The regulators have finalised some out-of-the-box regulatory measures to effectively deal with money laundering that, the local and international detractors claim, is still being carried out by the terrorist networks and other unscrupulous elements through the country’s stock markets.
British magazine The Economist being the latest one, the critics smell a rat in the intentions of Pakistani regulators who in January 2012 announced a two-year amnesty for the equity investors. The SECP-backed amnesty allows the market participants to buy stocks until June 2014 without divulging the source of funds, much of which is undocumented. The British weekly, in July 27 issue, reported that some people have characterised this amnesty as a gift to corrupt officials and criminals, a statement vehemently contradicted by the KSE management.
The apex and front regulators, respectively, at SECP and KSE though refute the claims that black money was being laundered through local bourses they agree that it is “impossible” to put a full stop to the anomaly. Nadeem Naqvi, Managing Director of Karachi Stock Exchange, does not rule out the possibility of money being laundered through the local stocks markets. “Theoretically, some money may have been laundered but we have no evidence of it,” Naqvi told Pakistan Today.
Even if it was, the MD said, the amount involved must be “negligible” in percentage. “In fact, it is impossible to stop the criminal minded people who would always manage to make their way,” he viewed and was quick to add “But, we can create deterrence against the irregularity to make those involved face the music.” Naqvi said the apex regulator, SECP, had long been striving to curb the scourge. Most prominently, the SECP had made it mandatory for every broker on the stocks market to know their customer.
Moreover, having already centralised the investors’ data at National Clearing Company of Pakistan Limited (NCCPL), the Securities and Exchange Commission of Pakistan (SECP) is now all set to axe the role of stocks brokers in the Know-Your-Customer procedures. “The SECP has initiated the process whereby the Know-Your-Customer procedure will be centralised at the NCCPL and taken out of the hands of brokers,” the managing director said.
He said the rules and regulations were finalised and the system software to launch this initiative was at an advanced stage of development. The completion deadline is the current fiscal year. About The Economist’s claims, Naqvi said the foreign weekly had over-emphasised the role of Jan 2012 amnesty. Also, he said, the magazine’s closing remarks that “you have been warned” were exceedingly unjustified and appeared to display a “discriminatory mindset”.
Also, the SECP, on May 8, 2012, clarified that the exemption in question was not available for income derived from a criminal activity under any other law for the time being in force.
“The provisions shall only be applicable under the Income Tax Ordinance, 2001 and does not bar asking source of income under any other law including Anti Money Laundering Act, 2010,” the Commission maintained. International watchdog like Transparency International-Pakistan (TIP) appears critical of the apex and front regulators’ role in curbing illegal activities on the equity market. “There are traders involved in insider trading but SECP instead of taking action is legalising all the negativity,” said Adil Gilani, TIP’s advisor. “The KSE management too is not acting as per NAB Act 1999,” Gilani claimed. Further, Aqeel Kareem Dhedhy, a business tycoon and chairman of AKD Group, tends to take grey areas like money laundering, insider trading and market manipulation, a bit lightly.
“It happens everywhere. We are so lenient in punishments. The rules should be stricter,” AKD suggested. The stocks broker criticised the elements responsible for removing the regulators who were trying to be fair. “The regulators who tried to be strict and fair were ruthlessly kicked out of the way,” claimed Dhedhy.
Money laundering via equity markets: A skeleton in regulators’ closet
