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IMF Issues Powerful Call to Boost AML Efforts in Pakistan

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The International Monetary Fund (IMF) recently urged Pakistan to swiftly enhance its Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) framework to effectively tackle significant risks associated with financial crimes. This call follows the IMF’s first staff-level agreement emphasizing immediate action required to mitigate vulnerabilities in Pakistan’s financial sector, notably regarding undercapitalized institutions.

The IMF emphasized that robust AML and CFT measures are essential, highlighting that proactive vigilance throughout the financial sector is crucial to effectively address money laundering and terrorism financing threats. The IMF’s report clearly outlines that Pakistan must prioritize and resolve existing financial gaps to ensure stability and integrity within its banking system.

Pakistan’s financial sector strategy must explicitly recognize and strategically prepare for the impending removal of “Riba” (interest), mandated by the 26th Constitutional Amendment adopted in October 2024, effective January 2028. This major shift will profoundly influence the country’s financial sector architecture, impacting financial stability, regulatory oversight, and monetary policy execution.

According to the IMF report, a comprehensive and transparent strategy is critical. Publishing detailed guidelines and clear strategic plans by June 2026 will be essential for ensuring that market participants, investors, and regulators are adequately prepared. This forward-thinking approach aims to avoid disruptive market impacts and establish confidence among stakeholders regarding Pakistan’s economic and financial stability.

Additionally, the IMF suggests Pakistan develop a robust strategic action plan specifically targeting capital market growth. Enhancing the capital market would effectively tackle the problematic sovereign-bank nexus and boost private sector financing accessibility, vital for sustainable economic growth.

Addressing Trade-Based Money Laundering and Beneficial Ownership

A key recommendation from the IMF centers on improving Pakistan’s AML/CFT effectiveness through refined risk-based supervision, enhanced transparency of beneficial ownership, and stringent measures against trade-based money laundering (TBML).

Pakistani authorities are aligning with these recommendations, reinforcing AML/CFT oversight, particularly regarding designated non-financial businesses, virtual asset service providers, and entities susceptible to misuse for criminal activities. Authorities have already updated their AML supervisory framework, specifically addressing TBML risks. Further, a standalone supervisory framework exclusively targeting TBML is slated for release by June 2025.

“We will continue to strengthen the effectiveness of our system to combat money laundering and terrorist financing,” affirmed Pakistani authorities, highlighting the crucial role of the National AML/CFT Authority. This institution is central in coordinating national efforts, overseeing relevant agencies, and monitoring high-risk offenses identified in the 2023 National Risk Assessment, such as corruption, smuggling, tax evasion, and illegal hawala operations.

Additionally, the Securities and Exchange Commission of Pakistan (SECP) is enhancing verification procedures to ensure accuracy and reliability of beneficial ownership data, thus mitigating potential exploitation of entities for illicit purposes.

Reinforcing Anti-Corruption Measures and Accountability

In alignment with Pakistan’s AML Act and the National Fiscal Pact, substantial steps are underway to fortify investigative processes concerning corruption and financial crimes. Following recent Supreme Court decisions regarding the National Accountability Bureau (NAB), Pakistani authorities have committed to bolstering NAB’s independence and operational efficiency. This commitment specifically targets investigations of corruption cases exceeding PRs 500 million, alongside improved coordination with other investigative bodies such as the Federal Investigation Agency (FIA) and Provincial Anti-Corruption Establishments (PACEs).

The Financial Monitoring Unit (FMU) will play a critical role, issuing notifications by December to formally empower PACEs with investigative jurisdiction over money laundering linked to corruption offenses, thereby enhancing their capacity to request and utilize financial intelligence from the FMU.

The State Bank of Pakistan (SBP), Federal Board of Revenue (FBR), and FMU have reiterated their support for banks to access asset declarations of senior public officials (grades BPS17-22). This facilitates compliance with AML obligations and enables banks to effectively profile politically exposed persons, thereby significantly reducing AML-related vulnerabilities.

Conclusion: Strengthening AML to Secure Financial Stability

The IMF’s urgent call highlights a critical juncture for Pakistan to comprehensively enhance its AML and CFT frameworks. By addressing gaps in financial institutions, implementing strategic financial sector reforms, and intensifying measures against trade-based money laundering and corruption, Pakistan can significantly reduce vulnerabilities and bolster its economic resilience. This will also help maintain trust among international stakeholders, investors, and regulatory bodies.