Anti-money laundering: Sharp slowdown in govt action on dirty cash

ISLAMABAD: Despite an acceleration of terrorist activity and attacks in Pakistan, the government appears to have gotten worse at tracking terrorism financing in the last four years, flagging just 34 transactions – out of hundreds of millions in that period – as suspicious.

This startling revelation was made by Mansoor Ali, director general of the government’s Financial Monitoring Unit (FMU), and came during a hearing conducted by the Senate finance committee on money laundering. The high powered hearing included testimony from government officials as well as the CEOs of the largest banks in the country and was meant to discuss the efficacy of the Anti-Money Laundering Act of 2010 and the Anti-Terrorism Act of 2014.

Since 2010, there have been over 450 terrorist attacks in Pakistan, according to a variety of sources that track such data, but the government’s efforts at cracking down on terrorists and their finance networks appears to be slowing down.

Since 2004, the FMU has received 5,775 reports of suspicious transactions from financial institutions, of which it passed on over 1,000 to four law enforcement agencies, including 350 to the Federal Investigation Agency (FIA), which took action and arrested 270 people in connection to those cases and froze 200 bank accounts, said Mansoor. But the revelation that only 34 of the 1,000 FMU reports took place after 2010 is a scathing indictment of the new money-laundering bill that was introduced in that year, an assessment the banks apparently agree with.

The FMU director general’s revelations sparked off a heated debate between the government and the opposition, with the banks siding with the government on the need to further strengthen laws against money laundering.

Federal Finance Secretary Waqar Masood admitted that terrorism financing was one of the weakest areas of law enforcement, citing capacity constraints as a cause. Masood suggested that some of the problem might be alleviated under the National Action Plan against terrorism, which calls for special cells to investigate terrorist financing to become part of the office of the provincial Inspectors General of the police.

The financial institutions, including the central bank, claimed that they were doing their part in reporting suspicious activity. “On suspicion of money laundering, the banks do not stop the transaction, but simply report it to the FMU within seven days,” said Nauman K Dar, President of Habib Bank, the largest bank in the country. State Bank Governor Ashraf Wathra claimed that even if the banks do not report suspicious transaction, the central bank’s inspection and monitoring teams catch and report such transactions to the FMU.

The main bone of contention between the government and opposition over new proposed legislation against money laundering was the government’s idea to include tax evasion as a money laundering offence. “Fiscal offences are increasingly becoming a source of money laundering and there is a need to make the existing law more stringent,” said the finance secretary.

The opposition – particularly the PPP, the BNP-Awami and the JUI-F – claimed that such an action would impede business. “By making fiscal offences a money laundering crime, the government will hurt business activities in the country,” said Senator Sardar Fateh Muhammad Hassani (PPP, Balochistan).

However, the bank CEOs present appeared to repudiate the opposition’s stance. “A lenient or non-existent money laundering law creates difficulties for banks doing business abroad,” said Atif Bajwa, CEO of Bank Alfalah.

MQM’s Senator Nasreen Jalil sided with the government in trying to declare tax evasion a money laundering offence. But even with her support, the government was not able to push the bill through, with nine out of the twelve members of the committee opposing it.

Under the new law, it would be possible for the government to initiate money laundering proceedings, including freezing bank accounts, without the need for a conviction in a trial on charges such as money laundering, smuggling or tax evasion.