ISLAMABAD:
The identification of politically exposed persons remained uneven and there were insufficient corruption-specific red-flags that could detect misuse of the public office in Pakistan, according to initial findings by a corruption diagnostic assessment mission of the International Monetary Fund (IMF).
The IMF has shared the draft observations along with recommendations with the government, giving Islamabad an opportunity to review these before the Governance and Corruption Diagnostic Assessment report is released by the end of this month, sources told The Express Tribune.
“The effectiveness of the politically exposed persons’ identification remains uneven across sectors due to limited access to comprehensive data, absence of automated screening tools in smaller institutions, and a lack of corruption-specific red flag indicators that would help detect misuse of public office, stated the draft report.
The lender has recommended issuing new guidelines by learning from the best global practices to identify the misuse of the public office and check any corruption in the government contracts. Pakistan committed to the IMF in September last year that it would fully publish the report once it is completed.
Under the $7 billion deal, the IMF had dispatched the Governance and Corruption Diagnostic Assessment Mission to Pakistan this year, which met with about three-dozen government and state institutions.
On the request of Pakistan, the IMF had extended the deadline to publish the report from July to the end of August this year.
The politically exposed persons include the head of the state, the head of the government, politicians, bureaucrats, judiciary, military officials, and senior executives of the state-owned enterprises, ambassadors and the members of parliament. There are special checks for the opening and operations of bank accounts of the politically exposed persons.
Whereas the report has identified some major gaps, it has also acknowledged the efforts that the Pakistani authorities made to put in place a basic structure to minimise the chances of corruption and the misuse of the public office by politically exposed persons.
The draft report states that the identification of the politically exposed persons is guided by regulatory requirements issued by the State Bank of Pakistan (SBP), the Securities and Exchange Commission of Pakistan (SECP), and the Federal Board of Revenue (FBR) for their respective supervised entities.
It added that the Financial Institutions and Designated Non-Financial Businesses and Persons (DNFBPs) are required to apply enhanced due diligence measures before dealing with the politically exposed persons. The enhanced scrutiny measures include obtaining senior management approval, establishing the source of wealth, and conducting ongoing monitoring.
But smaller institutions do not effectively apply these safeguards, observed the special mission in its draft. The draft stated that the institutions are largely responsible for developing their own internal systems to identify and manage the risks beyond the official lists given by the regulators.
The draft report further stated that reporting institutions to the regulators often lacked clarity on corruption-specific typologies and risk indicators. Sources said that the IMF was of the view that despite the specious transaction report guidelines and the red-flag indicators for various sectors and typologies, reporting institutions have limited access to typologies that reflect common methods of laundering corruption proceeds.
As part of the safeguards, the FBR had also established an online platform through which financial institutions can screen customers against official lists of federal public officials, including senior civil servants serving in grade 17 to 22 and members of parliament.
The sources said that the IMF has referred to some best international practices adopted by countries like Canada and Colombia, which helped mitigate chances of corruption through better detection of cases.
Canada has published red flag indicators for transactions involving government contracts, municipal procurement, and politically exposed persons’ related behaviour, use of corporate entities or consultants in public sector schemes, and layered payments, rapid contract turnover, and unexplained wealth accumulation in low-salary public roles.
Likewise, Colombia’s financial intelligence unit developed sectoral indicators targeting healthcare procurement during Covid pandemic, SOE-linked laundering via construction firms and extractive industries, and payments routed through regional entities to avoid detection.
The sources said that Pakistan could benefit from issuing specific guidance on identifying unusual financial behaviour linked to the politically exposed persons and state contracts.
The spokesman of the Ministry of Finance did not respond to the questions whether the consultations on the IMF findings have been completed and would the report be published by end of this month.
The sources said that the Ministry of Finance had given last Friday a deadline to the various departments to respond to the IMF’s observations and recommendations. Some of the entities have accepted a few observations while others have sought revisions by disagreeing with the IMF’s findings.
The sources said that due to the cumbersome process involved in going through every recommendation, there is a possibility that the government may take longer than required time to publish the document.
