Pakistan is on the FATF List of Countries that have been identified as having strategic AML deficiencies
FATF Statement re AML Strategic Deficiencies: 21 February 2020
Since June 2018, when Pakistan made a high-level political commitment to work with the FATF and APG to strengthen its AML/CFT regime and to address its strategic counter-terrorist financing-related deficiencies, Pakistan’s political commitment has led to progress in a number of areas in its action plan, including risk-based supervision and pursuing domestic and international cooperation to identify cash couriers. Pakistan should continue to work on implementing its action plan to address its strategic deficiencies, including by: (1) demonstrating that remedial actions and sanctions are applied in cases of AML/CFT violations, relating to TF risk management and TFS obligations; (2) demonstrating that competent authorities are cooperating and taking action to identify and take enforcement action against illegal money or value transfer services (MVTS); (3) demonstrating the implementation of cross-border currency and BNI controls at all ports of entry, including applying effective, proportionate and dissuasive sanctions; (4) demonstrating that law enforcement agencies (LEAs) are identifying and investigating the widest range of TF activity and that TF investigations and prosecutions target designated persons and entities, and those acting on behalf or at the direction of the designated persons or entities; (5) demonstrating that TF prosecutions result in effective, proportionate and dissuasive sanctions (6) demonstrating effective implementation of targeted financial sanctions (supported by a comprehensive legal obligation) against all 1267 and 1373 designated terrorists and those acting for or on their behalf, including preventing the raising and moving of funds, identifying and freezing assets (movable and immovable), and prohibiting access to funds and financial services; (7) demonstrating enforcement against TFS violations including administrative and criminal penalties and provincial and federal authorities cooperating on enforcement cases; (8) demonstrating that facilities and services owned or controlled by designated person are deprived of their resources and the usage of the resources.
All deadlines in the action plan have expired. While noting recent and notable improvements, the FATF again expresses concerns given 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. To date, Pakistan has largely addressed 14 of 27 action items, with varying levels of progress made on the rest of the action plan. The FATF 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 not be made by the next Plenary, the FATF will take action, which could include the FATF calling on its members and urging all jurisdiction to advise their FIs to give special attention to business relations and transactions with Pakistan.
Compliance with FATF Recommendations
The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Pakistan was undertaken in 2019. According to that Evaluation, Pakistan was deemed Compliant for 1 and Largely Compliant for 9 of the FATF 40 Recommendations. It was also deemed Highly Effective for 0 and Substantially Effective for 0 with regard to the 11 areas of Effectiveness of its AML/CFT Regime.
US Department of State Money Laundering assessment (INCSR)
Pakistan is categorised by the US State Department as a Country/Jurisdiction of Primary Concern in respect of Money Laundering and Financial Crimes.
Pakistan’s geographic location and porous borders with Afghanistan, Iran, and China make it vulnerable to narcotics and contraband smuggling. Pakistan’s 2017 national risk assessment (NRA) identifies the largest risks associated with illicit finance as corruption, smuggling, drug trafficking, fraud, kidnapping for ransom, and extortion from businesses. The NRA also found the proceeds generated from major crimes in Pakistan are transferred overseas. The black market, informal financial system, and permissive security environment generate substantial demand for money laundering and illicit financial services.
Pakistan continues to work on its 2018 action plan. The Pakistan Tehreek-e-Insaf (PTI) party has taken anticorruption measures since coming to power in 2018, some of which have closed money laundering loopholes.
Pakistan is not currently subject to any International Sanctions however the UK government has had a stated policy on exports to nuclear and nuclear-related end users in India and Pakistan since March 2002.
BRIBERY & CORRUPTION
Rating (100-Good / 0-Bad)
Transparency International Corruption Index 32
World Governance Indicator – Control of Corruption 24
Corruption is a significant obstacle to business in Pakistan, and companies should expect to regularly encounter bribery or other corrupt practices. Corruption is rampant in all sectors and institutions. The Pakistani Penal Code applies to individuals and makes it illegal to offer, pay or accept a bribe. Companies can be held civilly liable under the Prevention of Corruption Actand the National Accountability Ordinance. Facilitation payments and gifts are prohibited but are common practice. Pakistan does not ensure integrity in state bodies and is unable to prevent corruption despite strong institutional and legal frameworks. For further information - GAN Integrity Business Anti-Corruption Portal
Decades of internal political disputes and low levels of foreign investment have led to slow growth and underdevelopment in Pakistan. Pakistan has a large English-speaking population. Nevertheless, a challenging security environment, electricity shortages, and a burdensome investment climate have deterred investors. Agriculture accounts for more than one-fourth of output and two-fifths of employment. Textiles and apparel account for most of Pakistan's export earnings, and Pakistan's failure to diversify its exports has left the country vulnerable to shifts in world demand. Pakistan’s GDP growth has gradually increased since 2012. Official unemployment was 6.5% in 2015, but this fails to capture the true picture, because much of the economy is informal and underemployment remains high. Human development continues to lag behind most of the region.
In coordination with the International Monetary Fund (IMF), Pakistan embarked on an economic reform program in 2013. While the reform process has been mixed, and issues like privatization of state-owned enterprises remain unresolved, Pakistan has restored macroeconomic stability, improved its credit rating, and boosted growth. The Pakistani rupee, after heavy depreciation, remained relatively stable against the US dollar in 2014-15. Remittances from overseas workers, averaging more than $1.5 billion a month, are a key revenue source for Pakistan, partly compensating for a lack of foreign investment and a slowdown in portfolio investment. Falling global oil prices in 2015 contributed to a narrowing current account deficit and lower inflation, despite weak export performance. Pakistan’s program with the IMF – a three-year, $6.7 billion Extended Fund Facility focusing on reducing energy shortages, stabilizing public finances, expanding revenue, and improving the external balance – is slated to conclude in September 2016. While passing most quantitative targets, Pakistan has missed targets on structural reforms and performance criteria throughout the program.
Pakistan remains stuck in a low-income, low-growth trap, with growth averaging about 3.5% per year from 2008 to 2013. Pakistan must address long-standing issues related to government revenues, with the tax base being narrow at 11% of GDP. Given demographic challenges, Pakistan’s leadership will be pressed to implement economic reforms, promote further development of the energy sector, and attract foreign investment to support sufficient economic growth necessary to employ its growing and rapidly urbanizing population, much of which is under the age of 25. Other long-term challenges include expanding investment in education and healthcare, adapting to the effects of climate change and natural disasters, improving the country’s business climate, and reducing dependence on foreign donors. Pakistan and China are implementing the “China-Pakistan Economic Corridor”, a $46 billion investment program targeted towards the energy sector and other infrastructure project that Islamabad and Beijing had agreed on in early 2014.
Agriculture - products:
cotton, wheat, rice, sugarcane, fruits, vegetables; milk, beef, mutton, eggs
textiles and apparel, food processing, pharmaceuticals, construction materials, paper products, fertilizer, shrimp
Exports - commodities:
textiles (garments, bed linen, cotton cloth, yarn), rice, leather goods, sporting goods, chemicals, manufactures, carpets and rugs
Exports - partners:
US 13.1%, UAE 9.1%, Afghanistan 9.1%, China 8.8%, UK 5.4%, Germany 4.9% (2015)
Imports - commodities:
petroleum, petroleum products, machinery, plastics, transportation equipment, edible oils, paper and paperboard, iron and steel, tea
Imports - partners:
China 28.1%, Saudi Arabia 10.9%, UAE 10.8%, Kuwait 5.6% (2015)
Investment Climate - US State Department
Despite a relatively open foreign investment regime, Pakistan remains a challenging environment for foreign investors. An unpredictable security situation, chronic energy shortages and a difficult business climate –including lengthy dispute resolution processes, poor intellectual property rights (IPR) enforcement and inconsistent taxation policies – have contributed to a significant drop in Foreign Direct Investment (FDI) in recent years. Pakistan ranked 138 out of 189 countries in the World Bank’s Doing Business 2016 rankings, falling two places from the previous year.
The Pakistan Muslim League-Nawaz (PML-N) government was elected in May 2013 on pledges to turn around Pakistan’s economy, enhance trade and investment, and bridge the energy shortage. In September 2013, the Government of Pakistan (GOP) and the International Monetary Fund (IMF) entered a three-year $6.8 billion Extended Fund Facility (EFF) arrangement which includes a series of reform benchmarks. The government has implemented some macroeconomic and energy reforms, such as a reduction in electricity subsidies, and attempted to privatize a number of state owned enterprises (SOEs). Progress toward privatization has been slow, however, impeded by strong domestic political pressures. The GOP, for example, has repeatedly postponed plans to privatize Pakistan International Airlines (PIA) and three state electricity distribution companies. The GOP’s attempt to sell a 26 percent stake in PIA, along with management control, has been particularly fraught: in February, three people died amidst anti-privatization protests.
The United States has consistently been one of the largest sources of FDI in Pakistan and one of its most significant trading partners. Bilateral trade between the United States and Pakistan exceeded $5.5 billion in 2015. The Karachi-based American Business Council (ABC), an affiliate of the U.S. Chamber of Commerce, has a membership of 68 U.S. companies, most of which are Fortune 500 companies, operating in Pakistan across a range of industries. The Lahore-based American Business Forum (ABF) also provides assistance to U.S. investors. American companies have profitable investments across a range of sectors,, notably, but not limited to, fast-moving consumer goods and financial services. Other sectors attracting U.S. interest have been: franchising, ICT, thermal and renewable energy healthcare services, and tele-medicine. Used equipment from the United States is also in high demand.
In 2003, the United States and Pakistan signed a Trade and Investment Framework Agreement (TIFA), the purpose of which is to serve as a key forum for bilateral trade and investment discussion between the two countries. The TIFA seeks to address impediments to greater trade and investment flows and increase economic linkages between our respective business interests. TIFA meetings are held annually, with the most recent TIFA inter-sessional meeting occurring in March 2015.
Other Useful Links