Daily Times

The cross-border movement of illegally obtained funds leaves a scar on the sanctity and security of the global financial system. The governments and financial institutions in collaboration with global watch-dogs are in a constant pursuit to restrict and eliminate the risk of illicit funds traveling from one place to another through the global financial system. Generally, these funds originate from illegal sources such as corruption, smuggling, human and drug trafficking etc. However, there are also legal types of funding that are used for illegal transactions which includes market abuse, circumvention of laws, controlling monopoly power or political conflict of interest including tax abuse. These transactions ultimately have a huge impact on the economy of the developing countries. As per the Global Financial Integrity Report developing countries lose around USD 1 Trillion every year. As per united nations estimates, the share of total criminal proceeds ranges from 2% to 5% percent of global GDP i.e., USD 1.6 trillion to USD 4 trillion a year.

Similarly, the Finance and Development Report of IMF states that the flow of illicit funds parked in offshore havens is around USD 7 trillion which is around 8% of global GDP. The subject report further suggests that governments can add USD 1 trillion to revenue simply by reducing one third of the corruption around the world. The Global Financial Integrity report further highlights that developing countries lose around USD 1 trillion annually due to their weak legal framework and controls. This argument is further corroborated through the Economic Commission for Africa of the United Nations (ECA) highlighting the facts using the trade statistics that African countries lost around USD 407 billion alone due to trade mispricing during 2001-2010. The other major factor is movement of legally generated revenue through profits and gains and by transporting it abroad unlawfully to avoid taxes. The ultimate impact of these financial flows helps to increase returns to illegally earned capital, destabilize state authority, promoting personal community which eventually lead to political and economic uncertainty. A critical guide to the data, methodologies, and Findings Estimating Illicit Financial Flows state that estimates of global profit shifting and associated tax revenue losses per year with reference to OECD member countries are around USD 400 billion whereas the USD 200 billion are from low-income countries. The same report states that the U.S. Fortune 500 companies alone hold an estimated USD 2.6 trillion offshore in 2017. Though this figure is controversial, as many analysts have opinion that these resources were not invested offshore, and the major portion of those invested profits were kept in dollars and loaned back to the United States in various investment schemes.

The global watchdog Financial Action Task Force (FATF) which was created with the aim to prevent the global financial system from illegally generated funds is effectively implementing its standards. Now various agencies and international bodies have also joined hands to counter the cross-border movement of illicit financial flows including United Nations, International Monetary Fund, World Bank, World Customer Organization, and Interpol.  However, despite the extensive controls and monitoring by the watchdog including prestigious organizations, there are around eighteen countries which are placed as jurisdictions with strategic deficiencies followed by the two countries listed as jurisdictions subject to call for action. It appears that these countries are lagging behind in full implementation of the standards set by the FATF to counter money laundering and combating financing of terrorism.

Pakistan is also one of those jurisdictions placed under the increase monitoring due to its weak anti-money laundering and combating the financing of terrorism (AML-CFT) regulations.  We have been working to implement the FATF action plan since June 2018 and so far, we have implemented 24 action items out of 27 and the remaining three items need to be implemented by June 2021. Despite the lapse of almost three years, we are still trying to address the requirements of FATF which shows that we lack coordination between the stakeholders both in public and private sectors. The Asia Pacific Mutual Evaluation report stated that there was no specific evidence of how the objectives and activities aligned with Money Laundering and Terrorist Financing risks. This situation is reflective of the general lack of national coordination and leadership crisis regarding implementation of the National Risk Assessment and Action Plan. Additionally, we are not well equipped to design policies and procedures which are acceptable to the international community and are unable to exercise the authority required to enforce the existing policies and procedure and prosecute the criminals who are involved in these criminal activities.

The anomalies in our financial crime laws and regulations and our misunderstanding about their application and the lack of coordination between the law enforcement agencies were noted in the Asia Pacific Group’s Mutual Evaluation Report about Pakistan.  The most disturbing comments were made about the Federal Investigation Agency and National Accountability Bureau. The report stated that the Federal Investigation Agency has a low level understanding of terrorist financing risks whereas the National Accountability Bureau (NAB) from 1999 to 2018 received 140 proactive disseminations from Financial Monitoring Unit (FMU) appearing to be seven per year resulting in two convictions.  However, NAB initiated 32 investigations during the period of 2013-2018, four prosecutions during the same period and there was only once conviction. The performance of other agencies mismatched our risk profiles. Another reason which is putting us behind is the absence of a well-established referral mechanism and a low level of awareness of our LEAs regarding financial crimes.

Similarly, our laws and regulations appear to be drafted to enjoy political powers by the rulers rather than facilitating and giving authorities to law enforcement agencies to work independently in countering the financial crimes. The example includes the changes implemented through the Anti-Money Laundering (Second Amendment) Act, 2020.  These changes introduced the concept of Self-regulatory body (SRB), for DNFBP like lawyers and accountants, the most vulnerable professions known as facilitators for money laundering and terrorist financing, now they will enjoy the powers to self-regulate themselves, take penal action and to act as an appellate authority, which is against the principles of independence and could lead to conflicts of interest.

Moreover, the role of the National Executive Committee (which is a major committee) to review the laws, regulations related to AML-CFT and delegate the power to various committees and agencies consisting of Politically Exposed Persons (PEPs) and appear to be a supreme committee is questionable as well. Majority of those PEPs are facing financial crimes allegations. However, by leading the supreme committee to decide actions with reference to money laundering and terrorist financing can influence the working of subordinate committees and law enforcement agencies.

Apart from these issues, the role of judiciary is not at par regarding matters pertaining to AML and CFT. The Pakistan top court used different principles to decide various cases on similar issues which resulted in mockery of our system around the world.  Courts in Pakistan always invite attention from their decisions, our government and judiciary influence the working of law enforcement while they are employed to eradicate financial crimes. Recently the supreme court struck a deal of around PKR 460 billion with a famous property tycoon of Pakistan, in the instant case instead of deciding the case on merit and as per law against the company allegedly acquiring the property illegally from the citizens of Pakistan through use of force. The supreme court without realizing the gravity of the matter decided this case by negating the prevailing laws by striking the deal at the time when we were under the close monitoring of the FATF. Ideally and by all legal standards the case should have been subject to detailed investigations by the competent authorities, and this would have shown the world that Pakistan is serious in efforts to combat illegal proceeds obtained through illegitimate sources, however the apex court unfortunately preferred to strike a deal without giving respect to due process of law. Subsequently, the government of Pakistan completely ignored the settlement of GBP 190 million by the U. K’s “National Crimes Agency with the same Pakistani businessman who owns a large property development business. Pakistani Government showed complete silence over the issue which also negates our claims to eradicate the movement of illicit flow of funds.

The way forward is to implement the FATF action plan and maintain its continuity depending on the behavior of our legislature, executive and judiciary vis-a-vis law enforcement agencies. We need to focus on the improvement of laws in order to align them with international standards, revamp our enforcement strategies and offer advanced training to FIU as well as other LEAs staff. The ultimate responsibility to fight against the financial crimes lies with these three main pillars of the state. However, the judiciary still has an edge over other stakeholders as their decisions based on merit and law set the precedents for future actions against the criminals.

Abdul Rauf Shakoori is a corporate lawyer based in the USA and an expert in ‘White Collar Crimes and Sanctions Compliance’. He has recently co authored a book, Pakistan Tackling FATF: Challenges and Solutions.