Money Laundering In Pakistan || History of Money Laundering In Pakistan || Effects of Money Laundering In Pakistan || money laundering in pakistan In Urdu || Money Laundering Cases In Pakistan || Anti Money Laundering In Pakistan

Money Laundering In Pakistan || History of Money Laundering In Pakistan || Effects of Money Laundering In Pakistan || money laundering in pakistan In Urdu || Money Laundering Cases In Pakistan || Anti Money Laundering In Pakistan

 

 

 

Money Laundering In Pakistan 

Money Laundering:    Part 1
Money Laundering means the process whereby the identity of “dirty money” representing the proceeds of crime is changed (washed) through apparently legitimate transactions and processes so that money appears to have originated from a legitimate sources.

Goals of Money Launderers Need to conceal the true owners and origin of the money
 Need to maintain control over the money
 Need to alter the form of money to mask its origin

Dirty Money- Proceeds of Crime: Few Examples
 Money Obtained From
 Bribery, Corruption
 Narcotics
 Kidnapping
 Theft
 Fraud and Forgeries
 Counterfeiting Currency Notes or Bank Notes
 Terrorism

Money Laundering Process:
Proceeds of Crime ………… Process of Money Laundering (1. Placement 2. Layering 3. Integration)………………………. Laundered Asset

Stages of Money Laundering
 Placement – Introduction of funds in financial system
 Layering – Movement of funds to multiple accounts / Series of Financial Transactions
 Integration – Mixing the funds with legitimate proceeds

Stages of Money Laundering
 
1. Placement: Introduction of cash into financial System

 Opening of Bank Accounts in the name of relatives, friends, servants, etc. with the intention to hide the actual beneficial ownership of funds to be deposited (Benami Accounts);
 Purchase of financial instruments in the name of relatives, friends, servants, etc with the intention to hide the actual beneficial ownership (Benami COIs, TCs, Stocks,etc)
 Purchase of bearer certificates of investment: (Prize Bonds; FEBCs, Dollar Bonds, etc);

2. Layering: Multiple Transactions 
 
 Making several financial transactions
 Routing of deposits through multiple number of accounts
 Involving various financial institutions – Domestic & Abroad with a purpose to camouflage the original source & make it difficult to trail the funds.
 Funds used to purchase securities from one institution and sold through another
 Securities purchased from one institution placed as collateral with another institution
 Disguise the transfer as payment for goods and services

3. Integration: Injection of laundered money into the legitimate economy / Business
 
 Acquiring assets e.g., Business, firm, company, shares, securities, real estate;
 Mingling of Illegitimate proceeds with legitimate proceeds to give the appearance of legitimacy
 Structuring Cash Deposits: Breaking a large transaction into a number of smaller transactions
 To avoid AML Reporting Requirements
 To avoid suspicious of commercial activity
 Smurfing: Using a number of individuals (smurfs) to deposit the proceeds of crime into the financial system
 Transactions are usually structured
 Placements at different banks and branches
 Consolidated into one place
 International Smuggling of Cash: Physical transportation of large amount of cash across national borders by:
 Plane
 Boat
 human couriers
 International Smuggling of Cash – Purpose:
 Avoid anti-money laundering regulations or law enforcement intelligence in one country
 Move it to countries where there are less AML Controls and Enter into financial system
 Using the Cover of Legitimate Business
A money launderer purchases a legitimate business that has a large turnover of cash. The cash from legitimate business is merged with illegal proceeds before banking the proceeds
 Using the Cover of Legitimate Business
 Provides a degree of legitimacy
 Aids at the stage of integration
 Factors Identifying the use of legitimate business to launder money
 Sudden increase in volume of sales for business
 A comparison of revenue with similar other businesses in the area
 Wire Transfers
 Large volume of funds instantly transferred
 Ability to move funds through several jurisdictions and multiple bank accounts very quickly
Limited information on identity of originator / recipient


Alternative Remittance System
 ARS : Alternative Remittance System
Financial services operated outside of the mainstream financial sector, to transfer funds between different countries
 Mostly in Asia and Arabian Gulf
 Generally assist expatriate workers to repatriate funds to their families

Advantages:
 Cheaper and Faster than the International Banking System
 Confidence from long established cultural, historical and commercial practices
 Available outside normal banking business hours
No or minimal paper work
 Advantages:
 Funds can be received or sent to or from locations where banks do not exist
 Fees much lower than charged by banks
 Identity of the customers moving funds is hidden
 Why Criminals would use ARS?
 NO KYC
 No Records
 Authorities cannot trace
 No remittance actually takes place but the settlement is achieved through:
 A remittance
 Physical cash carrying
 Trade (invoice manipulation)
 Settlement through commodities other than cash
 Hawala / Hundi
 Originated in South Asia
 Spread to Europe, Middle East, Africa, America and Almost all regions of Asia
Estimated that 50% people in India use it despite prohibition in Law
 An Indian Broker receives Rupees from Indian Businessman who wishes to Invest in Dubai
 The Indian broker sends a fax to broker in Dubai instructing him to make payment in Dubai
 Dubai Broker collects cash from Indian expatriates working in Dubai
 Dubai Broker sends fax message to Indian Broker instructing him to make payments (family members of expatriates)
Difference is settled through a fund transfer, physical movement of cash or gold smuggling.


Trade Related Money Laundering
 International Commercial Transactions and Supporting Documents are used/manipulated to effect false transfer of value
 Generally used by Import / Export Businesses
 Why?
 Avoidance of Currency Controls
 Transfer of Funds Internationally
 Government Investment Incentives
 Most Commonly Used Methods:
 Over Invoicing
 Under Invoicing


Lawyers and Accountants
 Involvement in Complex Money Laundering Schemes
 Strengthening of AML/CFT Controls now require sophisticated schemes to launder money thus professional advice is needed

Professional Services offered by Lawyers:
 Legal Advice
 Property Transactions
 Investment Services
 Trust Formation and Trustee Services
 Company Formation and Administration
Nominee Directors and Shareholders

Professional Services Provided by Accountants
 Financial Advice
 Tax Advice
 Structuring
 Formation of Companies
 Trustee Services
 Introduction to Financial Institutions
Nominee Directors and Shareholders
 Professional Services used throughout Money Laundering Cycle
Accountants and Lawyers can assist Money Launderers during the Placement, Layering and Integration Stages of Money Laundering Cycle
Underlying Offences/ Predicate offences
 Participation in an organized criminal group and racketeering
 Terrorism including terrorism financing
 Trafficking in human beings and migrant smuggling
 Sexual exploitation including sexual exploitation of the children


Illicit trafficking in narcotic drugs and psychotropic substances
 Illicit arms trafficking
 Illicit trafficking in stolen and other goods
 Corruption and bribery
 Fraud
 Counterfeiting currency
 Counterfeiting and piracy of products
 Environmental crime
 Murder, grievous bodily injury
 Kidnapping, illegal restraint and hostage taking
Robbery or theft
 Smuggling
 Extortion
 Forgery
 Piracy
Insider trading and market manipulation


Underground Economy : EXEMPLE
ç The girlfriend of a narcotics trafficker by whom is discovered 100.000 € dissimulated behind the bath-tub
ç the trafficker and his girlfriend concubine pretend to be unaware of the existence of the money.
ç The hiring of the apartment is in the name of the girlfriend.
She lives on government welfare
Purchases of:
top-of-the-range vehicles
Hi-fi, jewellery,
Luxury Clothing, …
THE ANSWER: texts concerning the CRIMINAL ASSOCIATION AND THE JUSTIFICATION OF RESOURCES


Impacts of Money Laundering
Financial crimes oils the wheels of mass scale violent crimes – simple logic says that:
- More bank frauds and robberies – depositors? Borrowers?
- Corrupt practices in the public sector –bills? –taxes?
Macro economic consequences:
- Sudden change in money demand
- Risk to bank soundness
- Contamination effect on legal transactions
Volatility of capital flows and hence exchange rates
Risks to banks:
- Reputation: Negative perception- media- run on bank
- Operational: Staff- Systems and Procedures- imminent failure
Legal: Court proceedings and hence fines or imprisonment or both
Risks for the Financial Sector:
- Loss of profitable business
- Liquidity problems
- Termination of correspondent banking
- Investigations- fines- penalties
- Asset seizure
- Loan losses
- Decline in the stock value
If Money laundering is curse, why steps were not taken earlier?

Part-2

Most Prominent Fines for AML Non-Compliance

AmSouth Bank $10,000,000
$40,000,000
RIGGS Bank $25.0 Million
$16.0 Million
Korea Exchange Bank $1.1 Million
($32 Million – in transactions)
Western Union. $11.0 Million
Banco Popular de Puerto Rico $20.0 Million
Sovereign Bank $700,000
U.S. Trust Company $10,000,000 SARs –

Pakistan’s Perspective
>Cash based and undocumented Economy
> Lack of awareness/ political will
> Non-reporting of STRs by FIs.
> Protection to reporting institutions/ employees
>Compliance Units in FIs- not proactive
>Non-utilization of technology
>Fear of losing business
>Lack of inter-agency coordination

Legal Framework concerning AML/CFT
 Control of Narcotics Substances Act, 1997
 National Accountability Ordinance, 1999
 Anti-Terrorist Act, 1997
 UN (Security Council) Act, 1948
 Banking Companies Ordinance, 1962
 Foreign Exchange Regulations Act, 1947,
 Anti-money Laundering Ordinance, 2007

Anti-terrorism Act 1997
 Sections 11H to 11K under the Act are about Funding of terrorism
Funding of terrorism is a criminal offence under the Act. The offence extends to all aspects like inviting, providing, possessing, using, concealing, removing or transferring money or any other property intended to be used or suspected to be used for terrorism.
 Besides individuals, the Act creates criminal liability for organizations involved or suspected of involvement in terrorism
 The Federal Government is empowered to take action against organization including banning, freezing of assets, sealing its offices and seizure of its publications/ literature etc.
Forfeiture of assets with or without conviction available

Investigation of terrorist financing
 Federal Investigation Agency (FIA)- specialized Agency for white collar crimes has a Special Investigation Group (SIG) for investigation of terrorist financing.
 FIA is one of the agencies specifically nominated in AML Ordinance
 FMU has started sending STRs, prima facie, related to terrorist financing to FIA (SIG)
 FIA sends feed back and questions to regulators if there is, prima facie, negligence on the part of bank/ company
 The Federal Government has banned a number of organizations suspected of involvement in funding of terrorism under the Act.
 The bank accounts of organizations and individuals proscribed under the Act were immediately frozen by SBP
Special Anti-Terrorism Courts decide cases under the Act

Anti-money Laundering Ordinance, 2007 (AMLO)
 AMLO promulgated in September, 2007
 Criminalizes money laundering vis-à-vis major predicate offences ( 1-10 years with or without fine)
 Anti-terrorism Act is mentioned in the schedule
 Property involved in money laundering liable to be confiscated
 Provides for establishment of independent body- FMU in SBP or any other place
NAB, FIA & ANF to act as investigation agencies
 The Court of Session to take trial of money laundering- appeal before High Court
 Financial institutions are under reporting obligations – (STR, CTR)
 Protection to reporting institutions available
 Bank secrecy relaxed for money laundering investigations
 Tipping off is an offence
 Mutual Legal Assistance with contracting States
AML Ordinance is overriding law

Part-3

Overview of AML/CFT Regime in Pakistan

Existing Legislative Framework - General
 Pakistan Penal Code, 1860 (PPC)
 Main statue creating penal liability in respect of wide range of crimes
 Provisions for Search, freeze, seizure, arrest, forfeiture, etc
 Police empowered to investigate and prosecute
 Pakistan Criminal Procedure Code (Cr.P.C)
 Basic statute for criminal trials
 Provides- manner of investigation, search, seizure, conduct of trial, evidence, procedural rights of accused, nature and manner of conviction
Qanun-e-Shahadat Order, 1984 (Evidence Act)- Procurement, admissibility and recording of evidence

Existing Legislative Framework - Special
 The control of Narcotics Substances Act, 1997 (CNSA)
- Assets derived from narcotics proceeds come under the ambit of ML
- Provision to receive STRs from banks
- No explicit protection for reporting entities
- Provisions for search, seizure, forfeiture, investigation, prosecution, etc
- Mutual Legal Assistance / Extradition
Anti-Narcotics Force (ANF) is empowered to investigate and prosecute

National Accountability Ordinance 1999 (NAO)
 Assets derived from corruption come under the purview of ML
 Provision to receive STRs from Banks / FIs
- No explicit protection for reporting entities
 Provisions to call information from financial institutions and other individuals / entities
 Mutual Legal Assistance
 Search, seizure, voiding transfer, forfeiture, Investigation, Prosecution, voluntary return, plea bargain, etc
NAB is empowered to inquire, investigate and prosecute.

Anti-Terrorism Act 1997 (ATA)
 Criminalizes Terrorist Financing, Fund raising for terrorist activities, etc
 Proscribes Terrorist Organizations
 Criminalizes ML from Terrorism Proceeds
 Provisions for Search, Seizure, Forfeiture, investigation, prosecution, etc
FIA is responsible for investigations / prosecutions under ATA
 SRO Notifications under UN Security Council Resolution Nos 1267, 1333, 1373, 1390, 1455 & 1617
 Freezing of Accounts of individuals / entities under SRO Notifications being executed by SBP
 Approx Rs 622 M or US$ 10.38Million frozen
 SBP Regulation M-5 for reporting of STRs to SBP
 Buffer between Banks and Law enforcement agencies
No explicit protection for reporting entities

Existing Legislative Framework - Shortcomings
 Limited scope of AML Legislation- ML is a crime viz-a-viz three predicate offences i.e., Narcotics, Corruption and Terrorism
 Scattered regime of reporting STRs and also limited to few offences
 No Financial Intelligence Unit
 No protection on reporting STRs
 Limited Mutual Legal Assistance Provisions
Lack of coordination among Law enforcement agencies for effective implementation of AML/CFT regimes

Steps taken by SBP
Legal Framework • AML Ordinance 2007
• FMU
Regulatory Framework
Prudential Regulations
Monitoring & Enforcement
On-site inspection and off-site surveillance
International Obligations
UNSC Resolutions- Freezing of accounts
Curbing of Informal Value Transfers
Formation of Exchange Companies
Documentation of Economy
Restriction on RTCs – Bearer Instruments

Existing Regulatory Framework-SBP
 SBP is the regulator of Banks, DFIs and Exchange Companies
 SBP has issued Comprehensive Prudential Regulations / Directives on AML/CFT in line with FATF Recommendations and Best international Practices
 SBP has the mechanism in place to monitor the activities of entities
 Off-site Surveillance
 On-Site Inspection
 PR M1 – Know Your Customer (KYC)
 True identity, nature of business, beneficial ownership, due diligence of high-risk customers, etc
 PR M2 – AML Measures
 Ongoing monitoring of accounts, attention to complex / out of character transactions, trainings, etc
 PR M3 – Record Retention
 Minimum 5 years retention period
 PR M4- Correspondent Banking
 Cautious relationship with banks of weak KYC/CDD standards
 PR M5- Suspicious Transactions with Examples
 Reporting of STRs to SBP alongwith relevant info
 PR G-1D- Compliance Officer
 Appointment of senior level officer as compliance officer
 Other Measures taken by SBP
 Establishment of AML/CFT Unit
 Guidelines for Internal Control
 Lower Denomination Rupee Travellers Cheques
 Phasing out of Bearer Instruments
 Freezing of Bank Accounts
 Formation of Exchange Companies
 Liaison with Domestic /Regional / Global Bodies
 Training of Staff / International Conferences
 Introduction of Islamic Banking

Existing Regulatory Framework-SECP
 Establishment of AML/CFT Unit
 Issuance of Prudential Regulation on AML
 KYC/CDD, True Identity, nature of account, conduct of account in line with ethical standards, monitoring of accounts, etc
 No payment or receipt in cash beyond Rs 50,000/-
 Appointment of Compliance Officer
 Bar on Physical settlement of Shares

Proposed Legislative Framework
 Draft AML Bill criminalizes ML as an offence as per international standards covering all serious offences excluding fiscal offences as predicate offences
 Establishment of high powered National Executive Committee and General Committee to combat ML
 Establishment of Financial Monitoring Unit in SBP
 Explicit Protection to reporting entities
 Investigative Powers for IOs
 Mutual Legal Assistance Provisions
 Offences triable by Special Courts

Benefits of New Legislation
 Meets International Standards / requirements
 Compliance to UN Resolution 1617 and FATF Recs
 Compliance to APG Evaluation, CTC Reports, etc
 Establishment of FMU in SBP would ensure its professional management besides general superintendence
 Cognizance of ML offence
 Safe, Sound & Secured Financial System
 Eligibility for Membership to Egmont Group
 Increased Intelligence sharing with larger group of countries
 Increased International Cooperation through MLA
 Helpful in recovery of laundered assets stashed abroad.

Part-4

Financial Monitoring Unit (FMU)
 Receive STRs & CTRs from FIs
 Analyse the reports and call information from other agencies
 Refer those transactions needing investigation to LEAs
 Create & maintain databases and acquire analytical software and computer equipment
 Cooperate with other FIUs and foreign authorities to share and request information / documents
 Freeze property for 15 days

Future Measures
 Capacity building of SIG and trainings in financial investigation
 Enhanced cooperation and strengthening of FMU
 Amendments in AMLO to include “terrorist financing” for reporting as well as other purposes on the analogy of money laundering
 Capacity building and latest trainings at regulatory level to ensure banks and exchange companies are not used for terrorist financing
 Signing of Convention on Suppression of Financing of Terrorism under consideration
Mutual legal assistance and enhanced overseas cooperation



Note: Please rearrange material in proper sequence where ever you feel room for improvement. I have clubbed this material from my various sources so there is possibility of overlapping points. I think this material is enough for a Masters level assignment. Based on this material and some statistical figures from the links provided by New Student you can construct a great piece of presentation. Utilize New Student’s links for general comment on economy and get help from this posted material for specific concepts and concrete measures. Moreover; do update some data from recently promulgated AML ordinance. Now it is your function to go through current AML ordinance and insert relevant material in the assignment.