Money Laundering and Terrorism Financing have become two of the most pressing crimes in the modern world. In recent year, failure to enhance our AML/CFT regimes is one of the reasons why Pakistan has found it so difficult to get off FATF’s grey list

What is Terrorism Financing?

Terrorism financing is “the financing of terrorist acts, and of terrorists and terrorist organizations”.In Pakistan, while there is no explicit definition of “terrorism financing;’ the Anti-Terrorism Act 1997, criminalizes any such activity which raises any reasonable suspicion that the funds raised and assets acquired (legally or illegally) are or will be used for the purposes of funding acts of terrorism or proscribed individuals and organizations.’

What is Money Laundering?

Money laundering is most notably defined in the UN Convention Against Transnational Organized Crime. Article 6 of the Convention identifies four actions that constitute as money laundering:

  • Conversion or transfer of crime proceeds for the purpose of concealing their illicit origin;
  • Concealment or disguise of crime proceeds;
  • Acquisition, possession or use of crime proceeds; and
  • Contributing indirectly to the commission of the offences outlined above, including participation in and conspiring or attempting to commit the offences in question.

To convert and conceal are essential elements of the laundering process; however, it is important to note that “laundered funds” never become legitimate. Such funds only have the appearance of legitimacy on account of a complicated and obscured money trail that would otherwise point towards the illegal source of origins of the funds.

Money laundering often involves a 3-step scheme:

  1. Placement- The introduction of money into the financial system in one way or another;
  2. Layering – Financial transactions intended to conceal the illegitimate sources of the funds and to blend them with legitimate sources;
  3. Integration – Obtaining funds generated through transactions involving illegitimate funds. 

Difference between Money Laundering and Terrorism Financing

In recent years, links have been found between terrorist financing and money laundering. While terrorist financing involves the collection or provision of funds for terrorist purposes, money laundering refers to “the process of concealing the iIlegal origin of profits from cri me:’ Accordingly, the funds involved in money Iaundering will aIways be of illicit origin. However, when it comes to terrorist financing, funds can originate from either legal sources, illegal sources, or both

What is a Predicate Offence?

A predicate offence is a crime that is often the component of another more serious crime. Crimes or actions may be considered predicate offences or predicate acts if they are “related to, pave the way for, or have the same or similar purpose of the larger crime:’ Predicate offences are considered as related offences i.e. they are not merely isolated actions but part of a chain of interconnected crimes. 

What are Proceeds of Crime?

Money laundering falls into the category of organized crime; the main goal of which is to generate profit through criminal activity. The proceeds of crime, therefore, are money or assets gained by perpetrators during the course of their criminal activity.

Under Pakistan’s Anti-Money Laundering Act, 2010, the term “proceeds of crime” is defined as”any property derived or obtained directly or indirectly by the commission of a predicate offence or a foreign serious offence:’ The term “property” here is meant to include all property and assets of any description whether moveable or immoveable, tangible or intangible, including deeds and instruments that express ownership of any such asset and cash and monetary instruments. All property involved in money laundering or gained through criminal activity constitutes proceeds of crime. 

In the AML/CFT regime, the categorization of the proceeds of crime is critical since such proceeds will be subject to confiscation and can be attached, deposited, forfeited, and seized by law enforcement agencies during the investigation and prosecution of ML/CFT cases.

International Legal Framework of AML/CFT 

Treaties

The United Nations has adopted various instruments (i.e. Conventions or Protocols), and Resolutions imposing obligations on Member States to counter terrorist financing. The most important convention on the subject of terrorism financing is:

The International Convention for the Suppression of Financing of Terrorism aims to prevent the financing of terrorism by obliging States Parties to adopt a range of preventive measures, and others aimed at facilitating the effective investigation and prosecution of crimes related to terrorist financing.

UNSC Resolutions

The two most relevant United Nations Security Council Resolutions that call for the suppression of terrorism and the countering of financing of terrorism are:

Resolution 1267 (1999) – which designated Osama bin Laden and his associates as terrorists and established a sanctions regime to cover individuals and entities associated with Al Qaeda and Osama bin Laden. The regime is composed of a UN Security Council Committee, that identifies and designates a “consolidated list” of people and entities that have been associated with Al-Qaeda or the Taliban, and evaluates laws that ought to be passed within each member nation in order to implement the sanctions.

Resolution 1373 (2001) – which calls on States to prevent and suppress the financing of terrorism, inter alia, by criminalizing the collection and provision of funds for terrorist purposes and urges them to set up an effective mechanism to freeze funds and other financial assets of persons involved in or associated with terrorism.

FATF

The Financial Action Task Force is an inter-governmental body established by the G-7; the purpose of which is to set international standards relating, but not limited, to money laundering and terrorist financing. Although the FATF was previously concerned with money laundering, following 2001, it expanded its scope to cover the funding of terrorist organizations and individual terrorists, outlining a number of recommendations for this purpose. These include recommendations pertaining to:

  • The criminalization of terrorist financing (Recommendation 5);
  • Targeted financial sanctions related to terrorism & terrorist financing (Recommendation 6);
  • Measures to prevent the misuse of non-profit organizations (Recommendation 8).

To learn more, explore our dedicated FATF page