Pakistan to remain on FATF's grey list until next review in June

The watchdog will undertake the next review of Pakistan’s progress in June.

PARIS (Dunya News) – The Financial Action Task Force (FATF) has maintained Pakistan’s status on its grey list of countries which have inadequate control over curbing money laundering and terrorism financing until June this year, when the next review will be done.

Pakistan briefed the FATF over implementation of the 27 recommendations about the anti-money laundering and combating financing of terrorism (AML/CFT) mechanism.

The decision was taken by the global terror financing watchdog during group meetings and a plenary meeting in Paris from February 16-21.

"FATF members agreed to maintain Pakistan’s status on FATF’s Compliance Document, normally referred to as the Grey List," a press release issued yesterday stated.

The FATF further stated that it "strongly urges" Pakistan to "swiftly complete" its full action plan by June 2020.

“Otherwise, should significant and sustainable progress especially in prosecuting and penalising TF (terror financing) not be made by the next Plenary, the FATF will take action,” it added.

While noting that all deadlines in Pakistan’s action plan have expired, the FATF expressed concern over "Pakistan’s failure to complete its action plan in line with the agreed timelines and in light of the TF risks emanating from the jurisdiction".

The watchdog did take into account recent "notable improvements" made by Pakistan, saying the country has, to date, "largely addressed" 14 out of 27 action items, with varying levels of progress made on the rest of the action plan.

Importantly, the FATF has required Pakistan to take strict actions against 1,373 members of banned outfits, and appointment of “a special officer” for taking actions against banned outfits. Moreover, the country has also been directed to restrict banned outfits from working under any cover name in all provinces and districts. It has also warned member states to not support the country if the implementation is not made on its Action Plan.

The Finance Division observed that during the last reporting period, Pakistan made "significant progress" in the implementation of the 27-point FATF Action Plan, which was demonstrated by the completion of nine additional action items.

"FATF reviewed progress made by Pakistan towards implementation of the Action Plan. While acknowledging the steps taken by Pakistan towards implementation of [the plan] and welcoming its high-level political commitment, FATF highlighted the need for further actions for completing the Action Plan by June 2020," a handout remarked.

Despite of such a short time, Pakistan appears optimistic in achieving the set targets, and the statement stated that the government "stands committed for taking all necessary action" in order to complete the remaining items in the action plan and that a strategy in this regard has been formulated and is being implemented.

Furthermore, Pakistan is also required to wind-up cases against terrorism financers and money launderers, and terminate 1,267 organisations outlawed by the United Nations.

For reforms in madrassas, the FATF has asked the country to upgrade them at the level of education being provided to schoolchildren.

The watchdog will undertake the next review of Pakistan’s progress in June.

Pakistan is already finalising major amendments to at least a dozen of its laws to meet the FATF requirements by June. Targets have been set for further legislation to upgrade about 12-13 laws and subordinate legislation to complete the overall legal framework in line with the FATF standards.

On Wednesday, sources said that despite of strong opposition and efforts from India, all chances of Pakistan getting into the FATF’s black list were diminished as several member states termed Islamabad’s performance in the implementation of the 27 recommendations about the AML/CFT mechanism as “commendable”.

The global illicit financing watchdog was informed of Pakistan’s strategic plan to restrict smuggling of currency, jewelry and other valuables.

In the light of the FATF recommendations, the Presidential Tax Law (Second Amendment) Ordinance, 2019, was issued to prevent the smuggling of currency and other valuables, which was made applicable from Dec. 26, 2019.

Under the ordinance, strict penalties were to be imposed on smuggling of foreign currency, gold and diamonds.

The government, through a presidential ordinance introduced significant changes to tax laws to implement concessions promised to traders, reduce duty on import of low-value mobile phones, and penalise currency smugglers.

The 24-page ordinance was notified on Dec 28, but released to the media on Jan. 1. The amendments were also applied to income tax, sales tax and customs duty.

The ordinance was issued in order to enable sharing of information between the Federal Board of Revenue (FBR) and Financial Monitoring Unit (FMU) to facilitate the latter to perform its functions as laid down in the Anti-Money Laundering Act, 2010, and to ensure compliance with the FATF regulations.

As per the details issued by the FBR, necessary amendments have been made under this Ordinance in Customs Act 1969, Income Tax Ordinance 2001, Federal Excise Act 2005 and General Sales Tax Act 1990. The ordinance prohibited carrying currency more than $10,000 and has ordered confiscating the amount being carried more than that, and the imposition of penalty according to the value of the currency.

To penalise persons found illegally carrying foreign currency ranging between $10,000 and $200,000 or above, varying degrees of penalties have been proposed, from a mere fine to imprisonment of up to 14 years.

Carrying precious metals, gold more than 15 tolas, silver, diamonds and jewelry has also been prohibited, and if caught in smuggling, not only the valuable(s) will be confiscated by the authorities but fine equal to the value of the object being smuggled will be imposed.

To penalise individuals found illegally carrying gold ranging between 16 and 500 tolas or above, varying degrees of penalties have been proposed, from a mere fine to imprisonment of up to 14 years.

The standard rate of minimum tax is reduced from 1.5pc to 0.5pc in the case of traders having a turnover up to Rs100 million for the tax year 2020. However, traders having a turnover up to Rs100m who have filed their returns for the tax year 2018 will be obliged to pay tax equal to or more than the tax paid for the tax years 2018, 2019 and 2020.

Traders being individuals and having a turnover up to Rs100m will not be required to act as a withholding agent under Section 153 of the ordinance. The condition to qualify for a Tier-1 retailer has been amended so as to increase the threshold of electricity consumption from Rs600,000 to Rs1,200,000.

The customs duty was reduced from Rs730 to Rs100 per mobile phone having a value between $30 and $100. Sales tax on mobile phones up to the value of $30 has been reduced from Rs130 to Rs100 and on phones having value up to $100 from Rs1,320 to Rs200.

The government has introduced several amendments to the Income Tax Ordinance for encouraging investment in the local debt market and simplifying the tax regime for non-resident companies.

In order to facilitate manufacturers, if a commissioner fails to issue exemption certificate on raw material imports within the time period, the certificate will be automatically processed and issued by the IRIS and will be deemed to have been issued by the commissioner. However, the commissioner will have the mandate to modify or cancel such a certificate.

In the previous FATF review held in October, it was found that while Pakistan has made significant improvements, it will have to take "extra measures" for "complete" elimination of terror financing and money laundering.

Pakistan was previously placed on the grey list in 2012-2015 but was removed in 2016 after legislating drastic reforms to its anti-money laundering and counter-terrorist financing regulations. 

Quarterly assessments by the FATF of Pakistan’s progress continued over the course of the year 2019. Currently, only Iran and North Korea are on the blacklist.

The FATF is an intergovernmental organisation founded in 1989 on the initiative of the G7 to develop policies for combating money laundering. In 2001 its mandate was expanded to include terrorism financing. It monitors progress in implementing the FATF recommendations through mutual evaluations of member countries.