FATF and Pakistan
The Financial Action Task Force (FATF) is an intergovernmental organization founded by the G7 to develop policies for curbing money laundering and financing of terrorism. FATF primarily works to set standards and guidelines that promote the implementation of legal, regulatory and operational measures for Countering Financing of Terrorism Financing and Anti-Money Laundering, (CFT/AML) in order to preserve the security and integrity of the global financial system.[1] In light of this, FATF has issued 40 Recommendations and nine special recommendations to countries as the legal framework to target Terrorism Financing /Money Laundering, (TF/ML) and offers technical guidance that would enhance technical compliance and effective implementation of laws to member countries.[2]
In 2018, FATF placed Pakistan on its ‘grey-list’ citing ‘structural deficiencies’ that resulted in failure to target terrorism financing and money laundering.[3] These included lack of necessary legal frameworks to target TF/ML, lack of coordination amongst governmental actors and law enforcement agencies, and no coherent risk-based assessment tools.[4] FATF instructed Pakistan to abide by the Action Plan, and improve legislative frameworks so as to align with international standards.[5] By October 2019, Pakistan’s progress in overhauling and amending its existing laws was acknowledged by the global community, but it was still kept on the grey list as it had fully complied with only 5 targets on a 27-target plan, with varying levels of implementation on the remaining targets.[6]
With the FATF Week underway in Paris, a final decision is expected on Pakistan’s status on the 21st of February 2020.[7] In light of these developments, this article factually highlights the legislative changes that Pakistan has introduced since 2019 in light of the initiative to implement FATF’s 27-point Action Plan. It concludes with further legislative amendments expected to be implemented in the near future.
Foreign Exchange Regulation Act (Amendment) Bill 2020[8]
The FERA Act (1947) governs the movement of foreign currency and other forms of monetary instruments such as securities and bullion. The purpose behind the amendment in 2013 was to create a standardised regime allowing the State Bank of Pakistan to act as a regulator in this field and to implement stricter punishments.
Amendments to Section 8 of FERA Act stipulate that limits ought to be introduced to the movement of money within Pakistan. According to Section 8A, foreign currency or other physical items valued at USD 10,000 can be moved or transferred within Pakistan; any amounts exceeding this limit will require prior permission and would have to meet other procedural requirements set by the State Bank of Pakistan. Changes were also made in section 23, that further strengthens the role of the State Bank as the central regulator and cements offences and/or violations as “cognizable and non-bailable” under the Act.
These amendments to FERA however have been challenged in the Senate in January 2020. Section 8A, imposing limits on transfers above USD 10,000 was “unanimously rejected” by members of the Senate Standing Committee on Finance,[9] while incorporating other amendments.
This bill, along with the AMLA Amendment Bill 2019 are currently back at the National Assembly for further deliberation with suggestions from the Upper House.[10]
Anti-Money Laundering (Amendment) Bill, 2019[11]
In September 2019, the Anti-Money Laundering (Amendment) Bill 2019 was laid in the National Assembly. The purpose of the amendment was to strengthen the current Anti Money Laundering regime in the country with more stringent provisions.
According to the Bill, Anti Money Laundering Act (AMLA) offences under Section 21 would now be considered “cognizable” offences as opposed to “non-cognizable” in line with the recommendations of the Financial Action Task Force (FATF).[12] Furthermore, violators of the law would now be subject to greater financial penalties i.e. fines would be increased from 1 million rupees to 5 million rupees, and sentences would be increased from two years to ten years imprisonment (Article 4).[13] The amended AMLA also equips the investigating officer with the authority to hold a person in remand for up to 180 days, up from 90 days previously (Article 8, subsection 1), and further does not require the need to obtain arrest warrants (Article 16, subsection 1).[14]
The Senate Standing Committee on Finance, however proposed certain suggestions regarding the penalties imposed. The Ministry of Finance suggested that imprisonment terms for violations should range from “one to ten years” instead of ten years, and the amount of fine range should extend from “one million to five million rupees.[15]” It was also cited within the debate that this Bill along with FERA Amendment Act, were critical in bolstering local AML/CFT frameworks, as well as Pakistan’s standing with the Financial Action Task Force, especially prior to the review meeting in February 2020. Currently, this Bill is back at the National Assembly where the recommendations from the Upper House will be deliberated upon.[16]
Mutual Legal Assistance (Criminal Matters) Act (MLA) 2020[17]
The MLA Act 2020, formalizes the processes of requesting and providing legal assistance to and from foreign governments when investigating criminal conduct. Section 3 of the Act states that the manner of MLA may be provided on the basis of a reciprocal agreement or other arrangements; and if both do not exist, then the provisions of the MLA Act will prevail.
As per the bill, Pakistan would receive and act upon requests relating to a criminal offence either committed or suspected to have been committed in a foreign country when notified. After an MLA request has been sought by Pakistan, the central authority[18] may authorize temporary detention in Pakistan of the offender, if he has been in detention in the sending state. Section 17 also stipulates that Pakistan may refuse the request of assistance to a foreign government if it jeopardizes its national security interests or if the request made is contrary to the laws of Pakistan.
Concerns arose about the potential misuse of power by the central authority, as it rests only with one person effectively. Opposition senators have noted that such authorities can undermine the sanctity of the process, opening it up for political uses or selective targeting.[19]
This Act was designed to accommodate international cooperation in criminal matters through mutual legal assistance. In the statement of objectives and reasons, it is mentioned that the Act intends to bridge existing gaps in countries towards effective law enforcement. Debates in the Parliament have also highlighted the inclusion of this Act as part of a wider governmental effort to curb terrorism financing and money laundering, as part of the FATF’s recommendations.[20]
Amendments to the ATA 1997 (2020)[21]
The amendments finalized in the Anti-Terrorism Amendment Bill (2020) identify harsher punishments for certain violations. Section 11O lays out the procedure for seizure, freeze and detention under S.11B and S.11EE of properties controlled by proscribed organizations and individuals. The recent amendments have increased the punishment for violation from 10 million rupees fine, to 10 years imprisonment on conviction and/or a fine of rupees twenty-five million. It has also promulgated action against public servants or officers who are negligent in complying with sub-section (1) of 11O.
The insertion of a new section (11OOO), criminalizes any violations of United Nations Security Council Resolutions, enacted via Section 2 of the United Nations (Security Council) Act 1948. Violations would be penalized by a prison term of ten years and/or a twenty-five million rupee fine. Additionally, if a ‘legal person’ commits an offence, the accused would be liable to pay fifty million rupees on conviction. Any negligence on part of public officials would also be sanctioned with relevant administrative action.
As per the objectives of the amendment, it is explicitly mentioned that this section aims for compliance under the UNSCR 1267 and 1373 regime to facilitate countering of terrorism financing. These resolutions enact sanctions via powers of asset freeze, travel ban and arms embargo, and promote the restructuring of the domestic legal framework that will allow these sanctions measures to get effectively implemented Hence. The insertion of 11OOO was an attempt at further entrench the UNSCRs in Pakistan’s domestic legal framework.
NACTA Amendment Ordinance 2019[22]
The National Counter Terrorism Authority (NACTA) Act was amended by way of a Presidential Ordinance, coming into immediate effect on 8th November 2019 for 120 days. The amendments herein mainly concerned changes in the hierarchy of governmental actors in order to streamline the process of coordination with various law enforcement actors. Section 3(2) of the Act is removed in the ensuing amendment, and the Board of Governors convening the Authority will now be led by the Minister in-charge of Interior Division in lieu of the Prime Minister (Section 5(1)).[23] In the same sub-section, the new amendments state that the Board of Directors will now include Home Secretaries and Inspector-Generals of Police from all provinces, Islamabad Capital Territory, Gilgit-Baltistan and State of Azad Jammu and Kashmir in the Board of Governors.
In Section 8, changes were made in the membership of the Executive Committee (EC). The Ordinance now allows Additional Secretaries instead of Secretaries of relevant ministries as well as Additional Secretaries of Home Ministries of all provinces, Gilgit-Baltistan, ICT and State of Azad Jammu and Kashmir to attend the meetings of the EC.
As specified by the amendment bill, the primary objective of the Ordinance and its amendments are to counter the increased violence and terrorist activities in the provinces of Khyber Pakhtunkhwa and Balochistan. Therefore, to counter these threats, the Ministry of Interior and all relevant stakeholders ought to be empowered through NACTA to enact changes “on war footings.”[24] These amendments will therefore allow NACTA as an authority to react more effectively and efficiently to emerging threats to internal peace.
A private member’s bill, the National Counter Terrorism Authority (Amendment) Bill 2019 was also introduced to formalize the changes introduced by the Ordinance in the NACTA Act of 2013.[25] In the Senate however, the current Minister of Interior raised concerns with respect to this bill.[26] The Senate Standing Committee currently is looking into recommendations that would increase coordination with all provincial actors and implement short, medium and long-term goals, as well as regularize reporting to the Parliament.
Benami Transactions (Prohibition) Rules 2019 and Benami Transactions Ordinance 2019[27]
The Benami Transactions (Prohibition) Act 2017 enables relevant regulators to draft rules and regulations curtailing the practice of benami transactions. These involve layering and integrating assets into the formal financial system under the names of the extended family members or others, instead of the owner. Benami transactions are therefore used extensively for the purposes of money laundering, tax evasion and terrorism financing. With the passing of the Benami Transaction (Prohibition) Rules by the Federal Board of Revenue (FBR) in March 2019, the Benami Transactions (Prohibition) Act 2017 has come into force.[28]
The Benami Transactions (Prohibition) Rules, issued by the FBR, define the ambit of benami property, the benamidar and the beneficial owner with respect to transactions. It lays out the following framework of the offence for violating the rules:[29]
| Offence | Rigorous imprisonment | Fine (% property value) |
| Benami transaction or property | 1 to 7 years | 25% |
| False statement/ information | 6 months to 5 years | 10% |
The Benami Transactions Ordinance 2019 further adds to the Benami Rules 2019. This Ordinance enhances the definition and scope of whistle-blowers, allowing entities and agencies to act in the capacity of whistle-blowers. Furthermore, it allows the information obtained by the National Accountability Bureau (NAB) and the Federal Investigation Agency (FIA) to be used for the purpose of tracing and identifying real owners of Benami properties.
The primary reason provided in the objectives statement for the Ordinance is to expand the term “whistleblower” as it appears in the initial Rules.[30] Previously, whistle-blowers were restricted only to individuals – the Ordinance now expands this to include other entities and agencies as well. These whistleblowers can file a complaint or provide information concerning benami property for offences that are also included under the NAB Ordinance 1999, the Schedule in the FIA Act 1974, AMLA 2010, Securities Act 2015 as well as other federal and provincial laws. This would further strengthen the AML regime in Pakistan, targeting particularly the transfer of real estate, which has been identified as a highly vulnerable sector for Pakistan in terms of parking laundered funds[31].
Proposed Amendments
In February 2020, the National Executive Committee (NEC) announced that it would introduce major amendments to at least a dozen laws in the coming months.[32] The NEC is a high-level body, comprised of representatives of various Ministries and law enforcement agencies, and is at the forefront of spearheading the initiative to strengthen the AML/CFT regimes in the country.
Going forwards, the NEC has resolved to introduce amendments and other changes to the following statutes and/or subordinate legislations[33]:
1948 – Including rigorous penalties for proscribed terrorists and organizations under the United Nations (Security Council) Act of 1948. This includes upping fines to Rs. 200 million and prison sentences to 10 years.
1949 – Amendments to the Criminal Procedure Code (CrPC) to meet international standards.
- Amendments to the Companies Act 2017 to comply with FATF standards in curbing money laundering.
- Enhancing the role of regulators, particularly the Securities and Exchange Commission of Pakistan (SECP), Federal Board of Revenue and Ministry of Finance to regulate at-risk sectors in the economy, particularly Pakistan Post and Central Directorate of National Savings, and accounting professions.
- Creation of a national registry of all Non-Profit Organizations (NPOs) and Non-Governmental Organizations (NGOs), operating in all four provinces plus Azad Jammu and Kashmir, Gilgit-Baltistan and the Islamabad Capital Territory (ICT).
- Empowering the Federal Board of Revenue (FBR) to regulate the real estate and precious stones and metals and jewelry sectors.
- Bolstering the powers of the Ministry of Law and the Pakistan Bar Council to regulate lawyers, legal advisers and law firms in Pakistan.
Written and Compiled by Noor Fatima, Junior Research Associate, RSIL.
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[1] Financial Action Task Force (FATF) Mandate – 2019
http://www.fatf-gafi.org/publications/fatfgeneral/documents/fatf-mandate.html
[2] International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation – Recommendations, Financial Action Task Force, 2019
http://www.fatf-gafi.org/media/fatf/documents/recommendations/pdfs/FATF%20Recommendations%202012.pdf
[3] Pakistan formally placed on FATF grey list, Express Tribune, June 2018
https://tribune.com.pk/story/1746079/1-pakistan-formally-placed-fatf-grey-list/
[4] Mutual Evaluation Report for Pakistan – Financial Action Task Force (FATF) – 2019
[5] FATF Plenary Meetings – Summaries
http://www.fatf-gafi.org/about/outcomesofmeetings/
[6] Pakistan Avoids FATF Black List, Express Tribune, October 2019
https://tribune.com.pk/story/2082459/2-pakistan-avoids-fatf-blacklist/
[7] FATF Week – February 17th to 21st, 2020 – FATF Plenary Meetings Schedule
http://www.fatf-gafi.org/about/outcomesofmeetings/
[8] Foreign Exchange Regulation Act (Amendment) Bill 2020 – National Assembly website http://www.na.gov.pk/uploads/documents/1569853174_550.pdf
[9] Amendments to FERA Act: Senate body rejects amendment, The News, January 2020 https://www.thenews.com.pk/print/595252-amendments-to-foreign-exchange-regulation-act-senate-body-rejects-ban-on-movement-of-10-000-within-country
[10] Upper House Passes Two Bills With Amendments, Dawn, February 2020 https://www.dawn.com/news/1533950/upper-house-passes-two-bills-with-amendments
[11] Anti-Money Laundering Amendment Bill 2019 – Senate website http://www.senate.gov.pk/uploads/documents/1570095279_375.pdf
[12] Statement of Objects and Reasons by Minister Asad Umar in the National Assembly – Anti-Money Laundering (Amendment) Act 2019.
http://www.na.gov.pk/uploads/documents/1555947877_691.pdf
[13] Money Launderers to get 10 years prison, Rs 5m fine. DAWN. 30 July 2019
https://www.dawn.com/news/1497091
[14] Anti-Money Laundering (Amendment) Act 2019.
http://www.na.gov.pk/uploads/documents/1555947877_691.pdf
[15] Senate Body Clears Changes to AML, FERA Law, Business Recorder, January 2020 https://www.brecorder.com/2020/01/08/559964/senate-body-clears-changes-to-aml-law-fera/
[16] Upper House Passes Two Bills With Amendments, Dawn, February 2020 https://www.dawn.com/news/1533950/upper-house-passes-two-bills-with-amendments
[17] Mutual Legal Assistance Act 2020 – National Assembly Pakistan http://www.na.gov.pk/uploads/documents/1578569409_518.pdf
[18] The central authority figure is regarded as the focal point of contact for foreign and local governments in initiating and facilitating MLA matters. According to Section 2c, the central authority defined in this Act directly refers to the secretary of the Ministry of Interior, or such officer not less than a joint secretary of the government.
[19] FATF-related Bill passed by the Senate body, January 18, 2020 https://www.brecorder.com/2020/01/18/562773/fatf-related-bill-passed-by-senate-body/
[20] Ibid.
[21] The Anti-Terrorism Amendment Act 2020 – National Assembly Pakistan http://www.na.gov.pk/uploads/documents/1580477563_927.pdf
[22] National Counter Terrorism Amendment Ordinance 2019 – Senate Pakistan http://www.senate.gov.pk/1web/ordinance/ordVIIof2019.pdf
[23] National Counter Terrorism Amendment Ordinance 2019 – Senate Pakistan http://www.senate.gov.pk/1web/ordinance/ordVIIof2019.pdf
[24] National Counter Terrorism Amendment Ordinance 2019 – Senate Pakistan http://www.senate.gov.pk/1web/ordinance/ordVIIof2019.pdf
[25] National Counter Terrorism (Amendment) Bill, 2019 – National Assembly Pakistan http://www.na.gov.pk/uploads/documents/1569934540_678.pdf
[26] Interior Ministry Opposes NACTA Amendment Bill, Dawn, November 2019
https://www.dawn.com/news/1518135/interior-ministry-opposes-nacta-amendment-bill
[27] Benami Transactions (Prohibition) (Ordinance) 2019 – National Assembly Pakistan http://www.na.gov.pk/uploads/documents/1573190392_853.pdf
[28] Bilal Hassan, Understanding Benami Law, Dawn, March 2019
https://www.dawn.com/news/1471612
[29] Benami Transactions (Prohibition) Rules, Federal Board of Revenue (FBR) – March 2019
http://download1.fbr.gov.pk/SROs/2019311153296811SRO326-2019BenamiTransactionsRules2019.pdf
[30] Benami Transactions (Prohibition) (Ordinance) 2019 – National Assembly Pakistan http://www.na.gov.pk/uploads/documents/1573190392_853.pdf
[31] National Risk Assessment – Mutual Evaluation Report for Pakistan – Financial Action Task Force (FATF) – 2019
[32] Dozen Laws to be amended to meet FATF requirements, Dawn, February 2020
https://www.dawn.com/news/1531832
[33] Ibid.
