As of August 2008, there is no comprehensive assessment publicly available on Pakistan's compliance with the Financial Action Task Force's (FATF) forty plus nine recommendations and special recommendations. In a 2007 Article IV Consultation report, the International Monetary Fund (IMF) observed that Pakistani authorities had taken major steps towards implementing a strong legal framework to prevent money laundering and terrorism financing activities. At the forefront of these recent efforts was the promulgation (in September 2007) of the Anti-Money Laundering Ordinance, which, in addition to enacting overall regulations for anti-money laundering and combating the financing of terrorism (AML/CFT), criminalizes money laundering. According to a 2008 report by the U.S. Department of State (DoS), terrorist financing is criminalized pursuant to the Anti-Terrorism Act of 1999, which also permits Pakistani authorities to freeze assets held by terrorist individuals and entities. The AML Ordinance created the Financial Monitoring Unit (FMU) to perform the typical duties of a financial intelligence unit, namely to collect, analyze and disseminate all suspicious transaction reports (STRs) submitted by entities subject to the AML Ordinance to several law enforcement agencies responsible for enforcing financial crimes laws. However, in its 2008 Accelerating Economic Transformation Program report, the Asian Development Bank (ADB) observes that the AML Ordinance's mandate that the director general of the FMU be supervised and controlled by the general committee is inconsistent with international standards as the FMU should have financial and operational autonomy. The U.S. DoS report states that, from July 2006 through June 2007, the FMU received 22 STRs from various banks. The FMU subsequently sent five of these STRs to law enforcement agencies for further investigation. As of 2006, bank accounts of 43 terrorist individuals and entities had been frozen. The report primarily attributes the relative paucity and limited utilization of STRs to Pakistan's lack of a central repository for the reporting of STRs. The U.S. DoS report also notes several weaknesses in the AML Ordinance.

General Overview

According to the International Monetary Fund's (IMF) Article IV Consultations, in September 2007, President Pervez Musharraf promulgated the Anti-Money Laundering Ordinance (AML Ordinance), which, in addition to enacting overall regulations for anti-money laundering and combating the financing of terrorism (AML/CFT), criminalizes money laundering. The Asia-Pacific Group on Money Laundering (APG) website notes that, prior to this AML Ordinance, Pakistan had money laundering offenses only in relation to drug offenses, corruption and terrorist financing. However, while the IMF Consultations cite the promulgation of the ordinance as a positive development, it notes that the ordinance is a temporary measure that was scheduled to lapse after four months of its issuance unless reissued. Furthermore, in its 2008 Accelerating Economic Transformation Program report, the Asian Development Bank observes that the AML Ordinance "provides for a cumbersome supervisory structure consisting of a national executive committee and a general committee" (p. 13). The report also points out that the AML Ordinance's mandate that the director general of the FMU be supervised and controlled by the general committee "is inconsistent with international standards and best practices as the FMU should have financial and operational autonomy" (p. 13).

The 2008 U.S. Department of State International Narcotics Control Strategy Report (2008 U.S. DoS report) states that terrorist financing is criminalized pursuant to the Anti-Terrorism Act (ATA) of 1999, which stipulates that "a person commits an offense if he is involved in fund raising, uses and possesses property, or is involved in a funding arrangement intending that such money or other property should be used, or has reasonable cause to suspect that they may be used, for the purpose of terrorism." Under the ATA, Pakistani authorities can freeze assets held by terrorist individuals and entities. Furthermore, Pakistan has issued such freezing orders in compliance with United Nations (UM) Security Council Resolutions 1267 and 1373. According to the U.S. DoS report, "as of 2006, bank accounts of 43 individuals and entities had been frozen under various UNSCRs."

According to the 2008 U.S. DoS report, the AML Ordinance of 2007 created the Financial Monitoring Unit (FMU, located within the State Bank of Pakistan) to perform the typical duties of a financial intelligence unit (FIU), namely to collect, analyze and disseminate all suspicious transaction reports (STRs) submitted by entities subject to the AML Ordinance to several law enforcement agencies responsible for enforcing financial crimes laws, such as the National Accountability Bureau (NAB), the Anti-Narcotics Force (ANF), the Federal Investigative Agency (FIA), and the Directorate of Customs Intelligence and Investigations (CII). The U.S. DoS report also states that, from July 2006 through June 2007, the FMU received 22 STRs from various banks. The FMU subsequently sent five of these STRs to law enforcement agencies for further investigation. The report primarily attributes the relative paucity and limited utilization of STRs to Pakistan's lack of a central repository for the reporting of STRs. The U.S. DoS report notes other important weaknesses regarding Pakistan's FIU regime, primarily that the FMU's independence and effectiveness is undermined by the fact that it is subject to the oversight and control of the Pakistan's General Committee, which is comprised of Government of Pakistan (GOP) cabinet secretaries. In its 2007 Article IV Consultation report, the IMF states that Pakistani authorities are currently working on making the FMU fully operational and more independent. As of the preparation of this report in August 2008, it is not clear what the results of these plans are.

Regarding law enforcement authorities, the 2008 U.S. DoS report observes that the NAB, the ANF, the FIA, and the CII are primarily responsible for enforcing financial crimes laws in Pakistan, and all are authorized to seize assets. In addition, the State Bank of Pakistan (SBP) and the Securities and Exchange Commission of Pakistan (SECP) serve as Pakistan's primary financial regulators, and both are equipped with AML units even though, according to the U.S. DoS report, these units "often lack defined jurisdiction and adequate resources to effectively supervise the financial sector on AML/CTF controls."

Regarding the ratification of international conventions and implementation of UN instruments, the U.S. DoS report states that Pakistan is party to the 1988 UN Drug Convention and the UN Convention against Corruption and has signed, but not ratified, the UN Convention against Transnational Crime. Also, Pakistan is not a signatory to the UN International Convention for the Suppression of the Financing of Terrorism.

The Principles

1. Legal Systems and Related Institutional Measures

II

As of August 2008, there is no comprehensive assessment publicly available on Pakistan's compliance with the Financial Action Task Force's (FATF) forty plus nine recommendations and special recommendations. Nevertheless, according to the January 2007 IMF Article IV Consultations, in September 2007, President Pervez Musharraf promulgated the Anti-Money Laundering Ordinance (AML Ordinance), which, in addition to enacting overall regulations for anti-money laundering and financing of terrorism (AML/CFT), criminalizes money laundering..

The 2008 U.S. DoS report observes that, despite the passage of the Anti-Money Laundering Ordinance, "Pakistan still has work ahead to meet international standards, especially the core FATF Recommendations related to the criminalization of money laundering and suspicious transaction reporting." Among the shortcomings, the report notes that: (1) not all of the FATF designated categories of offenses (i.e. smuggling, racketeering and arms trafficking) are covered as predicate offenses; (2) the intent and knowledge required to prove the offense of money laundering is not consistent with the standards listed in the Vienna and Palermo Conventions; and (3) the transfer of legitimate money to promote criminal activity is not an offense.

Furthermore, in its 2008 Accelerating Economic Transformation Program report, the Asian Development Bank observes that the AML Ordinance "provides for a cumbersome supervisory structure consisting of a national executive committee and a general committee" (p. 13). The report also points out that the AML Ordinance's mandate that the director general of the FMU be supervised and controlled by the general committee "is inconsistent with international standards and best practices as the FMU should have financial and operational autonomy" (p. 13).

According to the 2008 U.S. DoS report, terrorist financing is criminalized pursuant to the Anti-Terrorism Act of 1999, which stipulates that "a person commits an offense if he/she is involved in fund raising, uses and possesses property, or is involved in a funding arrangement intending that such money or other property should be used, or has reasonable cause to suspect that they may be used, for the purpose of terrorism." Under the ATA, Pakistani authorities can freeze assets held by terrorist individuals and entities. Furthermore, Pakistan has issued such freezing orders in compliance with UN Security Council Resolutions 1267 and 1373. According to the U.S. DoS report, "as of 2006, bank accounts of 43 individuals and entities had been frozen under various UNSCRs."

The 2008 U.S. DoS report states that the AML Ordinance provides for forfeiture procedures even if they are "cumbersome and will inhibit the successful seizure and confiscation of property involved in offenses." According to the 2008 U.S. DoS report, the AML Ordinance of 2007 created the FMU as the FIU and it collects, analyzes and disseminates all suspicious transaction reports submitted by entities subject to the AML Ordinance to several law enforcement agencies responsible for enforcing financial crimes laws. The U.S. DoS report also states that, from July 2006 through June 2007, the FMU received 22 STRs from various banks. The report primarily attributes the relative paucity and limited utilization of STRs to Pakistan's lack of a central repository for the reporting of STRs. The U.S. DoS report notes other important weaknesses regarding Pakistan's FIU regime, primarily that the FMU's independence and effectiveness is undermined by the fact that it is subject to the oversight and control of the Pakistan's General Committee, which is comprised of Government of Pakistan (GOP) cabinet secretaries (the FMU is located within the SBP). Additionally, the report notes that the FMU is not fully staffed and its investigators have yet to be sufficiently trained. In its 2007Article IV Consultations, the IMF states that Pakistani authorities are currently working on making the FMU fully operational and more independent. As of the preparation of this report in August 2008, it is not clear what the results of these plans are.

Regarding law enforcement authorities, the 2008 U.S. DoS report observes that the National Accountability Bureau, the Anti-Narcotics Force, the Federal Investigative Agency, and the Directorate of Customs Intelligence and Investigations are primarily responsible for enforcing financial crimes laws in Pakistan, and all are authorized to seize assets. In addition, the SBP and the SECP serve as Pakistan's primary financial regulators, and both are equipped with AML units even though, according to the U.S. DoS report, these units "often lack defined jurisdiction and adequate resources to effectively supervise the financial sector on AML/CTF controls."

2. Preventive Measures - Financial Institutions

II

There is insufficient information publicly available as to Pakistan's compliance with this principle. Regarding customer due diligence, the 2008 U.S. DoS report states that the SBP has introduced AML regulations that are generally compliant with FATF recommendations pertaining to "know your customer and enhanced due diligence procedures, record retention, the prohibition of shell banks, and the reporting of suspicious transactions." However, the report does not specify the extent of this compliance.

Regarding suspicious transaction reporting, the U.S. DoS report observes that the AML Ordinance sanctions money laundering STRs. Also, the National Accountability Ordinance of 1999 requires financial institutions to report corruption related suspicious transactions to the National Accountability Bureau and the Control of Narcotics Substances Act of 1997 requires the reporting of narcotics related suspicious transactions. However, the report cites two key inadequacies of the AML Ordinance. For example, "the definition of what constitutes a suspicious transaction is not adequate as it does not cover cases where an individual 'suspects' or 'has reason to suspect' that funds are the proceeds of criminal activity." Also, the AML Ordinance does not require the filing of STRs concerning terrorist financing.

3. Preventive Measures - Designated non-Financial Business and Professions

II

There is insufficient information publicly available as to Pakistan's compliance with this principle.

4. Legal Person and Arrangements & Non-Profit Organizations

II

The 2008 U.S. DoS report notes that Pakistan's Ministry of Welfare has been promoting a Charities Registration Act, which would require charities to "prove the identity of their directors and open their financial statements to government scrutiny." Currently, charities in Pakistan can register under one of a dozen different acts, some of which date back to the middle of the nineteenth century. If passed, the Act is expected to help the Ministry of Social Welfare better monitor suspicious charities to make sure they have no ties to terrorist individuals or organizations. As of the release of the U.S. DoS report in January 2008, the Economic Affairs Division of the Ministry of Finance is reviewing the draft of the Act and will then submit the bill to the Ministry of Law for further contemplation. However, there is insufficient information publicly available as to Pakistan's compliance with this principle.

5. National and International Co-operation

II

Regarding the ratification of international conventions and implementation of UN instruments, the U.S. DoS report states that Pakistan is party to the 1988 UN Drug Convention and the UN Convention against Corruption and has signed, but not ratified, the UN Convention against Transnational Crime. Also, Pakistan is not a signatory to the UN International Convention for the Suppression of the Financing of Terrorism. In terms of international cooperation, the 2008 U.S. DoS report notes that the Anti-Narcotics Force (ANF) shares information about seized narcotics assets and the number of arrests with the U.S. However, there is insufficient information publicly available as to Pakistan's compliance with this principle.