FATF: Groundwork and geopolitical maths
October 14 2019 11:33 PM
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Undeterred: Prime Minister Imran Khan, with Army Chief General Qamar Javed Bajwa sitting next to him
Undeterred: Prime Minister Imran Khan, with Army Chief General Qamar Javed Bajwa sitting next to him, making a point to Chinese President Xi Jinping during his visit to China last week.

All eyes in Islamabad are riveted on Paris as the long-awaited verdict on Pakistan with regard to the Financial Action Task Force (FATF) – the abbreviation has assumed a common parlance of sorts – compliance report will be out this week. Listed on its grey list, the country is hoping to get back into business by regaining normalcy after the latest review.
As always, the issue is marked by heavy political overtones, which is what Islamabad has also maintained with regard to the clamour about doomsday speak.
The Foreign Office in Islamabad remains optimistic about a stable outlook as a result of the FATF review.
To determine the credentials of a positive sentiment, it is imperative to look at the scorecard of compliance that the world body had placed on Islamabad. It would appear considerable work has gone into addressing the highlighted shortcomings.
A report prepared by the Securities and Exchange Commission of Pakistan claims that thanks to its comprehensive guidelines, financial institutions have been able to produce 219 Suspicious Transactions Reports (STRs) in the last year as compared to just 13 in eight previous years.
After developing a set of regulations – Anti-Money Laundering/Combating Financing of Terrorism (AML/CFT) – to align itself with the FATF’s standards and its 40 recommendations, the SECP conducted 167 inspections to determine compliance. These include 72 cases of securities brokers, 27 of non-banking financial companies, 13 of insurance firms and 55 of high risk non-profit organisations.
Talking of compliance, it is worth mentioning that it is not just the SECP that has taken up the cudgels to ensure that financial institutions are in order with their business by imposing penalties, but the entities themselves have also taken remedial measures to stay on the right side of law.
To this end, the said financial institutions have deployed automated screening software to keep a tab on proscribed individuals. These entities now also have access to the Go AML system of the Financial Monitoring Unit (FMU) of the State Bank of Pakistan for online filing of STRs.
To show it means business, the SECP has moved on from the convenient one-size-fits-all method to executing a risk-based approach for a robust AML/CFT regulatory framework. Stock and commodity brokers, NBFC, Modarabas as well as insurers and Takaful operators are all on the radar.
Not content with this, a National Money Laundering/Terror Financing Risk Assessment has been undertaken this year to scrutinise the risks and vulnerabilities that are inherent within the financial sector including banks, NBFCs, brokers and insurers.  The Financial Monitoring Unit is collaborating with stakeholders including ministries, law enforcement agencies, State Bank of Pakistan and SECP to check potential abuse by money launderers and terrorist financiers.
This, along with awareness campaigns, has had a chastening effect – leading to improvement in compliance level by regulated bodies. The FATF imbroglio and the challenging economy inherited by the Imran Khan government may have given the impression that market sentiment would border on circumspection with potential investors staying away but quite to the contrary, the situation has come to represent a measure of stability thanks to a raft of difficult and unpopular steps to streamline the economy. For instance, the market is on a winning spree – spanning 24 trading sessions, gaining 11.6% in the benchmark index last Friday to drive investor confidence.
The National Assembly – lower house of the country’s bicameral legislature – recently passed a bill to amend Foreign Exchange Regulations (FERA 1947) in a bid to streamline the foreign exchange movement and prescribe severe punishment for money laundering.
A recent meeting between Army Chief General Qamar Javed Bajwa and a group of prominent members of the business community could well be considered a give-away. A report in Dawn citing an unnamed business tycoon says there were plenty of assurances to draw from the horizon. The army chief was said to exude confidence with regard to the FATF review, reportedly eyeing a return to normal category. Coming from the army chief, it was unlikely just an expression of positive intent.
Islamabad has publicly urged the FATF task force to come out with a “fair and unbiased” evaluation in the face of hectic lobbying from New Delhi to have it blacklisted. Significantly, the IMF, which was said to have held the FATF issue as a structural benchmark, hinted at a positive turnaround when its country representative for Pakistan endorsed Pakistan’s efforts to ensure compliance with the FATF guidelines.
Compliance apart, the FATF maths makes for interesting reading. All Pakistan needs is a minimum of three votes to avert the blacklist. Islamabad is said to be counting on three particular allies namely, China, Turkey and Malaysia, to stand by it and given the context of recent developments in the region for form, it can be predicted with reasonable assurance that the three countries would be happy to keep the all-weather relationship warm.
Prime Minister Imran Khan has already visited all three countries with a certain reciprocity seen to be the order of business. In fact, the relationship has moved to the next level with Khan able to develop a visible bonhomie with the leaders of these countries. Army Chief General Bajwa has also cemented defence ties with China and been a force multiplier for the PM.
But this begs the question: does Islamabad have a plan B in the unlikely event of an undesired result at the FATF review? The blacklist would likely have little impact on domestic banking as income from global trade makes up for only 3% of total revenues.
Media reports suggest Islamabad is prepared for the worst and while a negative sentiment would hurt the economy given the inherent pitfalls of the global trade order, a few important countries with a geopolitical interest in a stable Pakistan would be loathe to the idea of watching from the sidelines.
*    The writer is Community Editor. He may be reached at [email protected]



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