Huzaima Bukhari, Dr. Ikramul Haq & Abdul Rauf Shakoori
The Financial Action Task Force (FATF), as an inter-governmental and international watchdog body, is playing an important role to protect our financial system from those who intend to pollute it. The organization works with an objective to identify the jurisdictions which pose higher risk to the global financial system and work with them to strengthen their framework in line with the global standards established by the international community.
The FATF through its recommendations not only introduced a uniform standard to monitor the flow of funds but its sector-specific guidelines are playing a key role for the global regulators and financial institutions to streamline their affairs to curb the movement of illicit flow of funds. Apart from the FATF, role of other organizations such as European Commission, the Egmont Group, the International Monetary Fund, the Organization of American State Department against Organized Transactional Crimes, the Organization for Economic Co-operation, and development (OECD) for its remarkable work against tax evasion, the World Bank and World Custom Organization etc. are playing incredible role to minimize the threats of money laundering and terrorist financing.
Though the laws and regulations to deal with traditional crimes are already in place in various countries and their law enforcement agencies played an important role in their implementation. However, the FATF is going one step ahead to curb money laundering through environmental crimes. The FATF’s report on ‘Money Laundering from Environmental Crimes’, released in July 2021 is very comprehensive and not only identifies the areas exposed to money laundering but also provides a comprehensive definition of environmental crimes, financial flows of proceeds generated through environmental crimes, discuss challenges and good practices in disrupting Money Laundering from environmental crimes including potential risks for this area.
The report terms illegal extraction and trade of forestry and mineral to illegal land clearance and waste trafficking as an environmental crime and talk about the role of shell/shelf and front companies’ in trade-based frauds. The report also strengthens the understanding of money laundering risks from illegal logging, illegal mining and waste trafficking and shed light on the movement of financial flows generated through waste trafficking due in part the lack of existing money laundering cases for these crimes.
As per the report, Environmental Crimes are the most profitable proceeds-generating activity in the world and approximately US$ 110 to 281 billion are generated through criminals from this sector. As per the estimates of World Bank, the governments lose between US$ 6 to 9 billion annually in tax revenue from illegal logging alone. The share of Illegal mining is around US $12 to $48 billion a year whereas value of illegal gold production is estimated at U.S $84 million in 2005 to over 1 billion in 2014 whereas illicit waste trafficking generates estimated US$ 10-12 billion annually.
The FATF has recently observed that most countries have not considered the money laundering (ML) risks posed by environmental crimes within their national risk assessments and since the area is considered low risk with a high rate of return for money launderers, therefore, they exploit it without fear of being caught. Moreover, this sector is not regulated properly; therefore, they always take advantage of fragile regulatory framework globally. The FATF wants to make sure that every country has to identify priority actions at a domestic and international level to combat the illicit flow of funds generated through environmental crimes.
Pakistan, as member of the Asia Pacific Group (APG) since 2000, is currently working with the FATF and APG to address the strategic deficiencies identified by the global watchdog in 2018. Pakistan is struggling to deal with traditional ways of money laundering and terrorist financing. However, there are not enough efforts being made to address the concerns related to environmental crimes. Though Pakistan treats environmental crimes as predicate offences, but there is no specific definition available to differentiate environmental crimes from the illegal wildlife trade crimes.
The FATF’s report categorically states that money laundering from select environmental crimes which include illegal logging, illegal land clearance, illegal mining, and waste trafficking due to significant criminal gains involved, and their convergence with other serious crimes. Nevertheless, the project team has taken an inclusive approach in defining the scope of each of these crimes to recognize differences in their interpretation across countries.
- Illegal Logging; includes the harvesting, processing, transporting, buying, or selling of timber in contravention of domestic and international laws.
- Illegal land clearing refers to the illegal acquisition and clearing of land either for farming, building or real estate speculation.
- Forestry crime is an umbrella term to describe criminal activity in the forestry sector covering the entire supply chain, from harvest and transportation to processing and selling, including illegal logging and land clearance.
- Illegal mining refers to mining activity that is undertaking without state permission (in absence of land rights mining license and exploitation or mineral transportation permits), or mining activity with state permission obtained through corruption.
- Waste trafficking includes the illegal export and/or illicit disposal of electronic waste (e-waste) plastics, and hazardous substances, among others.
Now if we compare the definition and explanation of each activity which lead to environmental crimes with our existing regulatory framework and activities with reference to illegal logging, illegal land clearing, forestry crime, illegal mining and waste trafficking, it shows that we are completely silent about this issue. The alarming part is that Khyber Pakhtunkhwa (KP) is the most affected part of Pakistan which is heading to deforestation due to illegal logging and complicity of local officials. According to GLOBAL FOREST WATCH Pakistan lost 9.68kha [‘kha’ is measurement unit: kilo/hectare per annum] of trees from 2001 to 2020. The ratio of deforestation through illegal logging is increasing day by day. However, our concerned authorities have no strategy to stop this illegal act. It is pertinent to mention here that since the FATF identified the areas of environmental crimes and treatment of cash flows in result of this illegal activity and demanded all the jurisdictions to implement the rules and regulations to combat money laundering through this source, our responsibility has multiplied. We have address the existing action plan as well as frame laws and regulations to deal with environmental crimes as well.
We must be cognizant of the fact that in current times this has evolved into large-scale organized crimes and authorities should be treated as a serious crime and not small-scale localized activity without any transnational implications. It is an ideal time for Pakistan to introduce laws and regulation in the light of FATF standards, criminalize money laundering for a range of environmental crimes as required by the FATF in their report. Pakistan should improve its understanding toward applying risk based approach and introduce guidelines which will help the concerned industries to identify, detect and mitigate potential risks of money laundering and terrorist financing. The Design and implementation of laws and solutions to this challenge must be crafted intelligently with consideration to direct and indirect impacts on communities, and providing opportunities to promote alternative livelihoods.
Pakistan may require inputs from non-traditional AML/CFT stakeholders, such as environmental crime and protection agencies, or authorities responsible for forestry or mining concessions and should also engage private sector by issuing comprehensive guidelines so that they should be aware about the potential risks, preventive measures and could report suspicious activity immediately. It must be ensured that AML/CFT authorities, including financial intelligence units, have sufficient powers and operational capacity to investigate and trace assets from environmental crimes. We still lack skilled work force in our law enforcement agencies as highlighted by APG in its 2019 Mutual Evaluation Report , relating to ML/CFT.
Pakistan needs to fully comply with FATF;s standards by engaging a highly skilled workforce which will at one hand help to detect, identify and mitigate sector specific risk and on the other hand train our law enforcement agencies with modern investigative techniques so that they could trace, confiscate and criminalize assets across Pakistan as required in a FATF report. Failure to comply with FATF standards on environmental crimes will increase our period of stay in the list of jurisdiction with increased monitoring. We have already wasted three years in complying with initial action plan and failed to execute it. Another one-year plan is comparatively difficult. Though we have a deadline for June 2022 for review of our entire action plan, however, by that time the FATF will also review our progress with reference to environmental crimes as well and failure for its compliance will bring us further embarrassment. This aspect has not been given due attention to our National FATF Secretariat.
Role of Judiciary is pivotal in establishing an enabling business environment that is based on supply chains for products that are traded legally. The honorable Judges of higher courts must read the FATF Report, Money Laundering from Environmental Crimes, while deciding cases with reference to illegal acquisition of land must keep in mind the definition of environmental crimes and explanation of illegal land clearing. The observations and comments in report by World justice project and Mutual Evaluation Report Pakistan October 2019 by the APG about our judiciary are concerning for every Pakistani. It is a high time for them to play a role in their image building by improving their understanding of money laundering and terrorist financing related matter so their decisions should be based on the law not striking deals with the land grabbers as they did in the past and siding with them now. The continuation of this practice will not serve any purpose but will bring further embarrassment for us in future reviews by the international organizations as well as the FATF.
Ms. Huzaima Bukhari, MA, LLB, Advocate High Court, Visiting Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE), is author of numerous books and articles on Pakistani tax laws. She is editor of Taxation and partner of Huzaima & Ikram and Huzaima Ikram & Ijaz, leading law firms 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 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/enlarged edition of December 2020), 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/articles/papers for Pakistani newspapers and international journals. She has contributed over 1500 articles and research papers 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, media, IT, intellectual property and international 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. He isVisiting Faculty at Lahore University of Management Sciences (LUMS) and member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE).
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 (revised/enlarged edition of December 2020), 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/article/papers 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.
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