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Tuesday, October 6, 2009

Analysis Of Pakistan's Anti-Money Laundering Bill

It is agreed that Pakistan needs to enact an Anti-Money Laundering legislation to comply with its international obligations and commitments. However, there is a growing consensus that the Anti-Money Laundering bill presently pending before the parliament be modified to accurately incorporate these obligations.
In the wake of post 9/11 counter-terrorism efforts, and a universal desire to eliminate financing opportunities for sponsoring acts of terrorism, it has become crucial for states to be able to keep track of any suspect transfers of money. This requires the assistance of financial institutions and most banks have already developed compliance departments with specific Anti Money Laundering (AML) contact points within such departments. However, Pakistan needs to enact a proper legislation for ensuring such compliance, and properly investigating, criminalizing and prosecuting money laundering offences
The enactment of an anti-money laundering law has been an agenda item at most top level meetings and Pakistan has been under pressure for the quick passage of the said law from western governments, loan granting institutions and other international forums such as the Financial Action Task Force (FATF) and the Asia Pacific Group (APG).
Furthermore, United Nation Security Council Resolution 1617, passed under Chapter VII of the UN Charter and therefore binding on all member countries, ‘Strongly urges all Member States to implement the comprehensive, international standards embodied in the FATF Forty Recommendations on Money Laundering and the FATF Nine Special Recommendations on Terrorist Financing’.
The Financial Action Task Force, an inter-governmental body whose purpose is the development and promotion of national and international policies to combat money laundering and terrorist financing, developed the Forty plus Nine Recommendations, which now form the benchmark for anti-money laundering initiatives and measures.
The AML bill is presently pending before the parliament for approval and the National Assembly Standing Committee on Finance & Revenue (“Committee”) has already been briefed by Mr. Omar Ayub Khan on the said bill earlier this month and the Committee has also made certain objections to the provisions so far discussed.
The Committee is likely to discuss the rest of the bill in the coming week and since the provisions of the bill are now under consideration and the text of the bill has been opened up by the Committee itself for discussion, the Research Society of International Law (RSIL) thought it appropriate to conduct a workshop for the stakeholders to highlight and discuss its concerns regarding the text of the bill. The said workshop was attended by representatives from 20 governmental, sub-state and financial organizations and a productive debate on the subject was thus initiated.
It is pertinent to mention that the said Committee has not yet been given any legal briefing on the bill as such. However, RSIL is likely to be invited by the Committee for a formal presentation on the bill.
Eminent lawyer and international law expert, Mr. Ahmer Bilal Soofi is of the opinion that the bill presently being debated in the Parliament travels far beyond the minimum requirements of compliance. According to him, the bill needs to be modified; otherwise, it shall create serious operational impediments which will even make the minimum compliance more difficult. Resultantly, at the end of the day, despite having made the law, the international community will view Pakistan as not seriously complying with anti-money laundering measures and obligations. Mr Soofi represented Pakistan in the UN General Assembly negotiations on the United Nations Convention against Corruption (UNCOC), which contained provisions on money laundering and also participated in the FATF/APG evaluation of Pakistan’s compliance.
Pakistan is not only obliged to adopt such policies under UNSC Resolution 1617, but there are other obligations under the UN Convention on Drugs, an obligation to provide Mutual Legal Assistance to requesting states, a strong international state practice in this respect under several UN Conventions and annual reporting of anti-money laundering measures by Pakistan under US Law. From another point of view, Pakistan, by virtue of being a developing country should strive to adopt anti-money laundering and terrorist financing policies in order to help, protect and build its economy.
In this regard RSIL considers that there is no need to create Special Courts on anti-money laundering, as proposed in the bill. The charge of money laundering should be framed either in the courts that try predicate offences or in general courts as a stand-alone charge. Other states have not encouraged setting up specialized anti-money laundering courts. Moreover, the FATF Recommendations do not require it, then why should Pakistan set up a parallel judicial system for prosecuting offences that are inherently linked with existing offences that are tried in existing courts?
Furthermore, under international requirements, money laundering should be prosecutable as a stand-alone crime without first convicting an offender for the predicate offence. The proposed law does not comply with this obligation.
RSIL maintains that the definition of money laundering in the proposed bill is also flawed. The correct definition is found in the Vienna Convention or the Palermo Convention. The said definitions are approved by FATF. They calibrate the role of the main offender and the accomplice with the penal consequences, whereas, the definition in the present bill is unnecessarily wide.
RSIL also maintains that the bill must specifically exclude such remittances that are made for avoidance of income tax as fiscal offences are not included in the list of predicate offences. Furthermore, there is a need for a provision to clarify if the law will be applicable to money laundered prior to its coming into force.
The existing bill formulates a complex and a confusing regime, both for rendering assistance and to obtain assistance in money laundering investigations and prosecutions. We are of the view that the said provisions be replaced with provisions similar to the one on mutual legal assistance found in article 46 of United Nations Convention Against Corruption and article 18 of United Nations Convention Against Transnational Organized Crime; as the same are considered to be accurate legislative formulations of the MLA regime.
RSIL team is of the view that the Financial Monitoring Unit (FMU), being created under the proposed bill, which will be authorized to receive reports on suspicious financial transactions from the banks, has been given unnecessary wide powers of summoning, production of record and conducting investigation. Hardly any other state has done so. FATF Recommendations also do not require this. Therefore, the investigative powers of the FMU should be withdrawn and the bill be modified accordingly, otherwise, this will have serious implications for banks and other financial institutions in the country in terms of compliance and reporting requirements. Investigation should only be the domain of the prosecuting agency that has a functional link with the predicate offence.
Moreover, most of the provisions of the existing bill have been copied from the flawed Indian law titled ‘The Prevention of Money Laundering Act’ passed in 2002. While, there is no harm in copying good provisions from Indian legislations on the same subject, this particular Indian law has not generally been accorded approval internationally and has in fact faced criticism at international forums such as the Asia Pacific Group (APG), especially during the 2005 APG conference in Australia.
It is RSIL’s position that an anti – money laundering law must be passed soon because Pakistan, under international law, is obliged to do so. In this regard Specific Recommendations of Financial Action Task Force (FAFT) are to be implemented within Pakistan through compliance divisions of financial institutions and other regulatory measures. In summary, RSIL’s position is that the bill must be corrected and suitably modified so that it ensures smooth implementation of anti-money laundering measures in Pakistan.
The author is a practising Barrister and Executive Director of the Research Society of International Law (RSIL) Pakistan. He can be reached at
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