FATF: challenges & solutions—II

This all is happening when Pakistan is facing a daunting challenge to come out of FATF’s grey list since 2018. The deadline given by FATF is fast approaching and we have much to do yet to show progress on six areas pointed out in the report quoted in first part of this article.

In the presence of numerous departments and law enforcement agencies, the terrorist networks are still receiving on daily basis substantial amounts through hundi and hawala, even through benami (fake) accounts as section 111(4) of the Income Tax Ordinance, 2001 says no question will be asked if amount up to Rs. 5 million in a tax year is received through normal banking channels. They use multiple accounts and transaction amounts run into billions.

In addition to funding from outside, the terrorist and criminal networks get millions as extortion money, ransom for kidnapping, and proceeds from drug trafficking and dealing in arms. Many of them are even getting funds through normal banking channels in benami (fake) accounts. The inadequate reporting of such transactions by banks to Financial Monitoring Unit (FMU) established under section 6 of the Anti-Money Laundering Act, 2010 [MLA 2010] should be a serious cause for concern for all. The State Bank of Pakistan (SBP) as a regulator has somehow failed to enforce MLA 2010 where fake accounts are opened and used. The banks are not diligently generating Suspicious Transaction Reports (STRs) and Cash Transaction Reports (CTRs). In foreign currency accounts, protection is still provided under section 9 of the Protection of Economic Reforms Act, 1992 to “bona fide” transaction, a vague term that is vulnerable to abuse.

Prime Minister Imran Khan formed a high-powered 12-member committee in February 2020 to ensure execution of all FATF-related tasks till December 1, 2020. This high-level committee could not contribute enough to execute FATF agenda. However, its recommended amendments in the AML 2010 have created more confusion and complications. The amended AML 2010 is aimed to address the reservations of global community regarding AML-CFT. However, the very idea of controlling and monitoring AML-CFT-related matters through multiple bodies and committees with people from different ministries and departments has made the system more vulnerable as all these committees are said to have been headed by the PEPs or persons related with them, who have influence over the law enforcement agencies.

The introduction of multiple administrative bodies for execution and implementation of AML/CTF regulations have prima facie overlapped roles such as:

• National Executive Committee – (NEC) to make policies, comprising ministers and organizational heads.

• General Committee – (GC) to assist NEC comprising secretaries and directors generals.

• Financial Monitoring Unit – (FMU) to perform under GC & to receive STRs and CTRs.

Apart from the committees, the concept of self-regulatory bodies is introduced for monitoring of Designated Non-Financial Business and Professions (DNFBPs). This power to their self-regulatory bodies to take penal action and to act as appellate authority is against the principle of independence and could lead to conflicts of interest.

The recent legislation for financial institutions and DNFBPs to maintain compliance management programme are as follows:

• Ministry of Finance under SRO 950(I)/2020,dated October 1, 2020 [AML/CFT Sanctions Rules, 2020] issued in exercise of the powers conferred by section 43 of the Anti-Money Laundering Act 2010 (Act VII of 2010) read with clause (h) of sub-section (2) of section 6A and clause (c) of section 6C of that Act.

• Federal Board of Revenue (FBR) vide SR0 924(1)/2020 [Federal Board of Revenue Anti Money Laundering and Countering Financing of Terrorism Regulations for DNFBPs, 2020] issued on September 29, 2020 in exercise of powers conferred under section 6A of the Anti-Money Laundering Act, 2010 (VII of 2010) read with clause 1(iii) of Schedule IV to the said Act.

• FBR vide SRO 1319(I)/2020 [DNFBPs (Regulatory Powers and Functions) Regulations, 2020] on December 10, 2020 under section 6A of the Anti-Money Laundering Act, 2.

All the above Rules/Regulations are faulty, as discussed in detail in the book [Pakistan Tackling FATF: Challenges and Solutions], both in terms of drafting and concept of reporting through a reliable and independent method. For example, “non-financial businesses and professions” in terms of section 3(2)(m) of AML 2010 as amended up to February 2020 means “real estate agents, jewelers, dealers in precious metals and 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”. However, in the above cited Rules and Regulations, the lawyers are not covered at all.

The way forward suggested to satisfy the main condition of FATF and at the same time facilitate our corresponding banking transactions is establishment of a single, national-level “Separate Regulatory Entity” through special enactment which should have its independent board, resources and operations. This Separate Regulatory Entity [say, Financial Crime Monitoring Bureau] should act as autonomous and apex watchdog for AML/FT, and all other financial crimes, including tax evasions and frauds by staff of tax agencies. The Financial Crime Monitoring Bureau of Pakistan [complete structure is provided in Pakistan Tackling FATF: Challenges and Solutions] must collect and pass incontrovertible evidence to an independent and competent Pakistan National Prosecuting Agency to take the offenders to task in special speedy trial courts where judges have expertise in AML-CFT laws to deliver judgements swiftly but following Article 10A of the Constitution of Islamic Republic of Pakistan.

(Concluded)

(The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS))

Copyright Business Recorder, 2021