risks:
- Informal Economy: Pakistan’s informal economy and the use of hawala (an alternative money transfer system) have been identified as major issues.
- Hawala Operators: While efforts have been made to close down hawala operators, addressing these issues remains a significant challenge for the country.
Consequences of Being on the FATF Grey List
Pakistan has been on the FATF grey list since June 2018 and was previously listed from 2008 to 2015. The country faces severe concerns over its lack of progress in addressing terrorist financing risks, with the FATF urging it to complete its full action plan by February 2020.
Consequences:
- Decreased Access to International Lending Instruments
- Loss of Attractiveness for Foreign Investments
- Enhanced Due Diligence from International Financial Institutions
Expert Warning: Immediate Action Needed
As the country grapples with these challenges, experts warn that Pakistan must take immediate action to address its ML/TF risks and improve its AML/CFT framework to avoid further consequences.