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 to 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 vehicle, since real estate transactions tend to be poorly documented and cash-based. Pakistan’s national savings schemes appear vulnerable to money laundering, and laws providing certain immunities to foreign currency remittance accounts seem to provide an avenue for both money laundering and tax evasion.
Money laundering in Pakistan affects both the formal and informal financial systems. Pakistan does not have firm control of its borders, which facilitates the flow of illicit goods and monies into and out of Pakistan. From January through October 2015, the Pakistani diaspora remitted approximately $16 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. 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. UN-designated groups continue to be able to solicit donations openly without apparent government reaction.
Additionally, the Altaf Khanani money laundering organization (Khanani MLO), a transnational organized crime group, is based in Pakistan. The group facilitates illicit money movement between, among others, Pakistan, the United Arab Emirates (UAE), United States, UK, Canada, and Australia, and is responsible for laundering billions of dollars in organized crime proceeds annually. The Khanani MLO offers money laundering services to a diverse clientele, including Chinese, Colombian, and Mexican organized crime groups and individuals associated with Hizballah and designated terrorist organizations. The Khanani MLO also has been involved in the movement of funds for the Taliban, and Altaf Khanani, the group’s leader, is known to have had relationships with Lashkar-e-Tayyiba, Dawood Ibrahim, al-Qaeda, and Jaish-e-Mohammed.
For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found at: //2009-2017.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 in Islamic finance, 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: 1,919: July 2014 - May 2015
Number of CTRs received and time frame: 360,940: July 2014 - May 2015
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: 2 in 2015
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:
Following the December 16, 2014 attack against the Army Public School by Tehrik-i-Taliban Pakistan, in January 2015, Pakistan established its ‘National Action Plan’ (NAP), a National Apex Committee to implement the plan, the National Terrorists Financing Investigation Cell to curb terrorist financing, and an overarching commitment to “choke the finances” of terrorists and terrorist organizations in the country. According to the National Counter Terrorism Authority, provisions of the NAP include obstructing financing for terrorists and terrorist organizations, ensuring against the re-emergence of proscribed organizations, and measures to stop the abuse of internet and social media for terrorism. The Government of Pakistan has taken a wide variety of steps under the auspices of the NAP, and implementation of the plan has yielded mixed results; often due to the lack of institutional capacity and capability, some aspects of the plan have seen minimal progress while others have garnered notable results.
Increasing awareness of, and training for, AML/CFT issues is critical to the judicial and law enforcement sectors. Lack of consistent and uniform implementation will continue to stymie Pakistan’s AML/CFT regime. Pakistan does not fully implement UN sanctions obligations uniformly against all designated parties. Unlicensed hawaladars continue to operate illegally throughout Pakistan, particularly in Peshawar and Karachi; however, Pakistan has reportedly been pursuing illegal hawala/hundi/exchange houses under the NAP. The currency transaction reporting (CTR) threshold was brought down to Rs 2 million (approximately $18,800) from Rs 2.5 million (approximately $23,500) through a Gazette notification issued on January 21, 2015, under the AML Act, 2010.
Pakistani authorities should investigate and prosecute money laundering and terrorism financing in addition to the predicate offense creating the laundered proceeds. The Government of Pakistan should address all cases of terrorist financing; indiscriminately target terrorist and sectarian organizations; resolve remaining legal inadequacies related to the criminalization of money laundering; demonstrate effective regulation over exchange companies; create an assertive and transparent sanctions regime; 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 financial intelligence unit and the annual number of money laundering prosecutions and convictions.
Pakistani law enforcement and customs authorities should address trade-based money laundering and value transfer, particularly as it forms the basis for account-settling 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.