By M. Aftab (ANALYSIS)
16 September 2007
ISLAMABAD — Stiff punishments will be handed down for money laundering under a new legislation, complying with United Nations Security Council's Counter-Terrorism Committee resolution, and US demand.
AMLO
Anyone convicted of money laundering will be handed down a jail term which is not less than one year imprisonment, but it can be as long as ten years for offenders. The convicts will also be liable to a fine which may extend to Rs 1 million, and will also be liable to forfeiture of the property involved in money laundering.
The new 'Anti-Money Laundering Ordinance-2007', (AMLO) Ordinance Number XLV of 2007, focuses on curbing alleged illegal forex deals, and suspicions that such money may be funding terrorists in the region.
The legislation has been promulgated through a Presidential Ordinance to coincide with the sixth anniversary of 9/11 attacks on US. It was being discussed by various stake holders and on different fora over the last one year. It comes into force immediately, but will later be tabled in the National Assembly for Parliamentary approval.
AMLO plugs the informal 'hawala'‚ or 'hundi'‚ market. The market has operated almost freely since the petro-dollar boom in early 1970s and deployment of Asian and other nationals in the Gulf-Middle East. Hawala‚ or hundi‚ provides a fast, low cost service to remitters of forex to families back home at the doorstep of the receivers. It is without the hassle of official or formal banking channels, in countries including Pakistan. The collection and delivery, often, is completed the same day, including in the villages and areas were no banking services exists.
But the hawala‚ or Hundi service has come under growing scrutiny in the last few years, especially since 9/11, as Western countries suspect it has, or it may be used to transfer foreign funds to terrorists or terrorist organisations in the region.
This service, reportedly, has also been used to some extent by tax-dodging businessmen and exporters. There are reports of Pakistani exporters retaining some of their export earnings abroad to dodge taxes, and then bring in the money through these informal channels. Reports also says that some of businessmen have been sending abroad their previously earned tax-evaded or black money through these informal services, and then bring it back via official banking channels to whiten it.
However, no hard data on such transactions has been officially quantified. Money transfers of drug-related, gun-running and smuggling, have also tarnished the process of hundi‚ and hawala.‚
FDI
Stiff official restrictions on in-bound and out-bound forex transactions because they were facing severe hard currency shortages. That pushed a lot of forex business into the hands of informal money transferers. Pakistan's inflows in 2007 included $ 17.01 billion on account of exports, $ 8.42 billion foreign direct investment (FDI), and $ 6.5 billion home remittances sent by overseas Pakistanis working in the Gulf, Middle East, UK and US. In addition, there were government‚s borrowing of $ 3.044 billion and bilateral and multilateral assistance. Pakistan's current forex reserves are around $16 billion. The amount includes $ 13.5 billion reserves with SBP, and $ 2.5 billion held by commercial banks. SBP says external liabilities at end-June, 2007 were $ 40 billion.
The Ordinance (AMLO) provides that a person shall be guilty of the offence of money laundering, if the person acquires, converts, posses, or transfers property, knowing or having knowledge or having reason to believe that such property is proceeds of crime. The person is also guilty if he renders assistance to another person for acquisition, conversion, possession or transfer of, or for concealing or disguising the true nature, origin, location, disposition, movement or ownership of property, knowing or having reason to believe that such property is proceed of crime.
Under the AMLO a Financial Monitoring Unit (FMU), will be formed in the SBP or at any other place. It will have an independent authority to take decisions on day to day matters.
AMLO lists 10 specific powers and functions of FMU. These cover a range of areas from receiving reports of suspicious transactions to maintaining data. The Ordinance lays down procedure for providing information by financial institutions, attachment of property linked to money laundering, the investigation procedures, vesting of property in Pakistan‚s federal government, powers to arrest, search for persons involved, retention of property, power of survey and management of the forfeited property.
Law
The law also provides that no civil or criminal proceedings against banks and financial institutions will be initiated in certain cases. A 6-member National Executive Committee (NEC) will be formed within 30 days of AMLO enactment. The Minister for Finance will head the NEC, which will include senior ministers advisors or officials belonging to law, foreign affairs, justice, interior, Governor SBP and Chairman Security & Exchange Commission of Pakistan. It will determine offences to be considered predicate offences for the purposes of AMLO. NEC will also draft rules and directions to the departments and institutions responsible for implementation of AMLO.
The legislation, officials hope, will encourage transfer of money through legal banking channels, which in turn, will reduce transactions through hawala‚ or hundi‚ for transferring money.
Pakistan, in order to monitor, forex transactions by money changers had, some years ago, started registering the money changing companies and put them under SBP's discipline. The larger and well-known money changing companies are already registered with SBP. Their daily buy and sell rates are published and are put on the electronic media several times a day. Sale and purchase of forex by private citizens is virtually free.
Foreign investors are allowed 100 per cent repatriation of dividend, profits and principal amount of investment. Similarly principal amount of portfolio investments and all dividends are freely repatriable. The market has no yet reacted to promulgation of AMLO. But, in case AMLO reduced forex inflows, the Dollar-Rupee parity can be affected.
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