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Flight of capital will cease because of these measures

From SHAMIM AHMED RIZVI
Islamabad
 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 their suspicions.

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 take measures.

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 located).

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.