Moody’s Investors Services, one of the thee global credit rating agencies, has cautioned that Pakistani Banks may lose international business and their banking transactions cost at global level may increase, if government fails to achieve total compliance of Financial Action Task Force 27 points action plan on strengthening anti-money laundering and counterterrorism financing regimes during the current greylist extended period of four months. Of this plan 14 points have been fully complied with and progress is on the remaining 13 points. The Paris based global watchdog on financial transaction decided in its plenary session held this month to give Pakistan a final deadline for completing the action on the remaining points of plan till June.
In its recent report Moody’s has reverted credit rating of Pakistan from stable B positive to B negative, which implies the possibility of restrictions relating to Pakistani banks foreign currency clearance services as well as their operation in foreign countries, if the country does not move out of grey list. FATF has already warned its member countries to be cautious when conducting business with Pakistan in case its government, its regulatory bodies and other stakeholders of financial system fail to ensure total compliance of the action plan. Failure in completing recommended actions will compel these countries to curtail interaction with Pakistani bands and may even stop correspondent relations with them.
Pakistan has been given final deadline and next review by the FATF on compliance towards its action plan will take place in June. After the recent review of the action plan, 8 supplementary points have been given, stressing effective and coordinated actions by the concerned authorities against money laundering and curbing terror financing; concrete investigation against the designated persons and entities believed to be involved in terrorism financing; result oriented prosecution against such designated persons and entities; and effective implementation, buttressed by comprehensive legal obligations against all designated persons and entities who fall within the purview of sanctions included in the United Nations security Resolutions numbering 1267 and 1373.
Quick action on the remaining points and additional recommendations require comprehensive legislation to strengthen the legal and institutional framework to reform the justice system for curbing the twin menace of money laundering and terrorism financing. The razor thin majority of the government in the National Assembly, minority numerical strength in Senate and flourishing culture of political expediency in the rank and file of ruling party make the task of passing a legislation extremely difficult to effectively curb the scourge of money laundering notwithstanding robust administrative intelligence base actions by the relevant government agencies. Despite known intensions government is reluctant to amend the Protection of Economic Reforms Act of July, 1992. The law was enforced in the first Nawaz Sharif government which dilutes the regulatory powers of the central bank, regarding the transfer into and out of foreign currency accounts which are mostly opened by the political and business elite either in their own names or names of their loyal servants. It merits mention that US State Department Financial Services had issued a consent order in September 2017 against Habib Bank, imposing a penalty of $225 million and closure of its New York Branch. The proceedings in the Accountability Court on mega money laundering charges against PPP cochairman AsifZardari and his associates of Omni Group through certain banks point to weakness in the regulatory regime of financial transactions. The recent amendment in NAB Ordinance has encouraged one accused of mega money laundering case AnwerMajeed of Omni Group to seek transfer of the case to banking court.
Moody’s alert needs to be taken seriously as it corroborates the apprehensions of IMF country representatives in Islamabad Teresa Baban Sanchez that remaining on the greylist may create difficulties for Pakistan not only in the smooth implementation of the lending agency bailout package but also hinder its efforts to acquire short term loans from the international capital market. Over the past 12 years Pakistan floats US dollar denominated and Euro denominated bonds for obtaining loans to meet its obligations of retiring foreign loans and clearing balance of payment liabilities. Government intends to launch Euro Bonds worth $3 billion in the next fiscal year.