Pakistan’s Legal Framework: Combating money-laundering and counter-terrorist financing

Pakistan faces significant risks of money laundering and even more significant risks of terrorism financing. Aware of the prevalence of corruption, narcotics trafficking and terrorism, the authorities have focused on tackling these predicates. Pakistan has however not yet sufficiently taken into account money laundering and terrorism financing associated with these and other predicate crimes.

Criminals launder funds in Pakistan and reportedly are purchasing real estate, abusing corporate entities to access the financial sector, laundering money through trade and abusing informal channels in Pakistan. Funds for terrorism came from proceeds of crime (including bank robbery, kidnap for ransom, and proceeds of drugs flowing from Afghanistan), with cases of cash couriers and misuse of charities facilitating terrorist financing.

Pakistan has criminalized money laundering (ML) and terrorism financing (TF). Pakistan set up its Financial Intelligence Unit (FMU) in December 2007. Pakistan has taken steps to make the FMU operational. In this background, the present legal set-up of AML regulations has been reviewed in this article.

For prevention of money laundering and forfeiture of property derived from, or involved in, money laundering and for matters connected therewith or incidental thereto; the Government of Pakistan enacted, The Anti-Money Laundering Ordinance, 2007 (AMLO), it came into force with effect from 4th day of October 2007.1 The said Ordinance lost its legal authority in 2009,2 consequently, the parliament enacted the new law, namely, the Anti-Money Laundering Act, 2010 (AMLA).3

For carrying out the operation of anti-money laundering law and to meet its purpose, the Financial Monitoring Unit (FMU) stands established with the approval of National Executive Committee, and the said institution issued the Anti-Money Laundering Regulations, 2008.4

Among other things, the Act defines the legal terms such as attachment,5 CTR,6 financial institutions,7 foreign serious offences,8 FMU,9 non-financial business and professions,10 offence of money laundering,11 person,12 proceeds of crime,13 property,14 Suspicious Transaction Report (STR),15 transfer and predicate offence.17 In order to implement the law the Financial Monitoring Unit (FMU) has been established in the State Bank of Pakistan (SBP).18 The main function of the FMU is to receive suspicious Transaction Reports (STR) and reports on Currency Transaction (CTR) of specified monetary limit.

The FMU after the receipt of said reports is required to:19 

i) Analyse the STRs and CTRs;

ii) Disseminate information to the investigating agencies;20

iii) Create and maintain data base of STRs and CTRs;

iv) To co-operate with FIUs and intelligence agencies of other countries;

v) To frame regulations in consultation with SBP.

All financial institutions are required to file with FMU STRs and CTRs. 20 A where they know or suspect or have reason to believe that the suspected transaction is an outcome of:

a) Illegal activities or the same is intended or conducted in order to hide or disguise proceeds of crime;

b) An attempt to evade any requirement of Anti-Money Laundering Law; and

c) Is an outcome of unlawful purpose; and

d) Involves financing of terrorism.21

Acquisition, conversion, possession, use or transfer of such property which is proceeds of a crime, constitute the offence of money laundering.22 The offence is punishable with imprisonment ranging from one year to ten years, or a fine up to one million rupees or both, and the property involved in the crime is liable to forfeiture.23

Where a property is suspected to be an outcome of money laundering, an officer investigating such matter may make an order for the attachment of the property, which he believes is the proceed of crime, after taking permission from the court for a period not exceeding ninety days. The officer who makes a provisional attachment of the property is required to file a complaint before the court against the concerned persons within a period of 30 days.24

The investigation officer is required to initiate investigation within seven days after the attachment of the property and where the officer comes to the conclusion that such property is an outcome of money laundering, may ask the court to confirm the attachment.25 And where the attachment of property becomes final,26 the same shall be forfeited by the court.27 After forfeiture the property shall rest in the Federal Government.28

The investigation officer has the power to search, seize and arrest persons engaged in money laundering subject to taking permission of the court.29 All courts of sessions established under the Criminal Procedure Code, 1898, within its territorial jurisdiction have the power to try and adjudicate the offences falling within the purview of AMLA. 30

All offences under the AMLA are not cognizable and non-bailable. The court can take cognizance of such offence upon a complaint made by the investigation officer or by an authorized officer of the federal or provincial government.31 An appeal against any final decision or order of the court established under the Act lies before the High Court on any question of law or fact arising out of such decision or order within a period of sixty days.32

Any investigation office who exercises powers under the Act but acts without the permission of the court is liable to punishment under the Act.33 For the purposes of this act, NAB, FIA, ANF or any other law enforcement agency specified by the federal government are the investigation and prosecution agencies .33 A

Tipping of and confidentiality requirements have been defined in the law.34 The offences falling within the purview of the Act have been defined.35 The Act is not applicable in relation to fiscal offence except, import prohibitions act of smuggling, mis declaration, and fiscal frauds under the Customs Act, 1969 .36 A

Specified offences falling within the scope of Pakistan Penal Code, 1860, The Arms Act, 1878, The foreigners Act, 1946, The Copyright Ordinance, 1965, Securities and Exchange Act, 1969, The Emigration Ordinance, 1979, The Control of Narcotic Act, 1997, National Accountability Ordinance 1999, and The Registered Designs Ordinance, 2000 have been made predicate offences under the Act.37

The contravention of the provisions of AMLA, if committed by a company or person engaged with the company who, at the time the contravention was made, was associated with the company, shall be deemed to be guilty and shall be punished.38

For making or submitting STR, and CTR, FMU is the only designated agency.39 The Director General of FMU can direct an NFBP to submit STRs or CTRs.40 The Director General FMU is authorized to freeze a suspected property on the complaint of a financial institution or NFBP for a period of 15 days.41

The following are examples of potential suspicious transactions for both money laundering and terrorist financing. The lists of situations given below are intended mainly as a means of highlighting the basic ways in which money may be laundered.42

1. Transactions which do not make economic sense.43

2. Transactions inconsistent with the customer's business.44

3. Transactions involving large amounts of cash.45

4. Transactions involving structuring to avoid reporting or identification requirement. Transactions involving forcing currency exchanges that are followed within a short time by wire transfers to locations of specific concern (for example, countries designated by national authorities, or FATF as non-co-operative countries and territories, etc).46

5. Transactions involving accounts.47

6. Transactions involving transfers to and from abroad should state occupation of the sender is not commensurate with the level or type of activity (for example, a student or an unemployed individual who receives or sends large numbers of wire transfers, or who makes daily maximum cash withdrawals at multiple locations over a wide geographic area).48

7. Investment related transactions.49

8. Transactions involving unidentified parties.50

9. Transactions involving insurance.51 A customer obtains a credit instrument or engages in commercial financial transactions involving movement of funds to or from locations of specific concern when there appears to be no logical business reasons for dealing with those locations.

10. Transactions involving embassy and foreign consulate accounts.52

(The author is an Advocate and is currently working  with M/s Azim ud Din Law Associates Karachi.)


References:

1. See Notification No SRO 83 (KE) 2007 dated 4.10.2007: The text of the aforesaid Notification reads as under:-

"In exercise of the powers conferred by sub-section (3) of section 1 of the Anti-Money Laundering Ordinance 2007 (XLV of 2007), the Federal Government is pleased to appoint the 4th day of October, 2007, as the date on which the said Ordinance shall come into force."

2. AMLO was issued as a presidential ordinance in exercise of the extraordinary powers assumed by the president pursuant to the Proclamation of Emergency of 3rd November 2007. According to Article 89 of the Constitution of Pakistan 1973, all ordinances must be introduced in the National Assembly as a bill and are automatically repealed at the expiration of a period of four months from their promulgation. By virtue of the Constitution (Amendment) Order (2007), the President amended the Constitution and Article 270AAA was introduced. This amendment validated all the ordinances issued under the Proclamation of Emergency notwithstanding anything contained in the Constitution. It also provided that such ordinances shall continue in force until altered or repealed or amended by the competent authority. The Constitutionality of the Constitution (Amendment) Order 2007 was challenged and the Supreme Court in the case of Tika Iqbal Muhammad Khan vs General Pervez Musharraf, PLD 2008 SC 178 upheld the constitutionality of the Order including Article 270AAA. However, in the case of Sind High Court Bar Association v Federation of Pakistan: PLD 2009 SC 879, the judgement given in Tika Iqbal Muhammad Khan's case was declared unconstitutional as a result whereof Article 270AAA stood deleted from the Constitution and consequently the Ordinance issued by the then Government of Pakistan were declared to remain operative within the framework of Article 89 and 128 of the Constitution, ie the Ordinance were to be validated by the parliament within the specified period. However, keeping in view the extraordinary circumstances, these laws were given a temporary lease of life up to 31.7.2009 by the Supreme Court through its judgement passed in the Sind High Court Bar Association supra, and there after the government was directed to get these laws validated from the parliament within a period of 4 months. As a consequence Constitution 18th Amendment Act, 2010 was passed which authenticated actions of President Pervez Musharraf taken during 12-10-1999 through 31-10-2003 under Article 270AA(2) of the Constitution, all subsequent law/ordinances did lost their authority after 31-11-2009. Consequently, the government enacted the Anti-Money Laundering Act, 2010 and the new law came into force with effect from March 27, 2010.

3. The Anti-Money Laundering Act, 2010 came into force on March 27, 2010, see Notification no. F9(4)/2010-Leqis dated 27-3-210.

4. See Notification No SRO 02 (KE) 2009. Under Section 46 of AMLA, the existing rules have been validated.

5. Section 2(1)(a), the Anti-Money Laundering Act, 2010: "Attachment" means prohibition of transfer, conversion, disposition or movement of property by an order issued under section 8.

6. Id. Section 2(1)(c). "CTR" means report on currency transactions exceeding such amount as may be specified by the National Executive Committee by notification in the official gazette.

7. Id. See Section 2(1)(f), "financial institution" includes any institution carrying. on any one or more of the following activities, namely:-

i) acceptance of deposits and other repayable funds ,from the public;

ii) lending in whatsoever form;

iii) financial leasing;

iv) money or value transfer;

v) issuing and managing means of payments including but not limited to credit and debit cards, checks, travelers checks, money orders. bank drafts and electronic money;

vi) financial guarantees and commitments;

vii) trading in-

(a) money market instruments;

(b) foreign exchange;

(c) exchange, interest rate and index instruments;

(d) transferable securities; and

(e) commodity futures trading;

viii) participation in shares issues and the provision of services related to such issues;

ix) individual and collective portfolio management;

x) safekeeping and administration of cash or liquid securities on behalf of other persons;

xi) investing, administering or managing funds or money on behalf of other persons;

xii) insurance business transactions;

xiii) money and currency changing; and

xiv) carrying out business as intermediary.

8. Id. See Section 2(1)(i). "Foreign serious offence" means an offence -

i. against the law of a foreign State stated in a certificate issued by, or on behalf of, the government of that foreign State; and

ii. which, had it occurred in Pakistan, would have constituted a predicate offence.

9. Id. See Section 2(1)(h). "FMU" means the Financial Monitoring Unit established under section 6.

10. Id. See Section 2(1)(n). "Non-financial business and professions" means real estate agents, jewelers, dealers in precious metals, precious stones, lawyers, notaries and other legal professionals, accountants, trust and company service providers and such other non-financial businesses and professions as may be notified by the Federal Government.

11. Id. See Section 2(1)(0). "Offence of money laundering" has the meaning as defined in section 3.

12. Id. See Section 2(1)(p). "Person" means an individual, a firm, an entity, an association or a body of individuals, whether incorporated or not, a company and every other juridical person.

13. Id. See Section 2(1)(q). "Proceeds of crime" means any property derived or obtained directly or indirectly by" any person from the commission of a predicate offence or a foreign serious offence.

14. Id. See Section 2(1)(r). "Property" means property or assets of any description, whether corporeal or incorporeal, movable or immovable, tangible or intangible, and includes deeds and instruments evidencing title to, or interest in, such property or assets, including cash and monetary instruments, wherever located.

15. Id. See Section 2(1)(y). "Suspicious Transactions Report" means the report on suspicious accounts transactions specified under section 7.

16. Id. See Section 2(1)(z). "Transfer" means sale, lease, purchase, mortgage, pledge, gift, loan, or any other form of transfer of right, title, possession or lien.

17. Id. See Section 2(1)(s). "Predicate offence" means an offence specified in the Schedule to this Act.

18. Id. See Section 6 of the Act read with Notification No SRO 84(KE)/2007 dated 4.10.2007.

19. Id. See Section 6(4).

20. Id. See clause (K) of Section 2.

20A. Id. See Section 7, as per FE Circular No 1 dated 6.1.2012. The State Bank of Pakistan (SBP) has directed all the exchange companies (EC) to meticulously follow the requirements of Anti-Money Laundering (AML), Countering Financing of Terrorism (CFT) regime by submitting Suspicious Transaction Reports (STRs) and Currency Transaction Reports (CTRs) manually or electronically as per Section 7 of AML Act, 2010, directly to the Financial Monitoring Unit (FMU). Section 33 of the AML Act 2010, inter alia, specifically provides for criminal sanctions on failure to file required reports and for providing false information. In case any EC is found to be in violation of legal requirements, a simultaneous regulatory action shall be initiated against concerned EC and officials involved as per rules, which may result, among others, in suspension, cancellation of licenses of the concerned company.

21. Id. See Section 7.

22. A person is guilty of offence: a) acquires, converts, possesses or transfers proper knowing or having reason to believe that such property is proceeds of crime b) renders assistance to another person for the acquisition, conversion, possession or transfer of, or for concealing or disguising the true nature, origin, location, disposition, movement or ownership of property, knowing or having reason to believe that such property is proceeds of crime, or participates in association, conspires or commits, attempts to commit, aids, abets, facilitates on conceals the acts of crime.

23. Id. See section 4.

24. Id. See Section 8.

25. Id. See Section 9.

26. Id. See clause (b) of sub-section (3) of section 9.

27. Id. See section 9(6).

28. Id. See Section 10.

29. Id. See Sections 13, 14, 15, and 16.

30. Id. See section 20.

31. Id. See Section 21.

32. Id. See Section 23. An appeal can be filed within a period of 60 days from the date of communication of the decision or order.

33. Id. See Section 32.

33A. Id. See Section 2(j).

34. Id. See Section 34.

35. Id. See Schedule to the Act.

36. Id. See Section 41.

36A. Id. Section 2(g). Act applies to offence under Section 15, 16, 32, 32A of the Customs Act, 1969 and the powers of search under Section 158 of the Customs Act, 1969 will be exercise-able in relation to offences of money laundering.

37. Id. See Section 2(s) and (w) read with schedule to the Act.

38. Id. See Section 37.

39. See regulation 3 of the Anti-Money Laundering Regulations, 2008.

40. Id. See regulation 4. As per Circular No 1 of 2012 dated 22-1-2012, Securities and Exchange Commission of Pakistan issued instructions to NBFC's, directing that: (a) NBFCs, being "Financial Institutions" under the Anti-Money Laundering Act 2010, are required to submit Suspicious Transaction Reports (STRs) and Currency Transaction Reports (CTRs), as per Section 7 of the AML Act, 2010, to the Financial Monitoring Unit (FMU). The standard templates for STRs & CTRs are part of the AML Regulations 2008, issued under the AML Ordinance 2007 and protected under the AML Act, 2010; (b) In this respect, NBFCs are advised to meticulously follow the requirements of the law, and report STRs and CTRs manually or electronically, as per Section 7 of AML Act, 2010, directly to the Financial Monitoring Unit (FMU); (c) It may be noted that Section 33 of the AML Act 2010, inter alia specifically provides for criminal sanctions on failure to file above mentioned reports and for providing false information. Furthermore, in case any NBFC is found to be in violation of above legal requirements, the regulatory authority may also revoke its license or registration or take such other administrative action as it may deem appropriate. The same directions were issued to Modarba Companies vide Circular No 20 of 2012.

41. Id. See regulation 7.

42. Id. See regulation 4 and Para 1 of Appendix 1.

43. Id. Para 2.

44. Id. Para 3.

45. Id. Para 4.

46. Id. Para 5.

47. Id. Para 6.

48. Id. Para 7.

49. Id. Para 8.

50. Id. Para 9.

51. Id. Para 10.

52. Id. Para 11.