Anti Money Laundering (AML) in Pakistan

Money laundering in Pakistan is a pervasive problem. Financial crimes related to narcotics trafficking, terrorism, smuggling, tax evasion, and corruption remain a significant problem in Pakistan. The proceeds of narcotics trafficking and funding for terrorist activities are often laundered by means of the alternative remittance system called hawala. This system is also widely used by the Pakistani people for legitimate purposes.

The National Accountability Bureau (NAB), the Anti Narcotics Force (ANF), the Federal Investigative Agency (FIA), and the Customs Authorities oversee Pakistan’s AML law enforcement efforts. The major laws in these areas include: The Anti-Terrorism Act of 2002, which defines the crimes of terrorist finance and money laundering and establishes jurisdictions and punishments (amended in October 2004 to increase maximum punishments); The National Accountability Ordinance of 1999, which requires financial institutions to report suspicious transactions to the NAB and establishes accountability courts; and The Control of Narcotic Substances Act of 1997, which also requires the reporting of suspicious transactions to the ANF, contains provisions for the freezing and seizing of assets associated with narcotics trafficking, and establishes special courts for offenses (including financing) involving illegal narcotics. All these laws include provisions to allow investigators to access financial records and conduct financial investigations.

In 2007, Pakistan enacted the AML Ordinance, establishing regulations for AML and combating the financing of terrorism and criminalizing money laundering. Under the Ordinance, the Financial Monitoring Unit (FMU) is created. The FMU serves as Pakistan's FIU and is in charge of handling Suspicious Transaction Reports (STRs). In 2010, the State Bank of Pakistan (SBP) passed the Anti-Money Laundering Act. The Act thereby replaces the 2007 AML Ordinance.

The FMU works with several Pakistani law enforcement agencies that are responsible for enforcing financial crime laws, including the National Accountability Bureau (NAB), the Anti-Narcotics Force (ANF), the Directorate of Customs Intelligence and Investigations (CII) and the Federal Investigative Agency (FIA).

The FIA deals with crimes relating to money laundering, terrorism, human smuggling and trafficking and cyber crime, among others.

The State Bank of Pakistan (SBP) and the Securities and Exchange Commission of Pakistan (SECP) are the primary financial regulators. Notwithstanding the absence of stand alone AML legislation, the SBP and SECP, have independently established AML units to enhance their oversight of the financial sector. The SBP has introduced regulations intended to be consistent with the Financial Action Task Force’s (FATF) recommendations in the areas of a Know Your Customer (KYC) policy, record retention, due diligence of correspondent banks, and the reporting of suspicious transactions.

AML Training in Pakistan

In accordance with Pakistan’s 2007 AML Ordinance, a General Committee must be in place to review all training programs related to Anti Money Laundering (AML). An ongoing comprehensive training program is essential for the continued growth and success of financial institutions in Pakistan.

The Economy of Pakistan

Pakistan, an impoverished and underdeveloped country, has suffered from decades of internal political disputes, low levels of foreign investment, and a costly, ongoing confrontation with neighboring India. However, since 2001, International Monetary Fund (IMF) approved reforms, most notably, privatization of the banking sector, bolstered by generous foreign assistance and renewed access to global markets, have generated macroeconomic recovery. Poverty levels have decreased by 10% since 2001. Inflation remains the top concern among the public, jumping from 7.7% in 2007 to more than 11% during the first few months of 2008, primarily because of rising world commodity prices.

Banking in Pakistan

The State Bank of Pakistan is the Central Bank of the country. The State Bank of Pakistan performs both the traditional and developmental functions to achieve the country’s economic goals. One of the fundamental responsibilities of the State Bank is the regulation and supervision of the financial system to ensure its soundness and stability as well as to protect the interests of depositors.

Additional functions of the State Bank of Pakistan include:

• Issuing currency.
• Regulating and supervising the functional system.
• Performing the functions of a banker to the government.
• Constructing monetary policy.

The State Bank also has been playing an active part in the process of Islamization of the banking system.

Pakistan Currency

The basic unit of the Pakistani currency is the Rupee (R). The rupee is divided into 100 paise. Denominations for coins are 1Rs, 2Rs, 5Rs, and 10Rs. Denominations for banknotes are 10Rs, 20Rs, 50Rs, 100Rs, 500Rs, 1000Rs and 5000Rs.

Other Key Statistics of Pakistan

Time Zone: UTC+5 (10 hours ahead of Washington, DC during Standard Time).

Location: Southern Asia, bordering the Arabian Sea, between India on the east and Iran and Afghanistan on the west and China in the north.

Population: 172,800,048 (July 2008 est.).

Labor Force: Approximately 42% work in agriculture, 20% in industry and 38% in services industries. The unemployment rate is 6.2%.

Languages Spoken: Punjabi, Sindhi, Siraiki (a Punjabi variant), Pashtu, Urdu (official), Balochi, Hindko, Brahui, English (official; lingua franca of Pakistani elite and most government ministries) and Burushaski.

Trade Organizations: Pakistan is a member of the United Nations (UN) and an observer of the World Trade Organization (WTO).