APG report dissatisfied with steps on money laundering and terror financing

ISLAMABAD: In the last five years, five law enforcement agencies investigated 2,420 cases related to money laundering and only one accused under investigation of National Accountability Bureau (NAB) was convicted — Nawaz Sharif.

Statistics tabulated by the Financial Action Task Force (FATF)-affiliated Asia-Pacific Group (APG) on Money Laundering in its report drafted on the basis of its visit to Pakistan in October 2018 offers a rare glimpse into the poor performance of the country’s agencies assigned to deal with the money laundering and terror financing.

“Pakistan authorities have varying levels of understanding of the country’s ML (Money laundering) and TF (terror financing) risks. For ML, there is no clear understanding among competent authorities, including LEAs, of Pakistan’s ML risk. Competent authorities are focused on predicate crimes and are unable to clearly differentiate ML from predicate offences which generate illicit proceeds,” notes the report which delivered adamning indictment of the entire system of accountability.

The APG did two kinds of ratings. In terms of “Effectiveness Ratings”, Pakistan scored “low” in ten categories and “moderate” in one category. In “Technical Compliance Ratings” Pakistan was “compliant” in one category, “largely compliant” in nine categories, “partially compliant” in 26 categories and “non-compliant” in four categories.

Between 2013 and 2018, there were as many as 2,420 cases of money laundering investigated by NAB, Anti-Narcotics Force, Federal Investigation Agency, Customs and Inland Revenue. Fourteen percent of the cases reached to the prosecution stage and only Nawaz Sharif was delivered conviction whose case was dealt on priority basis under the watch of Supreme Court. NAB, in total, probed 32 such cases and only four of them were prosecuted. Nawaz Sharif’s case was one of them.

The highest number of money laundering cases (1,528) were investigated by ANF followed by FBR’s Inland Revenue (510), FIA (346), NAB (32) and Customs (4). “Despite relatively high numbers of ML investigations for some type of offences – particularly drug trafficking and tax cases – the low percentage of prosecution for some types of major predicate crimes and overall just one conviction for ML, suggests that the collection of evidence at the investigation stage is not sufficient enough to achieve a reasonable prosecution and conviction rate,” reads the report.

It has further noted that the efforts of agencies dealing with money-laundering related crimes are not consistent with its risk. Factors contributing to this conclusion include (1) a lack of prioritisation of money laundering by these agencies, (2) no systematic pursuance of parallel financial investigations, (3) serious confusion among these agencies and other authorities on the ‘cognisable’ and ‘non-cognisable’ nature of money laundering offences, and (4) an overall lack of capacity to address such cases including a lack of forensic investigation skills.

Overall, the report further notes, the private sector has a mixed understanding of the risks that Pakistan faces due to money laundering and terror financing. While banks and exchange companies have a better understanding of these risks whereas non-banking finance institutions have a limited understanding and are at the initial stages of implementing a risk-based approach. Designated Non-Financial Businesses and Professions (DNFBPs) like real estate agents, dealers in precious stones, lawyers, notaries, accountants and other service providers – facilitator in money laundering and terror finance – have a poor understanding of these risks and are yet to start implementing a risk-based approach, according to the report. Likewise, Pakistan Post and Central Directorate of National Savings has no reporting mechanism of suspicious transactions whereas very limited reporting is done by foreign banks and Non-Banking Financial Companies.

Although Financial Monitoring Unit of the State Bank of Pakistan is legally required to maintain statistics of suspicious transactions, the data it maintains is not either comprehensive or detailed. Regarding Securities and Exchange Commission of Pakistan (SECP), the report said, it has understanding of risks but had not implemented a risk-based supervisory approach. And it has not conducted any Anti Money Laundering and Countering Financing of Terrorism (AML/ CFT) supervision of the insurance sector. Such supervision of other sectors has also been limited to Know Your Customer (KYC) and Customer Due Diligence (CDD) requirements. “Sanctions for non-compliance are limited. There is little evidence that SECP’s supervisory activity is improving AML/ CFT behavior,” the report said.

The supervision of different financial institutions has been distributed. For example, State Bank of Pakistan is the designated AML/ CFT supervisor of banks, Development Finance Institutions (DFIs), Micro Finance Banks (MFBs) and Exchange Companies (ECs). The SECP is the designated AML/ CFT supervisor of Non-Banking Financial Institutions (NBFIs) including securities brokers, non-bank finance companies, insurance companies, and modarabas. However, there is no AML/ CFT supervisor for any of the Designated Non-Financial Businesses and Professions (DNFBP) sectors, nor is there such a supervisor for Pakistan Post and Central Directorate of National Savings (CDNS).

The situation is worse in case of terror financing than money laundering as is evident from the report. “For TF, competent authorities have a mixed understanding of risk. The national TF investigation agency (Federal Investigation Agency – FIA) has a low level of TF risk understanding, while provincial police TF investigation departments (counterterrorism departments – CTDs) have a better understanding of those risks within their provinces. Punjab CTD, in particular, has a reasonable understanding of TF risks within Punjab province,” the report said.

In the period under review, Pakistan has registered 228 TF cases and convicted 58 individuals (Pakistan has not undertaken any TF investigations of legal persons), which is not consistent with Pakistan’s overall level of TF risk. The vast majority of investigations (the FIA has registered three TF cases in total) and all of convictions were obtained at the provincial level including 49 convictions in Punjab. A total of nine TF convictions for all other provinces in Pakistan is not consistent with province-specific TF risks, according to the report. “Limited TF actions outside of Punjab CTD is underpinned by limitations in LEAs capacity and prioritisation of terrorism. Based on available information, the assessment team considers the TF sanctions are only moderately dissuasive,” it further notes.

Pakistan is implementing TFS (Targeted Financial Sanctions) pursuant to UNSCR 1267/ 1989/ 1988 and UNSCR 1373 through two separate processes. Pakistan gives domestic effect to UNSCR 1267 by issuing Statutory Regulatory Order (SROs) following an update to listings by the UN. “Despite recent improvements in implementing UNSCR 1267 without delay, there are numerous instances where SROs were issued several days after changes to listing at the UN,” the report notes. Also, it is unclear whether all financial and non-financial institutions, DNFBPs and legal and natural persons are required to take freezing actions – there are additional requirements for banks, DFIs, MFBs, ECs and SECP-regulated persons under the AML/ CFT regulations for each sector.

Pakistan is implementing UNSCR 1373 by proscribing individuals and entities pursuant to the ATA - completed by provincial government home departments. “At the time of the onsite visit in October 2018, Pakistan proscribed 66 entities and approximately 7,600 individuals, but the public list on NACTA’s website included very limited identification information,” according to the report.

A government official, however, dismissed the impression that Pakistan is not doing enough to deal with money laundering and terror financing. Requesting to be unnamed, the official said all possible steps have been taken and more is being done to fight out this menace. He said India is behind this malicious campaign and spares no opportunity to discredit Pakistan at international forums. The official further said that Pakistan's war against terrorism is a testimony of our efforts and demonstrate our seriousness.

He further said all institutions are working in complete harmony like never before to chock the supply of funds to terrorists organisations. Regarding money laundering, he said Prime Minister Imran Khan has a zero tolerance policy on this issue and his ongoing war against corruption is a living example.