A glaring loophole remains in Pakistan’s attempts to curb terrorist financing under international pressure, a gap that could place the country on the Financial Action Task Force (FATF) blacklist. It is still unclear whether the omission in small savings schemes has been left deliberately to benefit terrorist groups—many of which enjoy state patronage—enabling them to evade FATF scrutiny.
Small savings in Pakistan amount to over Rs 4 trillion, spread across more than seven million individual accounts, representing 28 per cent of all bank deposits. The likelihood of terrorist groups and individuals holding such accounts remains high, given the large number of active groups and cadres within the country. By Prime Minister Imran Khan’s own admission, Pakistan was home to more than 40,000 terrorists only a few years ago.
For years, the global watchdog on money laundering and terrorist financing, the FATF, has pressed Pakistan to comply with international standards on anti-money laundering (AML) and counter-terrorist financing (CFT). While Pakistan has reluctantly met some conditions, one crucial area—small savings accounts—remains inadequately addressed.
FATF flagged these shortcomings in two recent compliance reports, issued in October 2019 and September 2020. The 2019 report highlighted that a significant portion of the banking sector, both formal and informal, lay outside the scope of AML laws or lacked mechanisms to detect suspicious accounts and transactions. The 2020 follow-up report noted new rules introduced by Pakistan in response, but found that provisions for prosecution were still missing, leaving banks free to overlook dubious accounts and transfers.
The issue stems from the National Savings Schemes (AML and CFT) Rules, 2019, which mandated scrutiny of all seven million account holders within six months, alongside risk profiling in the same period.
The All Pakistan National Savings Officers Association (APNSOA) has flagged several reasons why Pakistan is unlikely to meet FATF obligations in this sector. Chief among them is the absence of mechanisms to identify account holders, despite the impossibly tight deadline. For example, printed Know Your Customer (KYC) forms were not available in any National Savings Centres until April this year.
According to banking officers, the gap between stated intention and action reflects inefficiency and misuse of authority by the Anti-Money Laundering and Counter Terrorism Financing Supervisory Board. This key stakeholder has failed to devise or implement steps to enable compliance. The authorities have not updated National Savings software to reflect new requirements, while banking staff lack both the equipment and protocols necessary for verifying data, checking KYC documents, or using biometric information. Guidelines for staff and customers alike are still absent.
With such extensive deficiencies in just one segment of the financial system, Pakistan’s efforts to comply with FATF requirements are likely to remain incomplete when the international watchdog reconvenes