Pakistan’s FATF compliance: Loopholes in small savings accounts left deliberately for terror financing

The FATF has been asking Pakistan to comply with international standards and rules of anti-money laundering and anti-terrorist financing laws and regulations.

Fabien Baussart, writing in a blog post of The Times of Israel, said that although Pakistan has complied with some conditions set by FATF, with great reluctance, there is one area which has not paid due care to plug the terrorist financing – small savings accounts.

Small savings in Pakistan generate over Rs. 4 trillion in over seven million accounts held by individuals, equal to 28 percent of all bank deposits.

The possibility of terrorist groups and individuals holding these accounts remains quite high, given the number of terror groups and cadres in Pakistan. By Prime Minister Imran Khan’s admission, a couple of years ago, Pakistan was home to over 40,000 terrorists, said Baussart.

FATF flagged these shortcomings in its two recent compliance reports – in October 2019 and September 2020. The October 2019 report clearly stated that a large section of the banking sector, both formal and informal, were either out of the ambit of any anti-money laundering law or did not cater to any existing regulations of identifying suspicious accounts and transactions.

In the follow-up September 2020 report, the FATF referred to the new set of rules issued by Pakistan following the October 2019 report but provisions for prosecution were still missing from the rule book, which allowed the banking sector to be lax in identifying suspicious accounts and transfers, reported The Times of Israel.

The problem lies with the new rules – National Savings Schemes (AML and CFT) Rules, 2019, which calls for scrutiny of all account holders – seven million of them – in six months and risk profiling of the account holders in a similar period, opined Baussart.

The All Pakistan National Savings Officers Association (APNSOA) has flagged several reasons Pakistan was unlikely to fulfill the FATF obligations regarding the small savings sector.

The first is the problems in identifying the consumers as a mechanism has not been put in place despite such a tight and almost impossible deadline. To illustrate, printed copies of KYC (Know Your Customer) were not available till April this year in any of the National Savings Centres.

According to the banking executives, the mismatch between purpose and action on the ground is because of the Anti-Money Laundering and Counter-Terrorism Financing Supervisory Board’s ineptitude and misuse of authority.

The officers point out that the supervisory authority, which was a critical stakeholder, had failed to plan and implement any steps that would help Pakistan comply with Anti-Money Laundering and Counter-Terrorism Financing stipulations (AML and CFT), reported The Times of Israel.

The authorities have not tweaked the software application of National Savings to keep up with the new provisions. The banking staff is yet to be provided with adequate equipment and protocols to verify data, check KYC documents and use biometric data. Guidelines for the banking staff and customers alike are missing as now, informed Baussart.

With these massive problems in just one segment of the financial sector, Pakistan’s efforts at complying with FATF are likely to remain inconclusive when the international watchdog meets next time.

FATF meeting is taking place from June 21 to 25 to discuss Pakistan.

Pakistan has been on the FATF’s grey list since June 2018. Earlier, in February, the Global terror financing watchdog kept Pakistan on its “grey list” till June after concluding that Islamabad failed to address its strategically important deficiencies, to fully implement the 27-point action plan that the watchdog had drawn up for Pakistan.

(ANI)