FATF Plenary Outcomes and Pakistan

PARISFinancial Action Task Force (FATF) President, Dr Marcus Pleyer, chaired his first Plenary meeting from 21st to 23rd October of the two-year German Presidency of the FATF.

The 3 day plenary meeting had to be conducted virtually due to the COVID-19 pandemic.

It was observed that criminals have become active and continue to exploit even the COVID-19 pandemic situation too through fraud schemes linked to medical and protective equipment which further necessitates the full and effective implementation of the FATF Standards It was emphasized that countries and public authorities need to take a risk-based approach that thwarts or lessens the emerging criminal risks and trends linked to the pandemic and ensure funds reach genuine recipients.

The full agenda of FATF was based on following key initiatives/actions:

  1. Strategic Initiatives

1 a) ML/TF Risks and FATF Policy Responses to COVID-19 since May 2020

The COVID-19 pandemic is lasting longer than many predicted, and continues to cause human suffering and economic disruption around the world. At the same time, an increasing number of cases of counterfeiting of medical goods, investment fraud, adapted cyber-crime scams and exploitation of economic stimulus measures, demonstrate that criminals are still actively exploiting the ongoing crisis.

Over the coming months, criminals may also find ways to exploit the inevitable rise in unemployment, the increases in remote transactions and the accelerated implementation of stimulus programs.

It is critical that jurisdictions actively identify, assess, and understand how criminals and terrorists can exploit the pandemic. However, a survey across the FATF Global Network highlights that the pandemic has severely impacted some authorities’ ability to implement measures to detect, prevent and investigate money laundering and terrorist financing. It is crucial for countries to fully and effectively implement the FATF Recommendations, using a risk-based approach to ensure that measures to prevent or mitigate the risks are commensurate with the money laundering and terrorist financing risks identified.

1 b) Strengthening the Global Network

The strength of the FATF lies in its ability to bring together a global network of over 200 countries and jurisdictions that have committed at the highest levels to implementing the FATF Recommendations. One of the priorities of the FATF is to further enhance cooperation with the FATF-Style Regional Bodies (FSRBs) to improve the implementation of the FATF Standards across the whole Global Network. Despite the difficult COVID-19 context, the FSRBs have deployed considerable efforts to support their members and conduct mutual evaluation work, but they still face challenges to complete the current round of mutual evaluations. The Plenary encouraged FATF members to explore possible solutions to enhance and better target their support to FSRBs, in particular on their mutual evaluation programmes.

  1. Country-specific processes

2 a) Impact of COVID-19 on FATF Mutual Evaluation and Follow-up Processes

In April 2020, the FATF decided to postpone its assessment and follow-up deadlines in response to the COVID-19 pandemic. Now six months later, the crisis is persisting and is continuing to impact some of the FATF mutual evaluation and follow-up processes.  Around the world, countries’ situations and responses vary, ranging from strict lockdown and travel restrictions to more relaxed crisis response measures. The persistence of the impact of COVID-19 pandemic remains uncertain.

The FATF is committed to carrying out its work of assessing the effective implementation of its standards.  Delegates discussed how to continue FATF mutual evaluations using a flexible approach, when crisis response measures limit or impede travel.  They discussed the objective criteria and procedures for handling mutual evaluations in a fair and consistent way while maintaining the quality of each assessment at a high standard.  These include procedures to conduct certain aspects of the on-site visit virtually or, if necessary, to postpone on-site visits

2 b) Impact of COVID-19 on FATF Processes to Monitor Jurisdictions Under Increased Monitoring

Delegates discussed how to continue FATF’s work to identify and respond to high-risk jurisdictions or jurisdictions with strategic weaknesses in their anti-money laundering and counter terrorist financing measures, when COVID-19 measures impede on-site visits and meetings of the regional review groups. Delegates agreed on flexible procedures, aligned with the mutual evaluations procedures, which allow on-site visits as necessary. These measures will ensure that this process, which is fundamental to FATF’s work, can continue under the current circumstances.

2 c) Jurisdictions under Increased Monitoring

Jurisdictions under increased monitoring are actively working with the FATF to address strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing. When the FATF places a jurisdiction under increased monitoring, it means the country has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring. In April 2020, the FATF granted jurisdictions an additional four months for deadlines due to the COVID-19 crisis. The FATF did not discuss or update the statement in June 2020, with the exception of Iceland and Mongolia. Since then, the FATF was able to review nine jurisdictions under increased monitoring and updated the statement accordingly for these jurisdictions.

2 d) Jurisdictions No Longer under Increased Monitoring – Iceland and Mongolia

The FATF congratulated Iceland and Mongolia for the significant progress they have made in addressing the strategic AML/CFT deficiencies identified earlier by the FATF and included in their respective action plans. Iceland and Mongolia will no longer be subject to the FATF’s increased monitoring process. This comes after both countries received on-site visits despite the COVID-19 crisis. Iceland will work with the FATF and Mongolia will work with the APG of which it is a member, to continue to strengthen their AML/CFT regimes.

  1. Other strategic Initiatives

3 a ) Strengthening Measures to Prevent the Financing of Proliferation of Weapons of Mass Destruction

In June 2019, the FATF agreed to pursue further work to strengthen the FATF Standards on countering the financing of proliferation. Following a public consultation on the draft amendments to Recommendation 1 and its Interpretive Note, the FATF Plenary approved revisions to the FATF Recommendations. The revised Recommendation 1 and its Interpretive note require countries and private sector entities to identify, assess, manage and mitigate the risks of potential breaches, non-implementation, or evasion of the targeted financial sanctions related to proliferation financing.

The FATF also adopted changes to Recommendation 2 and a new Interpretive Note to Recommendation 2, to enhance domestic co-operation, co-ordination and information exchange among national authorities.

Delegates also discussed the ongoing work to develop a new FATF Guidance on proliferation financing risk assessment and mitigation. This guidance will provide further clarity to countries and the private sector on implementation of the new requirements, including for small or low-risk entities so as to avoid unintended consequences, such as financial exclusion.

3 b) Joint Experts’ Meeting

The FATF Plenary agreed to hold the next Joint Experts’ Meeting virtually, from 23-25 November.  The Joint Experts’ Meetings provide an important opportunity for operational experts from FATF and FSRB members, as well as other international bodies such as the IMF, United Nations and World Bank to discuss current and emerging money laundering and terrorist financing risks. During the next meeting, delegates will also discuss preliminary findings of three FATF priority projects: environmental crime, illicit arms trafficking, and the financing of ethnically and radically motivated terrorism.

FATF and Pakistan

FATF acknowledged Pakistan’s high-level political commitment and significant progress on FATF’s action plan but in a contradictory outcome in a consensus decision in its meeting decided to keep Pakistan in the Grey List for additional four months period till February 2021 for six out of 27 unmet action plan targets on anti-money laundering (AML) and combating financing of terrorism (CFT).

The Pakistani government and the nation were expecting the country’s name to be removed from the Grey List and monitoring process of FATF as the country has made tangible progress across all action plan items and has now largely addressed 21 of the 27 action items.

It is largely alleged that some powerful countries need Pakistan to do them more regional favours and want Pakistan to sacrifice more as it being strategically very important country thus they pressurized FATF for not giving clean chit to the country to keep it under pressure.