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Huzaima Bukhari, Dr. Ikramul Haq & Abdul Rauf Shakoori
The claws of corruption have engulfed us, and its force is getting stronger with each passing day. Although the incumbent government came into power with the slogan of eliminating corruption, it has failed to bring about any positive change as Pakistan has lost seven points since 2018 on corruption perception index.
Pakistan has been identified as part of those “jurisdictions subject to increased monitoring” by Financial Action Task Force (FATF). Our stakeholders should have formulated policies and procedures to counter corruption as it is said to be one of the prime sources of money laundering [we also elaborated how to counter corrupt practices in last week’s column, Countering corrupt practices, Business Recorder, July 30, 2021]. Our law and order situation is deteriorating with the judicial system ranking among the bottom performing countries by the World Justice Project Report 2021. The efficacy of our quality of Anti-Money Laundering/Combating the Financing of Terrorism (AML-CFT) framework is rated as low vis-à-vis eleven immediate outcomes. Efforts related to bribery and corruption appear to be selective and limited to arm twisting of political opponents. No transparency is being observed in financial dealings and it appears that our law enforcement agencies and judiciary have extended exemption to the Prime Minster and his cabinet from accountability. It is evident from the fact that despite various scandals relating to corruption and violations of laws, no actions are being taken against the accused ministers. The opposition leaders and independent observers openly say that “the superior courts are facilitating them by issuing stay orders”.
It is pertinent to mention that Pakistan and the United States recently issued new laws to deal with Money Laundering and Terrorist Financing. Pakistan’s amended Money Laundering Act, 2010 through the Anti-Money Laundering (Second Amendment) Act, 2020 whereas the United States passed Anti-Money Laundering Act of 2020 [US AML Act 2020] enacted by the US Congress as part of the National Defense Authorization Act for Fiscal Year 2021. It places a variety of new anti-money laundering (AML) obligations on banks and other financial institutions. Many of these are of major significance for such institutions. Now if we compare both, it shows that US AML Act, 2020 addresses concerns related to national security, formalization of the risk-based approach, expanding the duties, powers, and functions of Financial Crimes Enforcement Network (FinCEN), supporting, and supervising regulatory agencies to achieve the extended purpose of banking secrecy, and the most significant additions which address the issue related to beneficial ownership reporting regime.
The USA AML Act 2020 discusses and lists as to what would be the national priorities to save their financial system from the illicit flow of funds. These national priorities include corruption, cybercrimes, including relevant cyber-security and virtual currency consideration, foreign and domestic terrorist financing, fraud, transnational criminal organization activity, human trafficking, human smuggling, and proliferation financing. Whereas, in comparison, if we critically analyse the changes introduced by Pakistan to the existing AML Act 2010, it appears that the stakeholders in Pakistan are not interested to introduce any solid changes to counter financial crimes in Pakistan.
The most disturbing aspect is that the overall AML-CFT framework revolves around the National Executive Committee on ML that is governed by the ministers. The Chairman Committee and some of the ministers are facing corruption charges as well as other crime-related allegations. The new amended law, instead of forming an independent authority having powers to deal with all types of financial crimes, has kept the control and power with them so that they can operate it as per their aspirations. Moreover, the new law does not specify any priorities except listing ambiguous procedures to deal with AML–CFT matters. There is neither any authentic procedure available regarding filing suspicious transaction reports (STR), nor does it mention who will identify threat patterns and trend information to educate the STR filing entities so that they can contribute towards countering the illicit flow of funds.
The question is what exactly is Pakistan’s planning to monitor and counter illicit flow of funds? We have no independent body which can deal with financial crimes and actively pursue matters related to foreign jurisdictions. Though we are trying to handle the issue through Financial Monitoring Unit (FMU), however, independence of this institution is allegedly questionable. Moreover, international institutions, including the US State Department, have already questioned in its 2019 report our ability to counter terrorist financing-related matters.
On the other hand, USA AML Act 2020 empowers the FinCEN by establishing special hiring authority and introduces new roles for local and international jurisdictions. The FinCEN foreign intelligence unit liaisons will be stationed at US Embassies or foreign government facilities to deal with AML-CFT related issues under National Defense Authorization Act for Fiscal Year 2021. Moreover, the USA AML Act 2020 focuses on the creation of Innovation and Technology committee and FinCEN in this regard is launching Innovation Hours Programme where they are inviting all the stakeholders including financial institutions, technology providers, venture capitalists, and other firms engaged in financial services to offer them an opportunity to discuss and showcase their innovative products, services and approaches designed to enhance AML and CFT efforts to provide new financial services to consumers and businesses.
On the contrary, Pakistan is still relying on orthodox approaches to address concerns of the international community. Recently, in June 2021, FATF handed over the new six-point action plan and demanded from Pakistan to investigate and prosecute targeted senior leaders and commanders of UN-designated terrorist groups.
In reply to this pledge, we were supposed to take strict actions against the persons involved in supporting terrorist activities, however, our ministers since the last meeting of FATF are trying to project the Taliban good image. Our Foreign Minister is impressed by their wisdom and considers them the only solution to stop Islamic Stater (IS), despite their brutality and inhuman behavior, whereas our Interior Minister is acting as their spokesperson, telling the world that their families are residing in outskirts of the Islamabad Capital Territory (ICT) and assuring the world that they have changed. It appears that we are not ready to accept the new trends. Our priorities are not aligned with our national interests. Our fast deteriorating law and order situation, compromised judicial system, and discredited national watchdogs have lost the trust within and outside the country.
Nobody believes in their investigation due to their political aspirations, therefore, seeking information from foreign jurisdictions has become a challenge for us. Whereas the USA through the USA AML Act 2020 extended powers to the Department of Justice (DOJ) and the Department of Treasury (Treasury) to subpoena foreign banks which are maintaining correspondent accounts in the US. Both departments, the DOJ and Treasury, can issue the subpoena for the record relating to any account held at the bank, including records maintained outside of the United States that do not relate to the US correspondent account. These extended powers are not only for AML-CFT related matters, but the information can be sought for any criminal investigation or civil forfeiture.
At a time when some international powers are already doubtful of our approach, this confused and passive approach towards menaces of ML/TF will serve no purpose and will undermine national interests at the global level. Foreign pressure, mounting foreign debt, and inflation are already adversely impacting our economy and at this time, we cannot afford any new international challenge. It is, therefore, imperative for the coalition government of Pakistan Tehreek-i-Insaf and all state functionaries to make appraisal of their words and actions. There must be cohesion among our legal framework, our actions, and our dealings if we want to be taken seriously in our efforts to meet ML/CFT challenges by international community and global watchdogs.
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Huzaima Bukhari & Dr. Ikramul Haq, lawyers and partners of Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS), members Advisory Board and Visiting Senior Fellows of Pakistan Institute of Development Economics (PIDE). Abdul Rauf Shakoori is a corporate lawyer based in the USA and an expert in ‘White Collar Crimes and Sanctions Compliance’. They have recently coauthored a book, Pakistan Tackling FATF: Challenges and Solutions.