Anti-money laundering and counter terror financing laws

  • How to implement in the practical sense?

At the end of June of this year, Pakistan was added to the “grey list” of countries deemed by the Financial Action Task Force as not yet having taken sufficient steps to thwart opportunities for money laundering and finance for terrorism, as defined by international conventions and regulatory requirements. An Action Plan was agreed with time-bound tasks corresponding to each of the weaknesses identified by FATF. Last week, Pakistan received a follow up cum pre-evaluation visit by a six-member delegation of the Asia Pacific Group (APG), the so-called “FATF-style regional body” responsible for our geographical region. Press reports of the visit have highlighted that the APG acknowledged that progress had been made since June, but work in key areas remained to be addressed prior to the Mutual Evaluation scheduled for October.

The FATF is an intergovernmental body established to combat money laundering, terror financing and other related threats to the integrity of the international financial system. Pakistan was added to the “grey list” of countries involved in providing monetary assistance to terrorism and related causes after a Financial Action Task Force meeting in Paris in June 2018. Terror financing involves collection of funds to support acts of terror or terrorist organisations. In financing terrorism, funds may come from legitimate sources, such as donations from the ordinary citizen, but the purpose has to be a crime.

The United Nation adopted the United Nations Convection Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (the Vienna Convention) in 1989, the Political Declaration and Action Plan Against Money Laundering in 1988, and The United Nation Convention Against Transnational Organised Crime in 2000. These international instruments call on states to outlaw the most common offences, including Money Laundering and terror financing and bind states for strict compliance.

There is an urgent need to consider the reservations of the group and take rapid steps in addressing the areas where it has identified problems

International requirements to enforce effective regulations for countering terror finance and money laundering often have an impact at the grass-root level, and are viewed to limit the space and capacity of civil society organisations to respond to disasters and emergencies. When such consequences occur, they are often referred to collectively as “shrinking operational space” or “shrinking humanitarian space”.

Charities and non-profit organisations (NPOs) perform a vital role in our society, providing relief and support to groups of the population in need, and at times of urgent crises. Unfortunately, charitable fund raising has also been used to provide cover for the financing of terrorism. FATF Recommendation 8 requires that the laws and regulations that govern non-profit organisations be reviewed so that these organisations cannot be abused for the financing of terrorism.

Pakistan needs to understand the money laundering and terror financing risks for the country, and should take action, including designating an authority or mechanism to coordinate actions to assess risks, and apply resources, aimed at ensuring the risks are mitigated effectively. There is a need to review national AML/CFT policies and designate that is responsible for such policies. Money laundering ought to be criminalised based on the Vienna Convention, and also criminalise terrorist financing on the basis of the Terrorist Financing Convention. It should be made mandatory for the financial institutions to maintain, for at least five years, all necessary records on transactions, both domestic and international, to enable them to comply swiftly with information requests from the competent authorities. Such records must be sufficient to permit reconstruction of individual transactions (including the amounts and types of currency involved, if any) so as to provide, if necessary, evidence for prosecution of criminal activity.

The Anti-Money Laundering Act 2010 and its supporting regulations provide a solid foundation to curb money laundering and terror financing activities in the country. Under this law, a high-powered National Executive Committee, comprising four ministers, governor of the State Bank of Pakistan and chairman of the Securities and Exchange Commission of Pakistan, amongst others, are fully empowered to develop an anti-money laundering and counter-terrorism financing (AML/CTF) strategy. Furthermore, according to Financial Monitoring Unit, website, there are 20+ relevant laws, three sets of regulations and 10 types of reporting formats and guidance notes to control and prevent money laundering and terrorism financing.

It’s crucial to understand that an effective AML/CTF regime can curtail money laundering and financing of terrorism crimes but the major weakness lies in the most important area, which relates to implementing rules and regulations on ground by the government itself. This is where information received from financial institutions need to be analysed and investigated. Those involved in money laundering and terrorist financing activities then need to be duly prosecuted and subjected to effective sanctions, including confiscation of proceeds of crime. We are pretty good in promulgating laws, drafting regulations and notifying guidance notes, all these efforts lose steam when it comes to enforcing them. The FATF review also highlighted that cross-border smuggling of cash in Pakistan remains one of the major areas where there has been no progress at all. Illicit funds may come from a variety of sources but at some point they have to change hands. That is where they need to be stopped and those involved need to be caught. And this is exactly where our failing has been.

Effective enforcement requires well-functioning institutions and a capable judicial system, which in turn depends on overall rule of law and state of governance.  Money laundering and related crimes in Pakistan have recently taken center-stage in political debates. Prime Minister Imran Khan in his maiden address to the nation announced that he will personally watch activities covered under the caption of money laundering.

There is an urgent need to consider the reservations of the group and take rapid steps in addressing the areas where it has identified problems. However, what the government needs to keep in consideration is the possibility of FATF-APG desire to get more specific commitments, including a crackdown on the organisations which have been involved in terrorist activities in the past. Apart from establishing a leak-proof legal framework to curb terror financing, the group will also want progress on actions against those banned organisations that are still operating under new or different names. These organisations are, in fact, FATF’s actual point of concern.

Towards enabling the latter, the National Commission for Human Rights (NCHR) is holding a seminar on 30th August, 2018 in Islamabad. Our aim is to set the ball rolling through enabling a cross-sectoral understanding of the inter-connectedness of international counter terror/anti-money laundering obligations under the FATF and their impact on operational space for grass-roots, social and economic development. It is our hope that the conversation which began on the 30th will facilitate the types of cross-sector relationships and contributions that will underpin the needed change.