Money laundering is a global
menace sans boundaries, faith or ideological frontiers. Technological
advancements and economic interests have reduced this world into a global
village thereby providing massive opportunities for criminals to manipulate
otherwise eroding jurisdictional barriers in their favour with relative ease. By
carefully using legal money transmission channels the proceeds of a crime
perpetrated in a remote area in South America may easily land up unnoticed in
Dubai en-route to Europe. The frequency and relative ease in laundering money
shook the global conscience. As events unfolded it became apparent to the world
that money laundering was directly connected with terrorist financing. This
deadly combination posed a grave and imminent danger to world economy, stability
and above all world security. This imminent global danger demanded a swift
global response.
The United Nations as flag bearer of the comity of nations took upon itself to
introduce and enforce various legal instruments to fight corruption in any form.
Money laundering and terrorist financing captured the concern of the United
Nations. An appropriate and strong message was sent out by the United Nations
and an evolving strategy was formulated. Even before 9/11, the United Nations
had embodied the money laundering aspect in its 1988 United Nations convention
against the Illicit Traffic in Narcotics Drugs and Psychotropic Substances, the
United Nations Convention against Transnational Organized Crime and United
Nations Convention against Corruption and the International Convention for the
Suppression of the Financing of Terrorism. After 9/11, enough evidence was
available that established the links between terrorism, transnational organized
crime, the international drug trade and money laundering. In September 2001, the
United Nations Security Council unanimously adopted wide-ranging anti-terrorism
Resolution No 1373. This resolution in essence is the backbone of international
response to counter terrorism and terrorist financing. Another important
international development in combating money laundering was the establishment of
Financial Action Task Force (FATF) in the year 1989. This is an
inter-governmental policy making body, comprised of over 30 countries, that has
a ministerial mandate to establish international standards for combating money
laundering and terrorist financing. Recommendations given by the FATF prescribed
the measures to be adopted by the member states and other jurisdiction to
counter money laundering and terrorist financing. Some of these key measures
include: Introduction of legal and regulatory regimes to check money laundering;
following Customer Due Diligence (CDC) /Know Your Customer (KYC); proper record
keeping; reporting of suspicious transactions; establishment of competent
authorities, their powers and resources; freezing of funds and confiscation of
terrorist assets; and establishment of asset forfeiture fund. Over 180
jurisdictions including Pakistan have joined FATF or an FATF style regional body
to implement the FATF standards and having their anti-money laundering/counter
terrorist financing (CFT) systems assessed and introduced legal frame to combat
the issue of Money Laundering.
Review of the literature discovered that money laundering is not a new
phenomenon. The origins of money laundering can be traced back to as early as
1930s in organized criminal activities (Bosworth-Davies & Saltmarsh, 1994).
However, after September 11, 2001, worldwide efforts to combat money laundering
and the financing of terrorism have become prime importance. The FATF has
established an international standard against money laundering and terrorist
financing and produced recommendations that should be adopted. The FATF measures
are viewed as the leading international anti-money laundering standards that
provide an enhanced, comprehensive and consistent framework for combating money
laundering and terrorist financing. This framework serves as an international
benchmark for national governments to implement within their respective national
jurisdictions, for the detection, prevention and suppression of money laundering
and the financing of terrorism. A group of studies have taken initiatives to
examine the magnitude and scope of money laundering and terrorism financing
problems (Schott, 2006; Biagioli, 2008; Zdanowicz, 2009; Walker & Unger, 2009)
and investigated how the money is being laundered (Unger et al., 2006; Unger,
2007). Other studies focused on the role of technology in money laundering
compliance (Reuda, 2001), money laundering techniques and typology (Ping He,
2010; Irwin, 2011) and money laundering focusing on Hawalla (Bala, 2005).
Generally, the findings revealed that the banking sector is the most risky
sector. Irwin et al. (2011) have examined the size of money laundering and
terrorism financing problems, identifying threats and trends, the techniques
employed and the amount of funds involved. The findings revealed that money
launderers prefer to use techniques that maintain high levels of anonymity and
appear innocuous. A review of the literature shows that there is a dearth of
studies that have empirically examined the issue of the compliance measures.
Despite limited studies, some studies have examined the measures on combating
money laundering and terrorism financing (He, 2007; Zhu & He, 2003). Ping He
(2010) examined money-laundering techniques and he discovered that the ways
money is laundered include cash smuggling, making use of banks or insurance
company, or making use of shell-company or front-company. He also found that
criminals often prefer to launder money through non-face to face transactions.
Studies in relation to money laundering and terrorist financing in the world
including in Pakistan tend to focus on the development of statutes, regulations
and conceptual rather than the actual implementation of these measures. The
empirical studies that have examined money laundering and terrorist financing
often focused on factors that underpin the pervasiveness of money laundering (Vaithilingam
& Nair, 2007).
As a consequence of terrorist organizations operating in the region relying on
different means to finance their operations and using different methods to
channel their funds, a variety of responses will necessarily be needed for
successful counterterrorist finance measures in the region. Anti-Money
Laundering Act, 2010 is one of the measures taken by the government of Pakistan
to fulfill its international obligations. This law has provided the basic legal
framework to counter money laundering and terrorist financing. Even though there
is dire need for improvement in the current legal frame work.. Therefore, the
following questions are developed:
1. What is the extent of anti money laundering prevention measures taken by the
Anti-Money Laundering Act, 2010?
2. Is there any gap between International Standard prevention measure and the
level of adoption of the anti money laundering 2010 prevention measures?
3. What are the critical success factors in ensuring successful implementation
of anti money laundering legal framework in Pakistan?
4. Whether the Chinese AML is playing effective role in prevention of Illicit
money?
5. Whether Chinese AML can be examined as Model Law for improvement of Pakistan
AML legal framework?
This comparative study of terrorist financing and government responses in
Pakistan examined how terrorist groups in the region finance their activities,
what measures, legislative and otherwise, have been employed by the governments
of Pakistan to combat terrorism financing, and what factors account for the
discrepancy of norm acceptance and compliance in the region. In fact money
laundering is a general source of funding for terrorist groups in the region
including others i.e. criminal activities, charities, and commercial activities
but most terrorist groups depend on the general sources being easier access for
transnational groups. There is need of research to examine the Pakistani
response to international standards along with efforts taken for combating the
money laundering issue within the country.
* Writer currently is Dy Director (law) Anti-Narcotics Force, Sindh.