Weak anti-money laundering regime

Curbing money laundering is one of the two main pillars of 40 points action plan of the Paris based Financial Action Task Force which has grey-listed Pakistan for the second time for its inability to tighten the anti-money laundering and counter terror financing laws. A short leash until September next year has been given to implement the action plan for removing Pakistan from the grey-list. Money laundering on large scale was facilitated by the first PML-N government with their so called economic reforms act.

The Prime Minster has called for a new legislation to be finalised within a week’s time to effectively deal with the offenses related to money laundering and further strengthening the existing laws to curb Hawala, Hundi and other illegal or corrupt practices that are negatively impacting the economy and has dinted the image of the country abroad. The decision was taken during a high level meeting at the Prime Minister’s office. It was decided during the meeting that State Bank of Pakistan being regulatory authority in the banking sector would take action in facilitating fake bank accounts. The SBP had failed to implement the prudential regulation framed for this purpose because it was subservient to the Finance Ministry in previous two governments and in the present government as well. It must be given the autonomy that was taken away in the governments of PPP and PML-N, rather it must further strengthened. Necessary amendments would be introduced in existing laws including the Anti-Money laundering Act 2010 to further strengthen them for effectively dealing with the cases of money laundering.

The SBP has already has already begun a crack down against criminals working in the formal payment system and branchless banking system to mitigate the risks of money laundering. But the leadership of opposition parties, particularly, PPP does not seem to be happy with intended measures of curbing money laundering through fake bank accounts. Former President Asif Zardari who is being questioned by JIT for such accounts defended this illegal activity for running business enterprises. He said that businessmen do open fake bank accounts. The PTI government is serious to eradicate the menace of money laundering by amending the existing Anti-Money laundering Act but will it be able to do it with a slim majority in the National Assembly? The opposition parties command majority in Senate. Presently, the government is largely relying on regulatory measures by the SBP and administrative measures by the attached organizations of the Ministry of Interior and provincial law enforcing agencies.

The central bank has issued a notification emphasising that it is imperative that any person (s) linked to any criminal activity should not become a part of financial institution as well as payment system operators. The central bank has asked 25 questions from all people serving in any capacity in payment system to check whether they have criminal record or have conflict of interest in the payment system. The questions also include whether they have remained associated with banned organisations, faced any criminal charges, held dual nationality, defaulted on tax payments, served at exchange companies and possessed membership of stock market. These individuals have to answer the question in yes or no. If the answer comes in affirmative, then respondents have to give details in writing. The new instrument came from the SBP after the recent warning from the Asia Pacific Group (APG), a subsidiary of Financial Action Task Force that Pakistan did not fully comply with 33 out of 40 regulations for improving the payment system. The APG team had not been impressed by the progress made so far in curbing money laundering and terror financing and had asked to do more so that it may get out of grey-list of FATF. Apparently the group found the institutional framework weak. The APG delegation had feared that the set up installed for scrutinizing the activities of non-profit organisations, brokerage houses, exchange companies, and donations of corporate entities—registered under companies act—was not robust enough.

The APG had believed that even areas where legal framework appeared vigorous, the implementation mechanism was not geared up to track down the financial inflows of entities in question because involved were not connected. The provisions of UN Security Council’s resolutions numbering 1267 and 1373 are binding on all member countries and it is in the larger interest of the nation that opposition parties must extend support in the parliament to the government to amend the Anti-Money laundering Act of 2010 and also necessary legislation for granting autonomy enabling it to function as a strict regulators to curb criminal activities that facilitate money laundering.



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