Abstract

Pakistan has been scrambling in recent months to avoid being added to a list of countries deemed non-compliant with anti-money laundering and terrorist financing regulations by the global watchdog, as this could further hurt its economy. Pakistan is categorised by the US State Department as a Country/Jurisdiction of Primary Concern in respect of Money Laundering and Financial Crimes.

Introduction

The National Risk Assessment (NRA) conducted in 2017 identified some major risks associated with illicit finance such as corruption, smuggling, drug trafficking, fraud, kidnapping for ransom, and extortion from businesses in Pakistan and the proceeds generated from these major crimes are then laundered and transferred overseas.  The black market, informal financial system, and permissive security environment generates substantial demand for money laundering and illicit financial services.
Pakistan is on the FATF List of Countries that have been identified as having strategic AML deficiencies.

Legal Framework

The Anti Money Laundering Act 2010 (the Act) which is a federal legislation and applicable to the whole of Pakistan is the primary legislation governing the prevention of money laundering and combatting terrorism financing in Pakistan.

This Act was enacted after the AML Ordinance of 2007. Under the Ordinance, the Financial Monitoring Unit (FMU) was created. The FMU are to receive and analyze the Suspicious Transactions Reports (STRs) as well as Currency Transactions Reports (CTRs) from its designated reporting entities and  disseminate the Financial Intelligence to the concerned Law Enforcement Agencies (if required) for their further necessary action. Another function of FMU is to ensure compliance with the Pakistan’s Financial Action Task Force (FATF)’s recommendations on Anti-Money laundering (AML) and terrorist financing. The unit also acts as the country’s face at all international forums related to Anti-Money Laundering & Combating Terrorism financing.

The Act provides for the legal and administrative agencies saddled with the responsibility of enforcing the provisions of the Act. The FMU works with law enforcement agencies responsible for enforcing financial crime laws and they include

1. The State Bank of Pakistan(SBP)
2. The Securities and Exchange Commission (SECP):
3. The National Accountability Bureau (NAB)
4. The Anti-Narcotics Force (ANF),
5. the Federal Investigative Agency (FIA),
6. The Customs Authorities.
7. the Directorate of Customs Intelligence and Investigations (CII),

The SBP and SECP are the primary financial regulators. Notwithstanding the absence of standalone AML legislation, the SBP and SECP have independently established AML units to enhance their oversight of the financial sector. The SBP has introduced regulations intended to be consistent with the Financial Action Task Force’s (FATF) recommendations in the areas of a Know Your Customer (KYC) policy, record retention, due diligence of correspondent banks, and the reporting of suspicious transactions.

Compliance with FATF Recommendations

Pakistan has completed 26 of the 27 action items in its 2018 action plan. The last Follow-up Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Pakistan was undertaken in 2021. According to that Evaluation, Pakistan was deemed Compliant for 8 and Largely Compliant for 27 of the FATF 40 Recommendations.