Flight of capital will cease because of these
From SHAMIM AHMED
Feb-18 24, 2002
Drastic measures are in the offing to regulate the
money changing and money transfer business in Pakistan in line with the
international campaign to counter money laundering and financing of
illegal activities including terrorism. An 11 member US team
representing treasury and state departments visited Pakistan and stayed
here for over a week to examine and advise on the plan of action
prepared and initiated by the government in this regard.
The US delegation which has now proceeded to India on
a similar mission was told that massive changes were being introduced in
the banking system. The changes are being planned, as, in future, all
the financial institutions, both banking and non-banking would keep
records on customer identification and these documents would be
available to domestic investigation agencies for relevant criminal
prosecution and investigation if and when required.
Sources said the role of different government
agencies to identify their responsibilities in establishing an effective
and meaningful anti-money laundering system within the country was being
worked out. Under the Money Laundering Act, to be based on 40 UNO
recommendations to counter money laundering, the account files and
business correspondence will be maintained for at least five years after
the accounts is closed. Pakistan will also make efforts to improve a
spontaneous or "upon request' international information exchange
relating to suspicious transactions, persons, and corporations involved
in those transactions between competent authorities. These bank accounts
documents such as copies of records of official identification —
documents like passports, identity cards, driving licences or similar
documents would be available to domestic investigation agencies in the
context of relevant criminal prosecution and investigation.
The government authorities that are presently engaged
in scrutinising and implementing the 40 recommendations informed the
visiting US team, led by State Department secretary treasury Kenneth
Dam, about the progress so far made. According to the new rules and laws
being framed by the government of Pakistan, in the light of the
recommendations, if financial institutions suspect that certain funds
stem from a criminal activity, they should be required to report
promptly their suspicions to the competent authorities. Financial
institutions, their directors, officers and employees would be protected
by legal provisions from criminal or civil liability for breach of any
restriction on disclosure of information, imposed by contract or by any
legislative, regulatory or administrative provision, if they report
The federal government had tasked the Ministry of
Finance to identify the activities that should be taken to prevent money
laundering in the country. Sources said the government was currently
revamping its banking system in the light of the 40 recommendations
received from Black Burn of UNO. A task force of Pakistani experts in
these matters was formed to study the 40 recommendations and prepare a
plan of action to implement the same. The report of this task force has
been concurred by the US team with some modifications.
Based on its recommendation the Federal Government
has decided not to ban the money changers in the country as they have
become a fact of life, but the State Bank of Pakistan will be required
to regulate them so that they can graduate into exchange companies. They
will have to follow the check and report system being divised by the
government to keep their licence valid.
The 40 recommendation from Black Burn of UNO which
are to be followed by Pakistan includes the following.
The country should take immediate steps to ratify and
to implement fully, the 1988 United Nations Convention against Illicit
Traffic in Narcotic Drugs and Psychotropic Substances (the Vienna
Convention). Pakistan is a signatory to this convention.
An effective money laundering enforcement programme
should include increased multilateral cooperation and mutual legal
assistance in money laundering investigations and prosecutions and
extradition in money laundering cases, where possible.
The country should take such measures as may be
necessary, including legislative ones, to enable it to 'criminalise'
money laundering as set forth in the Vienna Convention. The country
should extend the offence of money laundering to one based on serious
offences. It would determine which serious crimes would be designated as
money laundering offence. As provided in the Vienna Convention, the
offence of money laundering should apply at least to known money
laundering activity, including the concept that knowledge may be
inferred from objective factual circumstances.
Wherever possible, corporations themselves — not
only their employees — should be subject to criminal liability. The
country should adopt measures similar to those set forth in the Vienna
Convention, as may be necessary, including legislative ones, to enable
the competent authorities to confiscate property laundered, proceeds
from, instrumentalities used in or intended for use in the commission of
any money laundering offence, or property of corresponding value,
without prejudicing the rights of bona fide third parties.
Such measures should include the authority to
identify, trace and evaluate property which is subject to confiscation
carry out provisional measures, such as freezing and seizing, to prevent
any dubious transfer or disposal of such property and take any
appropriate investigate measures.
In addition to confiscation and criminal sanctions,
the country should also consider monetary and civil penalties, and or
proceedings including civil proceedings, to void contracts entered into
by parties, where parties knew or should have known that as a result of
the contract, the state would be prejudiced in this ability to recover
financial claims, e.g. through confiscation of fines and penalties.
Financial institutions should not keep anonymous
accounts or accounts in obviously fictitious names; they should be
required (by law, by regulations, by agreements between supervisory
authorities and financial institutions or by self-regulatory agreement
among financial institutions) to identify, on the basis of an official
or other reliable identifying document, and record the identity of their
clients, either occasional or usual, when establishing business
relations or concluding transactions (in particular opening of accounts
or passbooks, entering into fiduciary transactions, renting of safe
deposit boxes, performing large cash transactions).
In order to fulfil identification requirements
concerning legal entities, financial institutions should when necessary
To verify the legal existence and structure of the
customer by obtaining either from a public register or from the customer
or both, proof of incorporation, including information concerning the
customer's name, legal form, address, directors and provisions
regulating the power to bind the entity.
To verify that any person purporting to act on behalf
of the customer is so authorised and identify that person.
Financial institutions should take reasonable
measures to obtain information about the true identity of the persons on
whose behalf an account is opened or a transaction conducted if there
are any doubts as to whether these clients or customers are acting their
own behalf, for example, in the case of domiciliary companies (i.e.
institutions, corporations, foundations, trusts, etc. that do not
conduct any commercial or manufacturing business or any other form of
commercial operation in the country where their registered office is
Financial institutions should maintain, for at least
five years, all necessary records on transactions, both domestic or
international, to enable them to comply swiftly with information
requests from the competent authorities. Such records must be sufficient
to permit reconstruction of individual transactions (including the
amounts and types of currency involved if any) so as to provide, if
necessary, evidence for prosecution of criminal behaviour.
Anti-money laundering legislation is being passed in
the US and Europe hastily as a part of their efforts to deny the use by
terrorists of their banks and other financial institutions for funding
terrorist activities around the world. The other countries of the world
specially the coalition partners are being pressurised to follow suit.
It is a welcome development from the point of view of developing
countries from where the illegally accumulated capital goes to developed
countries through dubious means. Such flight of capital will cease
because of these measures and it would have healthy effect on the
economy of developing countries like Pakistan.