PAKISTAN
Summary
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Sanctions

None

FAFT AML Deficient

No

Higher Risk Areas

 

Compliance with FATF 40 + 9 Recommendations

US Dept of State Money Laundering assessment

Supporter of or Safe Haven for International Terrorism

Not on EU White list equivalent jurisdictions

Corruption Index (Transparency International & W.G.I.)

World Governance Indicators (Average score)

Failed States Index (Political)(Average score)

International Narcotics Control Majors List

Medium Risk Areas

Weakness in Government Legislation to combat Money Laundering


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ANTI-MONEY LAUNDERING

 

FATF Status

Pakistan is no longer on the FATF List of Countries that have been identified as having strategic AML deficiencies

 

Latest FATF Statement - 27 February 2015

The FATF welcomes Pakistanís significant progress in improving its AML/CFT regime and notes that Pakistan has established the legal and regulatory framework to meet its commitments in its action plan regarding the strategic deficiencies that the FATF had identified in June 2010. Pakistan is therefore no longer subject to the FATFís monitoring process under its on-going global AML/CFT compliance process. Pakistan will work with APG as it continues to address the full range of AML/CFT issues identified in its mutual evaluation report, in particular, fully implementing UNSC Resolution 1267.

 

Compliance with FATF Recommendations

The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Pakistan was undertaken by the Financial Action Task Force (FATF) in 2009. According to that Evaluation, Pakistan was deemed Compliant for 6 and Largely Compliant for 8 of the FATF 40 + 9 Recommendations. It was Partially Compliant or Non-Compliant for all 6 of the Core Recommendations.

 

US Department of State Money Laundering assessment (INCSR)

Pakistan is categorised by the US State Department as a Country/Jurisdiction of Primary Concern in respect of Money Laundering and Financial Crimes.

OVERVIEW

 

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, terrorism and terrorist financing. There is a substantial demand for money laundering and illicit financial services due to the countryís black market economy and challenging security environment.

 

VULNERABILITIES AND EXPECTED TYPOLOGIES

 

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 - December 2016, the Pakistani diaspora remitted $19.7 billion back to Pakistan via the formal banking sector, up 2.3 percent from 2015. Though it is illegal to operate a hawala without a license in Pakistan, the practice remains prevalent because of poor ongoing supervision efforts and a lack of penalties levied against illegally operating businesses. Unlicensed hawala/hundi operators are also common throughout the broader region and are widely used to transfer and launder illicit money through neighboring countries.

 

Common methods for transferring illicit funds include fraudulent trade invoicing; MSBs, to include unlicensed hundis and hawalas; and bulk cash smuggling. Criminals exploit import/export firms, front businesses, and the charitable sector to carry out their activities. Pakistanís real estate sector is another common money laundering vehicle, since real estate transactions tend to be poorly documented and cash-based.

 

Additionally, the Altaf Khanani money laundering organization (Khanani MLO) is based in Pakistan. The group, which was designated a transnational organized crime group by the United States in November 2015, 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 designated terrorist organizations.

 

KEY AML LAWS AND REGULATIONS

 

In January 2015, Pakistan issued its National Action Plan (NAP), addressing primarily counter- terrorist financing. The governmentís implementation of the NAP has yielded mixed results, which is in part due to the lack of institutional capacity as well as political will.

 

Pakistan is a member of the APG, a FATF-style regional body.

 

AML DEFICIENCIES

 

Unlicensed hawaladars continue to operate illegally throughout Pakistan, particularly in Peshawar and Karachi, though under the NAP Pakistan has reportedly been pursuing illegal hawala/hundi dealers and exchange houses. Pakistanís FIU forwards a limited number of STRs to Pakistanís Federal Investigation Agency (FIA), the agency responsible for investigating money laundering cases. The FIA lacks the capacity to pursue complicated financial investigations.

 

The United States and Pakistan do not have a MLAT, and Pakistanís FIU is not a member of the Egmont Group of FIUs.

 

ENFORCEMENT/IMPLEMENTATION ISSUES AND COMMENTS

 

In recent years, the Government of Pakistan has taken steps to address technical compliance with international AML standards, however, deficiencies remain in their implementation. Pakistani authorities should investigate and prosecute money laundering in addition to the predicate offense creating the laundered proceeds. The Government of Pakistan should demonstrate effective regulation over exchange companies; 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 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 also should address TBML and value transfer, particularly as it forms the basis for account- settling between hawaladars.

 

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SANCTIONS

Pakistan is not currently subject to any International Sanctions however the UK government has had a stated policy on exports to nuclear and nuclear-related end users in India and Pakistan since March 2002.

 

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BRIBERY & CORRUPTION

 

Index

Rating (100-Good / 0-Bad)

Transparency International Corruption Index

32

World Governance Indicator Ė Control of Corruption

24

 

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INVESTMENT CLIMATE - Executive Summary (US State Department)

Despite a relatively open foreign investment regime, Pakistan remains a difficult environment for foreign investors. An unpredictable security situation, chronic energy shortages, and a challenging business climate, including difficulties faced by investors related to timely settlement of disputes, intellectual property rights enforcement, and taxation issues have led to a precipitous drop in Foreign Direct Investment (FDI) in recent years. Net inflows of FDI peaked at $5.4 billion in fiscal year 2008, before dropping 73 percent in the following five years. Since the Pakistan Muslim League-Nawaz (PML-N) government took office in June 2013, the numbers have marginally improved: in the first nine months (July-March) of fiscal year 2014, net FDI was $669.8 million, up 6 percent year-on-year. More than half went to the upstream oil and gas sector.

The PML-N government of Prime Minister Nawaz Sharif was elected on pledges to turn around Pakistanís economy, enhance trade and investment, and solve ongoing energy shortages. In September 2013, the government and the International Monetary Fund (IMF) entered into a three-year $6.8 billion Extended Fund Facility (EFF) arrangement which sets forth a series of reform benchmarks. Since taking office, the government has implemented some macroeconomic and energy reforms, and resumed dormant privatization efforts, beginning with plans to sell government stakes in 31 public companies identified by the IMF. In April 2014, the government completed a successful, long-awaited 3G/4G wireless spectrum auction and anticipates that 3G/4G services will be introduced before the end of 2014.

The United States is consistently one of the largest sources of foreign direct investment in Pakistan and one of Pakistanís largest trading partners. The Karachi-based American Business Council (ABC), an affiliate of the U.S. Chamber of Commerce, has a membership of 63 U.S. companies operating in Pakistan across a range of industries, many of which are Fortune 500 companies. The Lahore-based American Business Forum (ABF) provides a similar platform for U.S. investors. American companies have experienced profitable investments across a range of sectors, most notably, fast-moving consumer goods and financial services.

The United States and Pakistan signed a Trade and Investment Framework Agreement (TIFA) in 2003, and TIFA Council Meetings between the two sides are held annually. The United States and Pakistan opened negotiations on a Bilateral Investment Treaty (BIT) in 2004. Negotiations occurred intermittently (most recently in August 2012) but are currently stalled.

 

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FURTHER REPORTS

April 2016 - Extract from IMF Report - Pakistan : Tenth Review Under the Extended Arrangement and Request for Modification of Performance Criteria

Improving the anti-money laundering and combating the financing of terrorism (AML/CFT) framework remains key for financial stability and tax compliance.

Parliament recently amended the AML Act to subject the proceeds of some tax crimes to AML legislation. The authorities plan to further expand the coverage of tax crimes under the AML Act, including income tax-related crimes. As authorization for the government to amend the schedule of tax crimes is already granted under the existing AML Act, the authorities do not plan to make further legal amendments (missed end-January SB) but rather to amend the schedule of the AML Act, by notification in the Federal Gazette, to include offenses under the income tax law as predicate offenses to money laundering (modified SB for May 15, 2016). In addition, they will continue strengthening the effectiveness of the AML/CFT framework in line with international standards by bolstering the Financial Monitoring Unitís analytical capability and strengthening the effective implementation of relevant United Nations Security Council Resolutions to freeze the assets of terrorist individuals and organizations.

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May 2015 - Extract from IMF Report - Pakistan: Sixth Review Under the Extended Arrangement and Modification of Performance Criteria

The Financial Action Task Force (FATF) determined that Pakistan had substantially addressed its strategic AML/CFT deficiencies. The amendments to the Anti-Terrorism Ordinance of 2013 to bring it in line with the action plan agreed with the FATF were enacted by the NA. The end-December 2014 structural benchmark requiring the enactment of amendments to the relevant tax laws and submitting the AML Act (AMLA) to the NA for approval (MEFP 28) was also met. In the end, the inclusion of serious tax offenses as predicate crimes to money laundering did not necessitate the amendments to the tax laws, and only required introducing amendments to the AMLA. In November 2014, the Financial Monitoring Unit issued guidance on the risks of abuse of the investment incentive scheme. In recognition of these efforts, in February 2015 FATF removed Pakistan from the list of jurisdictions which have strategic AML/CFT deficiencies. Going forward, staff urged the authorities to continue bolstering the effectiveness of the framework to mitigate the ML/FT risks including the proceeds of corruption and tax evasion. In particular, the authorities intend to adopt the amendments to the AMLA by end September 2015 (new SB) and bring the regulatory framework in line with the international standards, including in relation to politically exposed persons.

ďWe (Pakistani Authorities) are on track to include tax crimes in the Schedule of Offenses of the 2010 Anti-Money Laundering Act (AMLA) that will enable the use of anti-money laundering (AML) tools to combat tax evasion. The FBR has identified a list of serious tax offenses to be included as predicate offences to Money Laundering that do not necessitate amending the tax laws, and we have submitted the draft amendments to AMLA before the parliament to include serious tax crimes in the Schedule of Offenses, meeting the end-December structural benchmark. Going forward, we are committed to adopting the amendments to the AMLA that will include the serious tax crimes from the relevant tax laws (as defined in the TMU) in line with international standards by end-September 2015 (new structural benchmark).Ē

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Extract from IMF Report: Pakistan: Fourth and Fifth Reviews Under the Extended Arrangement and Request for Waivers of Nonobservance of Performance Criteria (December 2014)

In order to enable the use of anti-money laundering (AML) tools to combat tax evasion, we have started preliminary work to include tax crimes in the Schedule of Offenses of the 2010 Anti-Money Laundering Act (AMLA). The FBR has identified a list of serious tax offenses. In order to ensure that serious tax crimes are predicate offences to money laundering, we will enact amendments to the relevant tax laws (as defined in the TMU) and submit amendments to the AMLA to Parliament by end-December 2014 (structural benchmark is proposed to be rescheduled). We will also ensure that the AML framework is properly implemented to facilitate detection of potential cases of abuse of the investment incentive scheme to launder criminal proceeds. In this regard, proper guidance will be provided by the Financial Intelligence Unit to financial institutions and the FBR by end-December 2014. Finally, the Anti-Terrorism (Amendment) Ordinance 2013 has been enacted as a permanent law, in line with the action plan agreed with the Financial Action Task Force (FATF).

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9 July 2014  -  Extracted form IMF Report:  Pakistan - Pakistan: Third Review Under the Extended Arrangement and Request for Waiver of Nonobservance of Performance Criterion

"In order to enable the use of anti-money laundering (AML) tools to combat tax evasion, we have started preliminary work to include tax crimes in the Schedule of Offences of the 2010 Anti-Money Laundering Act (AMLA).

A list of serious tax offences is being identified. In order to ensure that serious tax crimes are predicate offences to money laundering, we will enact amendments to the relevant tax laws (as defined in the TMU) and submit amendments to the Anti-Money Laundering Act (AMLA) to Parliament by end-September 2014 (structural benchmark). We (Pakistan authorities) will also ensure that the AML framework is properly implemented to facilitate detection of potential cases of abuse of the investment incentive scheme to launder criminal proceeds. Proper guidance will be provided by the Financial Intelligence Unit to financial institutions and the FBR by end-June 2014. Finally, the Anti-Terrorism (Amendment) Ordinance 2013 will be enacted as a permanent law, in line with the action plan agreed with the Financial Action Task Force (FATF).

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