FATF AML Deficiency List
US Dept of State Money Laundering assessment
Non - Compliance with FATF MER Recommendations
World Governance Indicators (Average Score)
Corruption Index (Transparency International & W.G.I.)
Supporter/Safe Haven of International Terrorism
International Narcotics Control Majors List
Weakness in Government Legislation to combat Money Laundering
Pakistan is on the FATF List of Countries that have been identified as having strategic AML deficiencies
FATF Statement re AML Strategic Deficiencies: 25 June 2021
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 continued political commitment has led to significant progress across a comprehensive CFT action plan. The FATF recognizes Pakistan’s progress and efforts to address these CFT action plan items and notes that since February 2021, Pakistan has made progress to complete two of the three remaining action items on demonstrating that effective, proportionate and dissuasive sanctions are imposed for TF convictions and that Pakistan’s targeted financial sanctions regime was being used effectively to targeted terrorist assets. Pakistan has now completed 26 of the 27 action items in its 2018 action plan. The FATF encourages Pakistan to continue to make progress to address as soon as possible the one remaining CFT-related item by demonstrating that TF investigations and prosecutions target senior leaders and commanders of UN designated terrorist groups.
In response to additional deficiencies later identified in Pakistan’s 2019 APG Mutual Evaluation Report (MER), Pakistan has made progress to address a number of the recommended actions in the MER and provided further high-level commitment in June 2021 to address these strategic deficiencies pursuant to a new action plan that primarily focuses on combating money laundering. Pakistan should continue to work to address its strategically important AML/CFT deficiencies, namely by: (1) enhancing international cooperation by amending the MLA law; (2) demonstrating that assistance is being sought from foreign countries in implementing UNSCR 1373 designations; (3) demonstrating that supervisors are conducting both on-site and off-site supervision commensurate with specific risks associated with DNFBPs, including applying appropriate sanctions where necessary; (4) demonstrating that proportionate and dissuasive sanctions are applied consistently to all legal persons and legal arrangements for non-compliance with beneficial ownership requirements; (5) demonstrating an increase in ML investigations and prosecutions and that proceeds of crime continue to be restrained and confiscated in line with Pakistan’s risk profile, including working with foreign counterparts to trace, freeze, and confiscate assets; and (6) demonstrating that DNFBPs are being monitored for compliance with proliferation financing requirements and that sanctions are being imposed for non-compliance.
Compliance with FATF Recommendations
The last Follow-up Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Pakistan was undertaken in 2021. According to that Evaluation, Pakistan was deemed Compliant for 7 and Largely Compliant for 24 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 31
World Governance Indicator – Control of Corruption 21
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.
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