IMF Flags Gaps in Pakistan’s Anti-Corruption Framework

The International Monetary Fund (IMF) has raised concerns over Pakistan’s ability to effectively identify politically exposed persons (PEPs) and detect corruption, citing uneven implementation of safeguards and insufficient red-flag indicators to prevent the misuse of public office. These observations are part of the IMF’s draft findings from its Governance and Corruption Diagnostic Assessment Mission, shared with the government ahead of the report’s official release later this month, reported Express Tribune. According to a report by Express Tribune, the IMF has provided Islamabad with an opportunity to review and respond to the draft recommendations before the final report is published. The assessment, conducted under the $7 billion IMF bailout program, involved consultations with nearly three dozen government and state institutions. Pakistan had committed to fully publishing the report, initially due in July, but the deadline was extended to the end of August at Islamabad’s request. The draft report highlights significant gaps in Pakistan’s anti-corruption framework, particularly in the identification and monitoring of PEPs. It notes that smaller institutions lack access to comprehensive data and automated screening tools, while corruption-specific red-flag indicators remain underdeveloped. These shortcomings, the IMF observed, hinder the detection of financial misconduct and the misuse of public office. “Identification of politically exposed persons 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,” the draft report states. The IMF has recommended that Pakistan issue new guidelines, drawing on global best practices, to strengthen safeguards against corruption in government contracts and public office. Examples from countries like Canada and Colombia were cited, where targeted measures have significantly improved the detection and prevention of corruption. The report acknowledges efforts by Pakistani authorities to establish a basic structure for minimizing corruption risks. 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) guide the identification of PEPs. Financial institutions and Designated Non-Financial Businesses and Persons (DNFBPs) are required to apply enhanced due diligence measures, such as obtaining senior management approval, verifying the source of wealth, and conducting ongoing monitoring. However, the IMF noted that smaller institutions often fail to effectively implement these safeguards. Many rely on their internal systems to identify risks, which are often inadequate beyond the official lists provided by regulators. Additionally, reporting institutions lack clarity on corruption-specific typologies and risk indicators, limiting their ability to detect laundering of corruption proceeds. The FBR has established an online platform to help financial institutions screen customers against official lists of federal public officials, including senior civil servants and members of parliament. Despite this, the IMF observed that reporting institutions have limited access to typologies reflecting common methods of laundering corruption proceeds. The IMF’s draft report highlights international best practices that Pakistan could adopt to strengthen its anti-corruption framework. Canada, for instance, has published red-flag indicators for transactions involving government contracts, municipal procurement, and PEP-related activities, such as unexplained wealth accumulation in low-salary public roles. Similarly, Colombia’s financial intelligence unit developed sector-specific indicators targeting corruption in healthcare procurement, state-owned enterprises, and construction firms. The IMF has urged Pakistan to issue specific guidance on identifying unusual financial behavior linked to PEPs and state contracts, which could help mitigate corruption risks. The Ministry of Finance has reportedly set a deadline for various departments to respond to the IMF’s observations and recommendations. While some entities have accepted the findings, others have sought revisions, disagreeing with certain aspects of the draft report. Sources indicate that the government may take longer than expected to publish the final document due to the extensive review process.