ISLAMABAD: After the recent agreement with the IMF, Pakistan is under pressure to enhance and enforce anti-money laundering laws.

The country has been under criticism from global players, including the Financial Action Task Force (FATF), which has recently issued a list of countries that have failed to completely fulfil requirements against terror-financing and money-laundering.

Pakistan is among 11 countries that have not made sufficient progress or committed to an action plan developed with the FATF to address deficiencies related to anti-money laundering (AML) and combating financing of terror (CFT) requirements.

The FATF was established in 1989 at a G-7 summit in Paris to examine and develop measures for combating money-laundering.

It is an inter-governmental body to set standards and promote effective implementation of legal, regulatory and operational measures for combating money-laundering, terror-financing and other related threats to the integrity of the international financial system.

The FATF has lauded Pakistan for issuance of the Anti-Terrorism Amendment Ordinance, which came into force on Oct 12 this year and allows it to begin implementing UN obligations. But it expressed concern on Friday that Pakistan has temporary law regarding AML and CFT, which needed to be converted into a permanent legislation through parliament.

It said: “Pakistani authorities should take the necessary steps for swift ratification of the ordinance by its legislature. If Pakistan amends its Anti-Terrorism Act to incorporate the content of the ordinance before the February 2014 meetings, then the FATF will be able to authorise an on-site visit during its February 2014 meetings to confirm that the process of implementing the required reforms and actions is underway to address deficiencies previously identified by the FATF.”

The conditions to enhance the AML/CFT laws are also part of the Extended Fund Facility with the IMF.

The main pressure on Pakistan is due to accusations that it was not doing enough to control terror-financing both into and from the country.

“They want us to improve the reporting system and shorten the procedures involved in checking suspicious transactions,” said an official of the finance ministry.

But experts said that the issue needed to be addressed through negotiations with the FATF and the US.

“The anti-money laundering requirements are basically an issue for the US but it does not understand the ground realities in Pakistan,” said Syed Salim Raza, former governor of the State Bank.

He, however, said that “there have been limited complaints against Pakistani banking sector globally”.

Mr Raza said the authorities had failed to convince international players, including the US, that the situation in Pakistan was different. “A limited number of Pakistanis have bank accounts, therefore, it is to be understood that all transactions are not suspicious.”

Another banker said that most experts in the West do not understand that hundi/hawala is not always money-laundering. “Most of hundi-hawala businesses are even through the banking sector but they are mainly remittances,” he added.

Apart from meeting the AML/CFT requirements, the State Bank is also under pressure to enhance its regulatory supervision for improvement of the financial sector. The requirements include establishing a consolidated supervision of financial conglomerates by the SBP and the Securities and Exchange Commission of Pakistan.

The SBP will regulate the banking system and the SECP non-bank financial sector of these conglomerates which have multi-dimension businesses.

A joint task force on financial conglomerates set up in 2010 meets periodically but achieved a limited progress.The IMF has expressed concern that lending to the private sector is weak, while banks’ holdings of government securities continued to expand.

The IMF has said: ‘Envisaged reduction of the government’s borrowing requirement and addressing NPLs should help stimulate private sector credit from the supply side, while greater macro stability and broader structural reforms should boost demand for private credit.”

The IMF has suggested to the SBP to introduce an explicit Deposit Protection Fund (DPF), which is currently ambiguous in Pakistan.

“Under the Banks (Nationalisation) Act of 1974, the government of Pakistan implicitly guaranteed the safety of all deposits, despite the fact that the Banks Act applies only to nationalised banks.”

The IMF has said: “The depositors anticipate that the government or the SBP will compensate their deposits in case of a bank failure, while the government of Pakistan has assured that draft DPF Act is being finalised.”