Pakistan Tackling FATF

Challenges & Solutions

Huzaima Bukhari, Dr. Ikramul Haq & Abdul Rauf Shakoori

“Since June 2018, when Pakistan made a high-level political commitment to work with the Financial Action Task Force (FATF) and Asia Pacific Group On Money Laundering (APG) to strengthen its Anti Money Laundering/Combating the Financing of Terrorism (AML/CFT) regime and to address its strategic counter-terrorist financing-related deficiencies, Pakistan’s continued political commitment has led to progress in a number of areas in its action plan, including: taking action to identify and sanction illegal Money or Value Transfer Services (MVTS), implementing cross-border currency and bearer negotiable instrument controls, improving international cooperation in terrorist financing cases, passing amendments to the Anti-Terrorism Act to increase the sanctioning authority, financial institutions implementing targeted financial sanctions and applying sanctions for AML/CFT violations, and controlling facilities and services owned or controlled by designated persons and entities.  

Pakistan should continue to work on implementing its action plan to address its strategic deficiencies, including by way of demonstrating: (1) that law enforcement agencies are identifying and investigating the widest range of Terror Finance (TF) activity and that TF investigations and prosecutions target designated persons and entities, and those acting on behalf or on the direction of the designated persons or entities; (2) that TF prosecutions result in effective, proportionate and dissuasive sanctions; (3) effective implementation of targeted financial sanctions against all 1267 and 1373 designated terrorists and those acting for or on their behalf, preventing the raising and moving of funds including in relation to Non-Profit Organizations (NPOs), identifying and freezing assets (movable and immovable), and prohibiting access to funds and financial services; and (4) enforcement against TFS violations, including in relation to NPOs, of administrative and criminal penalties and provincial and federal authorities cooperating on enforcement cases.

The FATF takes note of the significant progress made on a number of action plan items. To date, Pakistan has made progress across all action plan items and has now largely addressed 21 of the 27 action items. As all action plan deadlines have expired, the FATF strongly urges Pakistan to swiftly complete its full action plan by February 2021—Jurisdictions under Increased Monitoring–23 October 2020, Financial Action Task Force.

Terrorism and money laundering, intrinsically linked, have been posing considerable threat to our national security and financial viability, as is the case with many other nation States. All over the world terrorists have created an atmosphere of uncertainty and fear, while the international community for the last two decades, in the wake of ghastly tragedy of 9/11, has been struggling without much success to eliminate their financial lifeline—dirty money. This money is generated through legal and illegal sources. The illegal is concealed and laundered using existing legal financial facilities and unlawful financial networks. The terrorist networks cannot be dismantled, or even confined effectively, unless concerted efforts are made at national and international levels to block their financial sources.

A book, coauthored by us, Pakistan Tackling FATF: Challenges and Solutions, highlights critical shortcoming in our laws and their enforcement to counter terrorist financing, money laundering, tax evasion and all other financial crimes. It precisely pinpoints the weaknesses in the existing anti-terrorism, anti-money laundering, tax and other laws, contradictory provisions and policies coupled with faulty strategy and lack of a comprehensive plan to uproot these menaces. In the end, it also suggests a pragmatic model for not only coming out of the grey list of FATF but for our own survival, devise and implement a model countering all the threats against our national security.

Pakistan is one of the worst hit countries by terrorism, money laundering and tax evasion. The networks and individuals, many are Politically Exposed Persons (PEPs), engaged in these nefarious activities generate huge funds through organised criminal activities, rent-seeking and by getting generous donations and funding in the name of religion or politics from “sympathisers” in and outside Pakistan in violation of various laws of the lands (details are provided in Pakistan Tackling FATF: Challenges and Solutions).

The most recent horrifying and gruesome event of massacre of Hazaras working in a coal mine near the town of Mach, about 50 kilometer east of Quetta, on January 3, 2021, has once again proved that militant groups still have financial support, local patronage and capability to target the innocent citizens, even men in uniform, and posing formidable risk to stability required for growth and foreign investment with local entrepreneurs in joint ventures.

This all is happening when Pakistan is facing a daunting challenge to come out of 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 above.

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 also 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 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 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 polices, comprising ministers and organizational heads.
• General Committee– (GC) to assist NEC comprising secretaries and director generals.
• Financial Monitoring Unit– (FMU) to perform under GC & to receive STRs and CTRs.

Apart from the committees, 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, 2010.

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.  

The complete blueprint of Financial Crime Monitoring Bureau and National Prosecuting Agency have been communicated to Hammad Azhar, Federal Industries and Production Minister and focal person for FATF. In case, Pakistan fails to implement these, then with the present fragmented structures and the incompetent institutions to monitor AML/CFT as explained in ‘Pakistan’s Archaic Approach to Addressing FATF Mandates‘, Business Recorder, November 16, 2020, the FATF and world community will not take us seriously knowing how weak and incompetent as well as how discredited our existing institutions are, and the way these are used/abused for political victimisation and favouring/protecting the financiers of every ruling party and winning “supporters” for military dictators in the past.

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 Ms. Huzaima Bukhari, Advocate High Court and Visiting Faculty at Lahore University of Management Sciences (LUMS), is author of numerous books and articles on Pakistani tax laws. She is editor of Taxation and partner of Huzaima & Ikram, a leading law firm of Pakistan. From 1984 to 2003, she was associated with Civil Services of Pakistan. Since 1989, she has been teaching tax laws at various institutions including government-run training institutes in Lahore. She specialises in the areas of international tax laws, corporate and commercial laws. She is review editor for many publications of Amsterdam-based International Bureau of Fiscal Documentation (IBFD) and contributes regularly to their journals. She has to her credit over 1500 articles on issues of public importance, printed in various journals, magazines and newspapers at home and abroad.

She has coauthored with Dr. Ikramul Haq many books that include  Tax Reforms in Pakistan: Historic & Critical Review, Towards Flat, Low-rate, Broad and Predictable Taxes (revised & Expanded Edition, Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes, Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary andMaster Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).

The recent publication, coauthored with Abdul Rauf Shakoori and Dr. Ikramul Haq, is Pakistan Tackling FATF: Challenges & Solutions

available at:  https://www.amazon.com/dp/B08RXH8W46

She regularly writes columns for Pakistani newspapers and has contributed over 1500 articles on issues of public finance, taxation, economy and on various social issues in various journals, magazines and newspapers at home and abroad.

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Dr. Ikramul Haq, Advocate Supreme Court, specialises in constitutional, corporate and tax laws. He established Huzaima & Ikram in 1996 and is presently its chief partner as well as partner in Huzaima Ikram & Ijaz. He studied journalism, English literature and law. He is Chief Editor of Taxation andVisiting Faculty at Lahore University of Management Sciences (LUMS).

He has coauthored with Huzaima Bukhari many books that include Tax Reforms in Pakistan: Historic & Critical Review, Towards Flat, Low-rate, Broad and Predictable Taxes (revised & Expanded Edition,  Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes, Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary andMaster Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).

The recent publication, coauthored with Abdul Rauf Shakoori and Huzaima Bukhari is Pakistan Tackling FATF: Challenges & Solutions

available at:  https://www.amazon.com/dp/B08RXH8W46

He is author of Commentary on Avoidance of Double Taxation Agreements signed by Pakistan, Pakistan: From Hash to Heroin, its sequelPakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax. He regularly writes columns for many Pakistani newspapers and international journals and has contributed over 2500 articles on a variety of issues of public interest, printed in various journals, magazines and newspapers at home and abroad.

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Ms. Huzaima Bukhari, Advocate High Court and Visiting Faculty at Lahore University of Management Sciences (LUMS), is author of numerous books and articles on Pakistani tax laws. She is editor of Taxation and partner of Huzaima & Ikram, a leading law firm of Pakistan. From 1984 to 2003, she was associated with Civil Services of Pakistan. Since 1989, she has been teaching tax laws at various institutions including government-run training institutes in Lahore. She specialises in the areas of international tax laws, corporate and commercial laws. She is review editor for many publications of Amsterdam-based International Bureau of Fiscal Documentation (IBFD) and contributes regularly to their journals. She has to her credit over 1500 articles on issues of public importance, printed in various journals, magazines and newspapers at home and abroad.

She has coauthored with Dr. Ikramul Haq many books that include  Tax Reforms in Pakistan: Historic & Critical Review, Towards Flat, Low-rate, Broad and Predictable Taxes (revised & Expanded Edition, Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes, Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary andMaster Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).

The recent publication, coauthored with Abdul Rauf Shakoori and Dr. Ikramul Haq, is Pakistan Tackling FATF: Challenges & Solutions

available at:  https://www.amazon.com/dp/B08RXH8W46

She regularly writes columns for Pakistani newspapers and has contributed over 1500 articles on issues of public finance, taxation, economy and on various social issues in various journals, magazines and newspapers at home and abroad.

______________________________________________________________________________

Dr. Ikramul Haq, Advocate Supreme Court, specialises in constitutional, corporate and tax laws. He established Huzaima & Ikram in 1996 and is presently its chief partner as well as partner in Huzaima Ikram & Ijaz. He studied journalism, English literature and law. He is Chief Editor of Taxation andVisiting Faculty at Lahore University of Management Sciences (LUMS).

He has coauthored with Huzaima Bukhari many books that include Tax Reforms in Pakistan: Historic & Critical Review, Towards Flat, Low-rate, Broad and Predictable Taxes (revised & Expanded Edition,  Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes, Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary andMaster Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).

The recent publication, coauthored with Abdul Rauf Shakoori and Huzaima Bukhari is Pakistan Tackling FATF: Challenges & Solutions

available at:  https://www.amazon.com/dp/B08RXH8W46

He is author of Commentary on Avoidance of Double Taxation Agreements signed by Pakistan, Pakistan: From Hash to Heroin, its sequelPakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax. He regularly writes columns for many Pakistani newspapers and international journals and has contributed over 2500 articles on a variety of issues of public interest, printed in various journals, magazines and newspapers at home and abroad.

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Abdul Rauf Shakoori, Advocate High Court, is a subject-matter expert on AML-CFT, Compliance, Cyber Crime and Risk Management. He has been providing AML-CFT advisory and training services to financial institutions (banks, DNFBPs, Investment companies, Money Service Businesses , insurance companies and securities), , government institutions including law enforcement agencies located in North America (USA & CANADA), Middle East and Pakistan. His areas of expertise include legal, strategic planning, cross border transactions including but not limited to joint ventures (JVs), mergers & acquisitions (M&A), takeovers, privatizations, overseas expansions, USA Patriot Act, Banking Secrecy Act, Office of Foreign Assets Control (OFAC). Over his career he has demonstrated excellent leadership, communication, analytical, and problem-solving skills and have also developed and delivered training courses in the areas of AML/CFT, Compliance, Fraud & Financial Crime Risk Management, Bank Secrecy, Cyber Crimes & Internet Threats against Banks, E – Channels Fraud Prevention, Security and Investigation of Financial Crimes. The courses have been delivered as practical workshops with case study driven scenarios and exams to insure knowledge transfer. His notable publications are; Rauf’s Compilation of Corporate Laws of Pakistan, Rauf’s Company Law and Practice of Pakistan, Rauf’s Research on Labour Laws and Income Tax Etc. His articles includes; Revenue collection: Contemporary targets vs. orthodox approach, It is time to say goodbye to our past, US double standards., Was Due Process Flouted While Convicting Nawaz Sharif?, FATF and unjustly grey listed Pakistan, Corruption is no excuse for Incompetence, Next step for Pakistan,, Pakistan’s compliance with FATF mandates, a work in progress, Pakistan’s strategy to address FATF Mandates was Inadequate, Pakistan’s Evolving FATF Compliance, Transparency Curtails Corruption, Pakistan’s Long Road towards FATF Compliance, Pakistan’s Archaic Approach to Addressing FATF Mandates.

The recent book, coauthored with Huzaima Bukhari & Dr. Ikramul Haq is Pakistan Tackling FATF: Challenges & Solutions

available at:  https://www.amazon.com/dp/B08RXH8W46