Money Laundering In Pakistan
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.
No comments:
Post a Comment