Assignment of Impact of FATF on Pakistan economy

Submitted by:Amna Jamil

Roll no.ME 40311
NUML-F19-10227
Submitted to: Sir Saif
MSc Economics 3rd

National University of Modern Languages, Islamabad

What is FATF?
FATF stands for Financial Action Task Force founded in 1989 is an intergovernmental
organization aimed to develop policies and to fight against money laundering and financial
terrorism. [1]

History:
In 1989, G7 Summit in Paris formed FATF whose function is to face the growing problem of
money laundering. The task force is assigned with certain duties to check money laundering
trends, monitoring legislative, law enforcement and financial activities raise at national and
international level, reporting on compliance and issuing recommendations and standards to
combat money laundering. FATF was formed with 16 members which was grown to 37 in 2016.
FATF present its first report containing forty recommendations to more effectively combat
money laundering. This policy was revised in 2003 to introduce latest techniques and patterns in
catering money laundering. In 2001, the developments were added in the fight against financial
terrorism was made a part of this organization. Another eight special recommendation was
presented to strengthen the deal against financial terrorism. [1]

Objectives of FATF:
 The purpose of FATF is to implement standards and promote effective usage of
regulatory and operational measures for fighting money laundering, against financial
terrorism and other threats linked with international financial system.
 FATF is such a system making body that works to build national legislative and
regulatory reforms.
 FATF focus on mutual evaluation through member countries in implementing its
recommendations. [1]

FATF Recommendations:
FATF sets recommendation on the controlling of financial crises to set the standards for fight
against money laundering and financial terrorism. There are forty recommendations on money
laundering and nine on terrorism financial.[1]

Forty Recommendation of FATF:

Criminal justice system, law enforcement, global co-operation, financial organizations and its
regulations. In 1996 and 2003, these forty recommendations are completely modified by FATF.
These changings also include about drug money laundering. These recommendations include: [1]
  Apply related global conventions.
 Enable organizations to arrest the proceedings of money laundering and make money
laundering illegal.
 Checkout on customer verification, identity, keeping all records and watches all kind of
suspicious transactions.
 Build a financial investigation unit that keep eye on suspicious transactions.
 Make international cooperation for investigating money laundering.

Nine recommendations on financial terrorism:[1]

 Eight recommendations were set by the FATF in 2001 on terrorist financing. The
September 11 attack was made part of this recommendation.
 Eight recommendations were mean to be special as it targeted the non- profit
organization.
 Later in 2003, a ninth special recommendation was added and these special
recommendations were supported by over 180 countries.

Black or Grey listing of non-compliant nations:

Other than these forty and nine recommendation FATF in 2000 also introduce list of “Non co-
operative countries or territories” commonly known as FATF blacklist. According to this list, out
of 15 jurisdictions if any member fails to fulfill any one jurisdiction then that member will listed
as blacklist or grey list of non-compliance nation. This occurs due to unwillingness or self-
inability of any member to provide the foreign law enforcement officials about bank accounts
and all other financial records.[1]

Economic effects of FATF on Pakistan’s economy:

Pakistan got member of two organizations, one is AGP (Asia/Pacific group) an inter-
governmental entity and other one is a sister organization of FATF formed in Thailand 1997.
AGP members are bound to or prevent the money laundering and financial terrorism in their
regions. These organizations set rules of FATF for Pakistan. Countries that partially fulfill the
FATF rules and regulations are considered as unsafe for handling money laundering and
financial terrorism. These countries are listed as greylist.

FATF has comes all around over Pakistan’s economy. In June 2019, Pakistan was placed in
greylist due to insufficient safeguards in Pakistan’s AML system and also advised to implement
27 point plan to avoid fall in blacklist. In February 2020 Pakistan sustained its position in
greylist till October 2020 due to its recommended efforts against CTF and AML.Pakistan’s
agreement includes achieving 14 of the 27 targets,like banning several militanat groups,seizing
the assets,convicting Hafiz saeed & documenting all foreign currency transactions etc. the
remaining targets are under progress.

Sliding into the Black List means the FATF will ask its members and entities within their
jurisdictions to ask their financial institutions to scrutinise business relations and transactions
with Pakistan. This would complicate the government’s lifeline, the $6 billion IMF programme,
further worsening our precarious economic health. Although the FATF has emerged as another
tool of the hybrid warfare, its dictates and guidelines provide us an opportunity to put our house
in order. AML and CTF are important milestones that we need to effectively reach. The FATF
has so far not yielded to Indian attempts of blacklisting Pakistan, given Pakistan’s size and
importance.
In sum, the PTI government needs to understand that only economic repair — through sensible
team adjustments, increasing non-tax revenue, efficient sales tax collection, fixed-tax regime for
the informal economy, interest rate cut, stable utility pricing, export facilitation, people-friendly
exchange rate and FATF compliance — will salvage its sagging fortunes and that is a tall order
for Khan Eleven.

[1] Financial Action Task Force - Wikipedia

[2] Pakistan’s economy and FATF: an explainer | The Express Tribune .