Daily Times

Institutional and Legal Framework for AML/CFT

Pakistan has made considerable progress in establishing an institutional framework for combating money laundering/terror financing ever since APG conducted its mutual evaluation report. Following is the present institutional set up.

(a) National Executive Committee formed under section 5 of AML 2010 under Chairmanship of Minister of Finance;

(b) General Committee formed under section 5 of AML 2010 under Chairmanship of Secretary Finance.

(c) Financial Monitoring Unit (FMU) in SBP which is operationally and financially independent. This unit is headed by a director and its main function is to analyze and pass on the Suspicious Transaction Reports (STRs) which are reported by banks to the concerned law enforcement agencies. From 2015 to 2018 it has collected 18,000 STRs and after analyzing disseminated 4000 to LEAs.

(d) CTF Directorate in NACTA for a unified response of stakeholders.

(e) CTF Investigation Units in all provincial CTDs formed upon the recommendations of NACTA. (f). Terrorist Financing Investigation Unit (TFIU) wing in FIA.

An analysis of the existing institutional framework points towards certain weaknesses and gaps which need to be addressed. (a). The FMU is handicapped with regards to its human and technical resource as only 15 financial experts are working there. Further they do not have an international linkage as Pakistan is not a member of the Egmont Group which is an international body of Financial Investigations Units. It provides a forum for exchange of financial intelligence and expertise to check ML/TF. (b) The CTF units in the provincial CTD’s are not fully geared up to fight ML/TF. It is only in Punjab that the CTFU is fully functional and performing well. The efforts of CTD Punjab in combating terrorist financing have been acknowledged during APG Assessors Onsite visit in October 2018 and also in their Mutual Evaluation Report.

Legal Framework

In Pakistan, there is a range of legislation pertaining to Anti-Money Laundering (AML) and countering the Financing of Terrorism (CFT). The primary laws relating to the subject include the following:

a) Anti-Money Laundering Act, 2010 (as amended in 2015)

b) Anti-terrorism Act, 1997 (as amended in 2013)

c) Anti-Money Laundering and Combating the Financing of Terrorism Regulations for Banks & DFIs (2017)

d) Securities and Exchange Commission of Pakistan Regulations, 2018

e) Anti-Money Laundering Regulations, 2015

An assessment of the existing legal framework leads to certain gaps and lacunas which are hampering the ML/CFT efforts.

a) The TF related STRs under AMLA, 2010 are not being disseminated to provincial CTDs, thereby making it difficult for them to seek financial records related to offence of TF from the financial sector. This is because presently CTD is not a notified body under AMLA. However the Prime Minister has recently approved a “Policy on Financial Investigation of Terrorism Cases for LEAs” whereby this gap will be addressed.

b) Section 19 of JITs under ATA, 1997 does not allow members from financial regulators and FMU or experts from private sector to be co-opted as member of JITs on Terrorist Financing.

c) Currently the LEAs i.e. ANF, Customs and NAB are prosecuting and investigating agencies under AMLA, 2010 to the extent of their own offences but specific powers and duties have not been defined in the law to investigate these offences including money laundering, from TF perspective. Resultantly, ML related offences are not being focused or investigated from TF perspective by these organizations. The Customs Operations has in the current financial year i.e. 2018-19 arrested around 30 people for currency smuggling but there has been no headway regarding their TF linkages.

d) Pakistan has no standalone law on Mutual legal Assistance with foreign countries which is leading to problems of making and receiving requests for cooperation in investigation of terrorism cases efficiently in case offence is linked to a foreign jurisdiction.

e) The ATA, 1997 under section 11O provides for freezing and seizure measures against proscribed organization and persons but does not provide any time line for such action. FATF requires seizure and freezing without delay to prevent and mitigate TF risks efficiently and effectively. Implications for Pakistan.

The main stumbling block in Pakistan not being able to make progress in combating ML/TF as per the expectations of FATF has been a total lack of political commitment

Pakistan has been on and off the FATF Grey List on account of strategic deficiencies in its AML/CTF regime. Pakistan has committed to a 10 point agenda to improve its listing. The latest review made in February and June 2019 has observed progress especially in counter terror financing efforts. Next review is scheduled in third week of October 2019. The Pakistani delegation, led by Minister for Economic Affairs Division Hammad Azhar, is scheduled to leave for France on October 13th as Pakistan’s case will be taken up on October 14th and 15th.

Failure to improve entails risk of black listing and sanctions which will be detrimental to our economy. There will be severe economic implications for Pakistan in the event of its getting black listed. Its credit ratings would be downgraded by multilateral lenders like IMF and World Bank. Further its risk ratings would also get increased by credit rating bodies like Moody’s etc. The risk of international trade sanctions along with a reduced foreign currency inflow in the shape of lesser remittances and FDI would also be looming large. The gravest concern for Pakistan is the possibility of being categorized along with countries like North Korea and Iran as a ‘pariah’ state, with dire political consequences like international isolation. Already it is on the grey list again, along with countries like Yemen, Syria and seven others – some of them known as failed states.

Though, it is opined from the known quarters which keenly follow FATF proceedings that this time, too, Pakistan could avoid being placed on the black list because of help from China, Turkey, and Malaysia. According to the charter of the 39 member FATF, the support of at least three member states is essential to avoid the blacklisting.

The main stumbling block in Pakistan not being able to make progress in combating ML/TF as per the expectations of FATF has been a total lack of political commitment. The previous ruling classes at the helm of affairs in Pakistan, especially the regimes which came into power post 2008 have deliberately turned a blind eye towards this issue and not created an effective legal and institutional mechanism to curb it. A case in point is the half hearted approach of Pakistan in getting the membership of the Egmont Group which is an international body of Financial Investigations Units. It provides a forum for exchange of financial intelligence and expertise to check ML/TF.

This is because this ruling junta was itself involved in money laundering. They have been accused of siphoning off their ill-gotten money worth billions of dollars to various off shore destinations. Top political leadership of both the PPP and PML (N) are currently facing serious cases of money laundering. This is a good augury for convincing the world community of the seriousness on the part of Pakistan and the current political regime in fighting ML/TF and is likely to help Pakistan in its efforts to forestall not only getting blacklisted but even getting out of the FATF grey list.

concluded

The writer has done MPA from Institute of Administrative Sciences (IAS) Lahore