Top (left to right) Ali Sultan, Ali Farid Khwaja; bottom Taimur Malik
Pakistan Looks Toward Removal from FATF Grey List
By Elaine Pasquini
Washington: More than three years after being placed on the Grey List of the Financial Action Task Force (FATF), the international money-laundering and terror-financing watchdog, Pakistan may be removed following an on-site inspection by the organization in October to verify implementation of required reforms.
To discuss the implications of Pakistan’s potential removal from the FATF Grey List, the Pakistan Initiative of the Atlantic Council’s South Asia Center hosted an online discussion on July 7.
“The journey since 2018 has been a long one,” said Ali Farid Khwaja, chairman of Pakistan-based KTrade Securities. “At the beginning…there was a lot of skepticism, a lot of doubt.”
But over time, he noted, the market realized that it was “something important that had to be treated seriously and somewhere in that three-year period we saw a real shift in the attitude of the government…we saw changes in regulations and now after three years it does seem that we are close to the end of it.”
A silver lining to this long process is that working on the 34-point task force action plan is a “rare occasion where we have seen that the bureaucracy, politicians and the army can work together – and quickly – to achieve something,” Khwaja said. “That is a good precedent to be set…and perhaps then they can work together on other issues that might be of a critical and important nature.”
Dubai-based Ali Sultan, CEO of Habib Bank AG Zurich, expressed his personal view that Pakistan being placed on the Grey List was a “good thing” for Pakistan. “That was a time when I saw the civilian and military leadership and all of the political parties come together and really address the issues together for the first time,” he noted. “Today we can proudly say that Pakistan has addressed the issues and when the team comes on site for an inspection, they will see the sustainability of the legislation that has been passed and executed.”
After making the required reforms, “…today Pakistan’s banking system and exchange system is much stronger than the region’s,” he said. Ultimately, being on the Grey List forced Pakistan to “complete our major reforms in terms of the system and this is important.”
While globally trade-based money-laundering is becoming a big issue, Sultan continued, Pakistan’s banking system today, compliance-wise, is “much stronger and the Central Bank’s monetary process, particularly the SDRs (suspicious transaction reports) mechanism, is extremely important and effective.” These improvements are also important for the International Monetary Fund, which is central to all multilateral agencies.
The key part of the entire process was “having everyone on board” – the inclusion of all political parties and authoritative agencies – “although it wasn’t easy,” he acknowledged. “It is always good to improve the governance. I have great confidence…in these improvements and the civil-military partnership.”
Comparing Pakistan to other countries in the region, Taimur Malik, partner at Clyde & Co, stated that Pakistan fares better than many countries in the South Asia region in terms of legislative framework and delegated legislation rules that exist in the country, along with the banking infrastructure.
“Tackling the 34-point action plan was a difficult process, but I think…the beneficiary is Pakistan itself in the long run,” Malik said. Because of the many legislative changes and enhanced compliance requirements, once it is off the Grey List “Pakistan will be one of the better organized, better documented economies in the world, not just in the South Asia region,” he stressed.
To meet the criteria to be removed from the Grey List required a civil-military partnership. “If you look at the overall legislative work done in Pakistan, a lot of that would one way or another relate to FATF,” he explained. “FATF-related laws involved committees comprised of senior officials from customs, income tax, security and exchange commission, state bank, federal investigation agencies, special branch of the police and intelligence services,” he pointed out.
“We are seeing that the delegated legislative framework is now there in Pakistan,” Malik reported. “It is a much more organized documented economy.” Presently, to open a company in Pakistan, stock brokerage or bank account beneficial ownership information must be provided.
Making these changes “works to Pakistan’s advantage,” he pointed out. Getting off the Grey List will “improve investors’ perception of the country and change how international organizations, fund managers and investment firms interact with Pakistan and Pakistani entities, whether they are banks, Pakistani companies or traders and what the process will be in terms of onboarding Pakistani-related organizations at their end.”
“Pakistan, a country of 220 million people, is moving forward in all respects,” Malik concluded. “It’s one of the largest remaining markets in the world for expansion, for digital players, for international organizations, banks and so on. We just have a perception issue that needs to improve and to change and otherwise Pakistan is well poised for growth as an economy and as a country.”
(Elaine Pasquini is a freelance journalist. Her reports appear in the Washington Report on Middle East Affairs and Nuze.Ink.)
