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Pakistan Country Summary

59.96 Country Rating /100
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Sanctions

No

FATF AML Deficient List

No, but on the EU AML High Risk Country list

Terrorism
Corruption
US State ML Assessment
Criminal Markets (GI Index)
EU Tax Blacklist
Offshore Finance Center

Background Information


Anti Money Laundering

FATF Status

Pakistan is no longer on the FATF List of Countries that have been identified as having strategic AML deficiencies

Latest FATF Statement - 21 October 2022

The FATF welcomes Pakistan’s significant progress in improving its AML/CFT regime. Pakistan has strengthened the effectiveness of its AML/CFT regime and addressed technical deficiencies to meet the commitments of its action plans regarding strategic deficiencies that the FATF identified in June 2018 and June 2021, the latter of which was completed in advance of the deadlines, encompassing 34 action items in total. Pakistan is therefore no longer subject to the FATF’s increased monitoring process.

Pakistan will continue to work with APG to further improve its AML/CFT system.

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 2022. According to that Evaluation, Pakistan was deemed Compliant for 9 and Largely Compliant for 29 of the FATF 40 Recommendations. It remains 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.

Overview

Pakistan’s geographic location and porous borders with Afghanistan and Iran make it vulnerable to narcotics and contraband smuggling.  Pakistan’s financial sector remains vulnerable to financial crimes, in part due to insufficient implementation of regulatory oversight.  Pakistan’s 2019 National Risk Assessment (NRA) identified drug trafficking, corruption and bribery, smuggling, tax crimes, illegal financial transfers, and terrorist financing as significant financial risks.  Designated non-financial businesses and professions (DNFBPs) are involved in money laundering using the financial system.  The NRA also found many of the proceeds of major crimes are transferred overseas.  The black market, the unregulated financial sector, and a permissive security environment contribute to the substantial demand for money laundering and illicit financial services in Pakistan.  Fluctuating political will, regulatory capacity constraints, systemic corruption, and the threat of homegrown and transnational terrorist groups present significant challenges to Pakistan’s financial sector and security landscape.  

As of October 2021, Pakistan has largely addressed 26 of 27 items in its 2018 agreed-upon antimoney laundering/combating the financing of terrorism (AML/CFT) action plan – the remaining item concerns the prosecution of terrorist financiers.  A second action plan established in 2021 focuses on reforms to the country’s AML regime.  Four out of seven action items have been completed as of October 2021.   

Sanctions

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                         29

World Governance Indicator – Control of Corruption             23

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

Economy

Pakistan’s economy remains fragile with deteriorating macroeconomic indicators, hindered by a dependence on imports and low rates of foreign investment, persistently high inflation, red tape, weak rule-of-law, corruption, political uncertainty, security concerns, and long-standing difficulties attracting foreign direct investment. Devastating floods in summer 2022 and higher commodity prices due to Russia’s war in Ukraine have negatively impacted Pakistan’s energy and food security. In exchange for a $7 billion IMF Extended Fund Facility (EFF) program that began in 2019, Pakistan agreed to expand the tax base, eliminate unfunded and non-targeted subsidies, pare back state-owned enterprises, reduce energy sector arrears, bar central bank lending to government, and float the rupee – reforms designed to rein in fiscal and external deficits. Pakistan successfully negotiated an IMF staff-level agreement for a nine-month, $3 billion Stand-By Arrangement (SBA) on June 29, one day before the EFF expired.

While Pakistan has a nominally open foreign direct investment (FDI) regime, it is a challenging environment for investors. The government implemented additional duties and restrictions on imports in 2022 and delayed approvals of letters of credit and repatriation of proceeds due to foreign reserve and balance of payments concerns. Many foreign investors have reported they are considering suspending or scaling back operations in Pakistan due to these measures. Drug price controls constrain foreign pharmaceutical companies’ ability to do business in Pakistan. Dispute resolution processes are lengthy, enforcement of intellectual property rights (IPR) is weak, taxation is inconsistent and often disproportionately targets international investors, and regulations vary across the federal, provincial, and local levels of government. In late 2022, the government denied entry to U.S. soybean shipments at the Karachi port due to a lack of clarity regarding Pakistan’s regulatory framework for the import of genetically engineered agricultural products. The security situation deteriorated in the past year with a significant increase in the number of terrorist attacks in Karachi and Peshawar, further stressing the economy.

Despite the challenging investment climate, the United States is one of Pakistan’s largest sources of FDI. U.S. companies have profitable operations across a range of sectors, notably fast-moving consumer goods, agribusiness, and financial services. Other sectors attracting U.S. interest include franchising, ICT, renewable energy, and healthcare services. The Karachi-based American Business Council, a local affiliate of the U.S. Chamber of Commerce, has 61 U.S. member companies, most of which are Fortune 500 companies and span a wide range of sectors. The Lahore-based American Business Forum has 23 founding members and 22 associate members. The U.S.-Pakistan Business Council, a division of the U.S. Chamber of Commerce, supports U.S.-based companies that do business with Pakistan. In February 2023, the United States and Pakistan concluded the ninth meeting under the U.S.–Pakistan Trade and Investment Framework (TIFA), and first ministerial-level meetings since 2016. The TIFA is the primary vehicle to address impediments to bilateral trade and investment flows and to strengthen commercial ties.

As part of an effort to support the Reko Diq mining project, the government passed the Foreign Investment Promotion and Protection Act (FIPPA) in December 2022 which provides foreign investments of over $500 million with tax incentives and protections, if they are designated as “qualified investments” by Parliament. The Pakistani government updated its National Climate Change Policy and National Wildlife Policy in 2021, and has introduced the 2020-2023 National Energy Efficiency Strategic Plan and the 2020-2025 National Electric Vehicle Policy for 2-3 Wheelers and Commercial Vehicles. The government plans to install 10,000 megawatts (MW) of solar power generation by 2030. It released a request for proposal in February 2023 inviting bids to develop a 600 MW solar energy project in Muzzaffargarh, Punjab.

 

Country Links

Securities and Exchange Commission of Pakistan

State Bank of Pakistan

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