Countries/Jurisdictions of Primary Concern - Pakistan
Pakistan is strategically located at the nexus of south, central, and western Asia, with a coastline along the Arabian Sea. Its porous borders with Afghanistan, Iran, and China facilitate the smuggling of narcotics and contraband between Afghanistan and overseas markets. The country suffers from financial crimes associated with tax evasion, fraud, corruption, trade in counterfeit goods, contraband smuggling, narcotics trafficking, human smuggling/trafficking, and terrorism. The black market economy generates substantial demand for money laundering and illicit financial services.
Common methods for transferring illicit funds include fraudulent trade invoicing, money service providers, hundi/hawala, and bulk cash smuggling. Criminals utilize import/export firms, front businesses, and the charitable sector to carry out such activities. Pakistan’s real estate sector is another common money laundering destination, since real estate transactions tend to be poorly documented.
Money laundering in Pakistan affects both the formal and informal financial systems. Pakistan does not have firm control of its borders with Afghanistan, Iran, or China, which facilitates the flow of illicit goods and monies into and out of Pakistan. From January through November 2014, the Pakistani diaspora legitimately remitted approximately $18 billion back to Pakistan via the formal banking sector. Though it is illegal to change foreign currency without a license, unlicensed hawala/hundi operators are prevalent throughout Pakistan, and it is estimated that use of these operators accounts for over half of the total remittances. Unlicensed hawala/ hundi operators are also common throughout the region and are widely used to transfer and launder illicit money. Some support the financing of terrorism.
On February 16, 2012, The FATF added Pakistan to its Public Statement, reflecting Pakistan’s failure to address deficiencies related to its AML/CFT regime. In June 2014, the FATF determined that Pakistan had substantially addressed its action plan at a technical level. As a result, the FATF removed Pakistan from its Public Statement.
For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found at: http://www.state.gov/j/ct/rls/crt/
Do FINANCIAL INSTITUTIONs engage in currency transactions related to international narcotics trafficking that include significant amounts of US currency; currency derived from illegal sales in the U.S.; or illegal drug sales that otherwise significantly affect the U.S.: YES
criminalizATION OF money laundering:
“All serious crimes” approach or “list” approach to predicate crimes: List approach
Are legal persons covered: criminally: YES civilly: YES
Know-your-customer (KYC) rules:
Enhanced due diligence procedures for PEPs: Foreign: YES Domestic: YES
KYC covered entities: Banks, developmental financial institutions (DFIs), and exchange companies; mutual funds, asset management companies, investment banks, and leasing companies; modarabas—a kind of partnership, wherein one party provides finance to another party for the purpose of carrying on a business; pension funds, stock exchanges and brokers; insurance and reinsurance companies, insurance brokers, and insurance surveyors
Number of STRs received and time frame: Not available
Number of CTRs received and time frame: Not available
STR covered entities: Banks, DFIs, exchange companies, mutual funds, asset management companies, investment banks, leasing companies, modarabas, pension funds, stock exchanges and brokers, insurance and reinsurance companies, insurance brokers, and insurance surveyors
money laundering criminal Prosecutions/convictions:
Prosecutions: Not available
Convictions: Not available
Records exchange mechanism:
With U.S.: MLAT: NO Other mechanism: NO
With other governments/jurisdictions: YES
Pakistan is a member of the Asia/Pacific Group on Money Laundering (APG), a FATF-style regional body. Its most recent mutual evaluation can be found at: http://www.apgml.org/members-and-observers/members/member-documents.aspx?m=8fc0275d-5715-4c56-b06a-db4af266c11a
Enforcement and implementation issues and comments:
• In recent years, the Government of Pakistan has taken steps to adequately criminalize money laundering and terrorist financing; establish procedures to identify, freeze, and confiscate terrorist assets; ensure a fully operational and effectively functioning financial intelligence unit (FIU); establish the regulation of money service providers; and improve controls for cross-border cash transactions. In 2014, the government took further actions to improve the framework for its AML/CFT laws. The government enacted legislation to address deficiencies in its criminalization of terrorist financing and its procedures for freezing terrorist assets in accordance with UNSCRs 1267 and 1373.
Pakistani authorities should investigate and prosecute money laundering and terrorism financing, and not focus on the predicate offense creating the laundered proceeds. Raising awareness of AML/CFT issues is critical to the judicial sector. Weak legislation and lack of implementation have stymied Pakistan’s AML regime. Enforcement deficiencies, particularly regarding the movement of cash, leave Pakistan’s informal financial sector vulnerable to illicit exploitation. For example, the State Bank of Pakistan (SBP) requires all money exchange companies to obtain licenses and meet minimum capital requirements. As a result, it is illegal for money exchange companies or hawaladars to operate without a license. However, few hawaladars have been registered by the authorities, and unlicensed hawaladars continue to operate illegally throughout Pakistan, particularly in Peshawar and Karachi.
To address these deficiencies, Pakistan should resolve remaining legal inadequacies related to the criminalization of money laundering; demonstrate effective regulation over exchange companies, specifically, by creating an appropriate sanctions regime and increasing the range of preventive measures applicable to such services; implement effective controls for cross-border cash transactions; and develop an effective asset forfeiture regime. Pakistan should also design and publicly release metrics that track progress in combating money laundering and terrorism financing, such as the number of financial intelligence reports received by its FIU and the annual number of money laundering prosecutions and convictions.
Pakistani law enforcement and customs authorities should also address trade-based money laundering and value transfer, particularly as it forms the basis for counter-valuation between hawaladars. A crack down on massive trade and customs fraud, including within the framework of the Afghan Transit Trade, would also translate to needed revenue for the Government of Pakistan.