Legal jigsaw and FATF

Updated 10 Aug 2020

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Amid political polarisation, Pakistan has to report by Sept 30 its compliance status on its international commitments in the fight against money laundering and terror financing to the Asia Pacific Group (APG), a regional affiliate of the Financial Action Task Force (FATF).

The APG had highlighted Pakistan’s legal weaknesses late last year, which are now being hurried through parliament. Of almost a dozen proposed pieces of legislation, parliament has passed three key laws namely Anti-Terrorism Bill 2020, United Nations (Security Council) Amendment Bill 2020 and Mutual Legal Assistance (Criminal Matters) Bill 2020. At least four notifications have been issued by the Financial Monitoring Unit (FMU) of the State Bank of Pakistan (SBP) for the regulation and issue of red-flag standards for accountants, jewellers, precious metal/stone dealers, lawyers, notaries, independent legal professionals and real estate operators.

The remaining nine proposed laws are still in the pipeline. The authorities concerned claim they have time until Aug 15 to complete the entire legislative process. Pakistan is already availing unexpected relief of about a five-month grace period because of Covid-19. Originally, it was required to submit its APG report by April 20 for a review in the third week of June. The government did not take full advantage.

The opposition blocked the most crucial law — Anti-Money Laundering Act 2020 — last week. But it will again be taken up today by the National Assembly’s standing committee on finance and revenue

Other proposed laws include a foreign exchange regulations bill, Islamabad Capital Territories (ICT) Trust Act 2020, ICT Waqf Properties Act, ICT Charities Regulation Bill, Code of Criminal Procedure 1898, Companies Act, Limited Liability Partnership Bill, Control of Narcotic Substances Act 1997 and Anti-Money Laundering Act (AMLA) 2020. On the basis of this legal framework, Pakistan’s performance will be judged in the next FATF plenary on Oct 18-23.

Most of these bills have been pending with parliamentary panels owing to, among other things, the non-availability of the adviser to the prime minister on finance and revenue even once over his 15-month stint. These panels even warned not to take up the government’s legislative business unless Dr Shaikh personally graced them with his presence. Months passed and finally the chairman of the National Assembly’s standing committee on finance Faiz Ullah of PTI threatened to resign if the adviser didn’t attend the next huddle.

Other members insisted the minister in-charge for finance (the prime minister) should be called instead. Dr Shaikh finally turned up last Friday and the committee cleared two of the three bills on the agenda.

The most crucial law — AMLA 2020 — was blocked last week by the opposition members. But it will be taken up again today (Monday) by the National Assembly’s standing committee on finance and revenue. The FMU has proposed a series of amendments to this law aimed at blocking money laundering in line with the 27-point action plan and 40 recommendations of the FATF and APG to meet international standards on anti-money laundering (AML) and countering the financing of terrorism (CFT).

In February, the Paris-based global watchdog against financial crimes gave Pakistan a four-month grace period to complete its 27-point action plan when it noted that Pakistan had delivered on 14 points but missed 13 targets. The completion of the ongoing legislative process is expected to cover major ground to that end by reflecting Pakistan’s resolve to strengthen its AML regime. The opposition wants the exclusion of National Accountability Bureau (NAB) from the purview of investigation and prosecution agencies fearing its misuse for political engineering.

Read: Beyond FATF

The proposed amendments identify AML/CFT regulatory authorities in Pakistan, including those for the designated non-financial businesses and professions (DNFBPs), and their powers and functions to issue licences and regulations and perform other ancillary functions.

The process for customers’ due diligence (CDD) has been explained in detail in the proposed amendments. The offence of money laundering is being made cognisable offence and the fine has been proposed to increase five times to Rs25 million. It is currently up to Rs5m. In case of legal persons, it may extend to Rs100m instead of Rs5m.

According to clause 7D of the AMLA, if a reporting entity is unable to complete CDD requirements, it will not open the account, commence business relations or perform the transaction, or will terminate the business relationship. Also, considering a suspicious transaction report in relation to the customer where the reporting entity raises a suspicion of money laundering or terrorist financing, and reasonably believes that performing the CDD process will tip off the customer, the reporting entity will not pursue the CDD process and will file a suspicious transaction report (STR).

Section 21(2) of the proposed amendments states the court will not take cognisance of any offence punishable under Section 4 except upon a complaint in writing made by the investigating officer or any officer of the federal government or a provincial government authorised in writing in this behalf by the federal government by a general or special order.

In case the accused is a reporting entity, the investigating officer or any other authorised officer will before filing such a complaint seek approval of the AML/CFT regulatory authority concerned, which will not withhold its decision for a period exceeding 60 days.

A National Executive Committee headed by the prime minister’s adviser on finance with ministers for foreign affairs, law and justice, interior and economic affairs division besides the central bank governor, chairman of the Securities and Exchange Commission of Pakistan (SECP), director general of military operations (DGMO), director general of the ISI and FMU secretary as members has been constituted, which will meet at least twice a year to make recommendations to the federal government for the effective implementation of the AMLA and frame a national policy to combat money laundering and financing terrorism.

The committee will also make recommendations to the federal government for the determination of offences existing in Pakistan that may be considered to be predicate offences for the purpose of the Act.

No bank or financial institution or any other entity providing financial support will provide any loan facility or financial support to the proscribed person or issue credit cards to them.

Published in Dawn, The Business and Finance Weekly, August 10th, 2020