The International Monetary Fund (IMF) has expressed concerns about Pakistan’s ability to effectively identify politically exposed persons (PEPs) and detect corruption, pointing to uneven enforcement of safeguards and the absence of specific red-flag indicators that could prevent the misuse of public office.
These findings are part of the IMF’s draft Governance and Corruption Diagnostic Assessment Report, shared with the Pakistani government before its official release later this month, according to a report by The Express Tribune.
Background of the IMF Assessment
The assessment was carried out under the $7 billion IMF bailout program and involved consultations with almost three dozen federal and state institutions. Pakistan had committed to publishing the report in full by July, but at Islamabad’s request, the deadline was extended to the end of August to allow time for review and feedback.
The IMF has given the government an opportunity to respond to the recommendations before the final version is made public. This process is part of broader governance reforms that Pakistan pledged under its loan agreement.
Key Gaps in the Anti-Corruption Framework
According to the draft report, Pakistan faces serious shortcomings in detecting financial misconduct, particularly when it comes to identifying and monitoring PEPs.
Smaller financial institutions lack access to comprehensive databases.
There is no widespread use of automated screening tools.
Corruption-specific red-flag indicators remain underdeveloped.
These issues, the IMF observed, make it harder to detect and prevent the laundering of corruption proceeds and the abuse of public office.
Existing Measures and Their Limitations
The IMF acknowledged that Pakistan has taken some steps to minimize corruption risks. The State Bank of Pakistan (SBP), the Securities and Exchange Commission of Pakistan (SECP), and the Federal Board of Revenue (FBR) have issued regulatory requirements for identifying PEPs.
Under these rules, financial institutions and Designated Non-Financial Businesses and Persons (DNFBPs) must:
Apply enhanced due diligence.
Obtain senior management approval before onboarding high-risk clients.
Verify the source of wealth and funds.
Conduct ongoing account monitoring.
However, the report found that smaller institutions often fail to apply these safeguards effectively, relying instead on limited internal systems and official lists, which are inadequate for detecting complex corruption schemes.
Examples of International Best Practices
The IMF’s draft report cites examples from other countries that have successfully strengthened their anti-corruption frameworks:
Canada publishes clear red-flag indicators for suspicious activities involving government contracts and municipal procurement, including unexplained wealth among low-salaried public officials.
Colombia’s financial intelligence unit has created sector-specific indicators to detect corruption in healthcare procurement, state-owned enterprises, and construction projects.
The IMF has recommended that Pakistan adopt similar sector-specific guidance and expand access to typologies showing common patterns of laundering corruption proceeds.
Tools Already in Place — and Where They Fall Short
The FBR has launched an online screening platform for financial institutions to check customers against official lists of federal public officials, including senior civil servants and lawmakers.
Despite this tool, the IMF noted that many institutions still lack access to practical, real-world examples of suspicious behavior related to corruption, making it harder to spot illicit financial flows before damage is done.
Recommendations for Pakistan
The IMF has urged Pakistan to:
Issue detailed guidelines on identifying unusual financial behavior tied to PEPs and state contracts.
Adopt automated screening tools for all institutions, not just large banks.
Publish sector-specific red-flag indicators to make detection more effective.
These steps, the IMF says, would align Pakistan’s system with global best practices and significantly reduce corruption risks.
Government Response and Next Steps
The Ministry of Finance has set a deadline for departments to respond to the IMF’s observations. While some agencies have agreed with the findings, others have sought changes, disputing parts of the draft.
Due to the extensive review process, sources suggest the final report’s release may be delayed beyond the end of August. However, the IMF remains firm that implementing these recommendations will be key to Pakistan’s governance reforms and economic stability.
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