16-Jul-15

Anti-Money Laundering (AML)

Submitted to
Sir Khalil Ahmad Rao

Submitted by

Arslan Nawaz (L1S14MBAM1101)

Adeel Asghar (L1S14MBAM0117)
Waleed Sheikh( L1S14MBAM0046)
Mudassar Hussain (L1S14MBAM0129)
1: What is meant by Anti Money Laundering?
Money laundering is legitimization (washing) of illegally or legally obtained money to hide
its true nature or source (typically the drug trade or terrorist activities). Money laundering
is effected by passing it surreptitiously through legitimate business channels by means of
bank deposits, investments, or transfers from one place (or person) to another.
Anti-Money Laundering (AML) is a set of procedures, laws or regulations designed to stop
the practice of Money laundering.
AML is very important to any country for its peace and socioeconomic developments.

2: AML and Pakistan

2.1: Introduction
On 27 March 2010, the Federal Government of Pakistan promulgated the Anti-Money
Laundering Act, 2010 (AMLA ‘10) in order to provide for prevention of money laundering
and forfeiture of property derived from, or involved in, money laundering and for matters
connected therewith or incidental thereto.
Prior to this Act number of ordinance was passed and number of rules and regulations are
introduced by regulators but any recognizable statue does not exist. For example
Pakistan's anti-money laundering laws consist of Anti-Money Laundering Ordinance, 2007
and Anti-Money Laundering Regulations 2008. 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 SBP passed the Anti-Money Laundering Act,
replacing 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 State Bank of Pakistan (SBP) and the Securities and Exchange Commission of Pakistan
(SECP) are the primary financial regulators. Notwithstanding the absence of standalone
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.
This act with collaboration with other statutes enforced AML in country. Major statutes
are
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 for public
servants.
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.
Overall AMLA 10 recognizes a total of fifty-eight offences, from other statutes, as the
predicate offences to the offence of money laundering. A simplified list of the predicate
offences is given below:
 From ‘Pakistan Penal Code, 1860’ – Offences relating to waging war against
Pakistan, taking of gratification by a public servant, theft, homicide, abduction,
kidnapping, extortion, robbery, dacoity, criminal breach of trust, dealing in stolen
property, cheating, forgery, and counterfeiting of currency;
 From ‘National Accountability Act, 1999’ – Offences relating to corruption and
corrupt practices;
  From ‘Control of Narcotic Substance Act, 1997’ – Offences relating to narcotic
drugs;
 From ‘Anti-Terrorism Act, 1997’ – All offences under this Act prescribing minimum
punishment for a period of over one year; and
 From ‘Securities and Exchange Act, 1969’ – All offences under this Act prescribing
minimum punishment for a period of over one year.

2.2: Notable Provisions of AML Act 2010

 Who is criminal?
AMLA ‘10 provides that a person shall be guilty of an ‘offence of money laundering if such
person:
I. acquires, converts, possesses or transfers property, knowing or having reason to
believe that such property is proceeds of crime; or
II. Renders assistance to another person for the 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 proceeds of crime.
Accordingly, the term “proceeds of crime” means any property derived or obtained
directly or indirectly by any person from the commission of a predicate offence or a
foreign serious offence.
Where the “predicate offence” will be an offence specified in the schedule to AMLA ‘10
having nexus with money laundering, but does not include a fiscal offence. And the
“foreign serious offence” will be an offence:
I. Against the law of a foreign State stated in a certificate issued by, or on behalf of,
the government of that foreign State; and
II. Which, had it occurred in Pakistan, would have constituted a predicate offence.
Further, the term “property” means property or assets of any description, whether
corporeal or incorporeal, movable or immovable, tangible or intangible, and includes
deeds and instruments evidencing title to, or interest in, such property or assets, including
cash and monetary instruments, wherever located.
And the term “transfer” means sale, lease, purchase, mortgage, pledge, gift, loan, or any
other form of transfer of right, title, possession or lien.
 Which Court has Jurisdiction?

Primarily an offence under AMLA ‘10 is to be tried by the Court of Session with the
appropriate territorial jurisdiction.
 Offense Nature

AMLA ‘10 offences are non-cognizable and non-bailable.

 Appointment of Investigating Officers

AMLA ‘10 provides and identifies the following categories of officers as investigating
officers:

 The investigating agencies may nominate such persons as they think fit to be the
investigating officers under AMLA ‘10 from amongst their officers, or
 The Federal Government may, by special or general order, empower an officer not
below BPS-18 of the Federal Government or of a Provincial Government to act as
an investigating officer under AMLA ‘10.
AMLA ‘10 empowers the investigating officer to provisionally attach property, which he
reasonably believes to be proceeds of crime or involved in money laundering. Though
this power is discretionary, but such discretion can only be exercised: through an order
in writing, on the basis of the report in his possession received from the concerned
investigating agency, and with prior permission of the Court. Every order of attachment
by an investigating officer shall cease to have effect after the expiry of the 90 days from
such order or on the date of the finding made under AMLA ‘10.
 Punishment

The statutory punishment for the offence of money laundering is rigorous imprisonment
for the duration of at-least one year but may extend to ten years, and fine that may
extend to one million rupees, and forfeiture of property involved in money laundering.
 Integration
AMLA ‘10 empowers the Federal Government to enter into an agreement on reciprocal
basis with the Government of any country (‘contracting state’) outside Pakistan for
a) Enforcing the provisions of AMLA ‘10,
b) Exchange of information for the prevention of any offence under AMLA ’10 or
under the corresponding law in force in the contracting state,
c) Seeking or providing of assistance or evidence in respect of any offence under
AMLA ‘10 or under the corresponding law in force in the contracting state, or
d) Transfer of property relating to any offence under AMLA ‘10 or under the
corresponding law in force in the contracting state

2.3: AML Mechanism

National Executive Committee

The statutory functions of NEC are

a) Meet regularly to develop, co-ordinate and publish an annual national strategy

to fight money laundering;
b) Determine offences existing in Pakistan that may be considered to be
predicate offences for the purposes of AMLA ‘10;
c) Provide guidance and sanction in framing of rules and regulations under AMLA
‘10;
d) Make recommendations to the Federal Government for effective
implementation of AMLA ‘10 and framing of national policy to combat money
 laundering; issue necessary directions to the agencies involved in the
implementation and administration of AMLA ‘10;
e) Discuss any other issue of national importance relating to money laundering;
and undertake and perform such other functions as assigned to it by the
Federal Government, relating to money laundering.

General Committee

NEC is to be assisted by a General Committee, which, among other things, shall:

a) take measures as necessary for development and review of performance of

investigating agencies, FMU76 and the financial institutions77 and nonfinancial
businesses and professions78, relating to anti-money laundering;
b) review training programs for Government, financial institutions, nonfinancial
businesses and professions and other persons, relating to antimony
laundering; provide necessary assistance to NEC in carrying out its functions
and duties under AMLA ‘10;
c) Discuss any other issue of national importance relating to money laundering:
and undertake and perform such other functions as assigned to it by NEC.

Financial Monitoring Unit

Financial Monitoring Unit (FMU) under the supervision and control of the General
Committee. The statutory functions mandated for FMU, which is to be header bay a
Director General, are:
a) To receive Suspicious Transactions Reports and CTR’s from financial institutions
and such non-financial businesses and professions as may be necessary to
accomplish the objects of AMLA ‘10;
b) To analyze the Suspicious Transaction Reports and CTR’s and in that respect the
FMU may call for record and information from any agency in Pakistan (with the
exception of income tax information) concerning the person in question. All
such agencies shall be required to promptly provide the requested information;
 to disseminate, after having considered the reports and having reasonable
grounds to suspect, the Suspicious Transaction Reports and any necessary
information to the investigating agencies concerned;
c) To create and maintain a data base of all Suspicious Transaction Reports and
CTR’s, related information and such other materials as the Director General
determines are relevant to the work of the FMU and in that respect, the FMU is
authorized to establish necessary analytic software and computer equipment to
effectively search the data base, sort and retrieve information and perform real
time linkages with databases of other agencies both in and outside Pakistan as
may be required from time to time;
d) To co-operate with financial intelligence units and appropriate law enforcement
authorities in other countries and to share and request information and
documents;
e) To represent Pakistan at all international and regional organizations and
groupings of financial intelligence units and other international groups and
forums which address the offence of money laundering and other related
matters;
f) To submit to the NEC an annual report containing recommendations based upon
necessary information and statistics regarding countermeasures which can be
taken to combat money laundering and such reports shall provide an overall
analysis and evaluation of the Suspicious Transaction Reports limited to details
of the investigations and prosecutions that have Such" concerned" agencies"
means" “investigating" or" prosecuting" agency”" including" the" National"
Accountability"Bureau"(NAB),"Federal"Investigation"Agency"(FIA),"Anti`Narco
tics"Forces"(ANF)"or"any"other" law" enforcement" agency" as" may" be"
notified" by" the" Federal" Government" for" the" investigation" or"
prosecution "of" a "predicate" offence been or are being conducted in relation
to the offence of money laundering in Pakistan;
g) To frame regulations in consultation with SECP for ensuring receipt of Suspicious
Transaction Reports and CTR’s from the financial institutions and non-financial
businesses and professions with the approval of the NEC;
h) To engage a financial institution or an intermediary or such other nonfinancial
businesses and professions or any of its officers as may be necessary for
facilitating implementation of the provisions of AMLA ‘10, the rules or
regulations made hereunder; and
i) To perform all such functions and exercise all such powers as are necessary for,
or ancillary to, the attainment of the objects of AMLA ‘10.
3: Case Study
The Financial Conduct Authority (FCA) has fined Standard Bank PLC (Standard Bank)
£7,640,400 for failings relating to its anti-money laundering (AML) policies and procedures
over corporate customers connected to politically exposed persons (PEPs).
This is the first AML case the FCA, or its predecessor the Financial Services Authority (FSA),
has brought focused on commercial banking activity. This is also the first AML case to use
the new penalty regime, which applies to breaches committed from 6 March 2010. Under
the new regime larger fines are expected.
Tracey McDermott, director of enforcement and financial crime, said:
"One of the FCA’s objectives is to protect and enhance the integrity of the UK financial
system. Banks are in the front line in the fight against money laundering. If they accept
business from high risk customers they must have effective systems, controls and
practices in place to manage that risk. Standard Bank clearly failed in this respect."
Standard Bank is the UK subsidiary of Standard Bank Group, South Africa’s largest banking
group. Standard Bank Group is an international banking group with extensive operations
in 18 African countries and operations in 13 other countries outside of Africa.
Between 15 December 2007 and 20 July 2011, Standard Bank failed to comply with
Regulation 20(1) of the Money Laundering Regulations because it failed to take
reasonable care to ensure that all aspects of its AML policies were applied appropriately
and consistently to its corporate customers connected to PEPs.
As with any financial services activity, commercial banking business can be used to
launder money, particularly in the layering or integration stages of the money laundering
process. In order to prevent financial crime, banks operating in this sector must have
effective AML systems and controls in place ensuring that all the participants in
commercial banking transactions are subjected to effective and appropriate due diligence.
This is particularly important where the transaction involves PEPs or other high risk
customers.
Guidance issued by the Joint Money Laundering Steering Group (JMLSG) provides that
where a corporate customer is known to be linked to a PEP, such as through a directorship
or shareholding, it is likely that this will put the customer into a higher risk category, and
that enhanced due diligence (EDD) measures should therefore be applied. During the
relevant period, Standard Bank had business relationships with 5,339 corporate
customers of which 282 were linked to one or more PEPs.
The FCA reviewed Standard Bank’s policies and procedures and a sample of 48 corporate
customer files, all of which had a connection with one or more PEPs. The results of this
review highlighted serious weaknesses in the application of Standard Bank’s AML policies
and procedures.
This meant that it did not consistently:

 Carry out adequate EDD measures before establishing business relationships with
corporate customers that had connections with peps; and
 Conduct the appropriate level of ongoing monitoring for existing business
relationships by keeping customer due diligence up to date.
The FCA considers these failings to be particularly serious because:

 Standard Bank provided loans and other services to a significant number of corporate
customers who emanated from or operated in jurisdictions which have been
identified by industry recognized sources as posing a higher risk of money-laundering;
 Standard Bank identified issues relating to its ability to conduct ongoing reviews of
customer files early in the relevant period, but failed to take the necessary steps to
resolve the issues; and
 The FCA has previously brought action against a number of firms for AML deficiencies
and has stressed to the industry the importance of compliance with AML
requirements.
The weaknesses in Standard Bank’s AML systems and controls resulted in an unacceptable
risk of Standard Bank being used to launder the proceeds of crime.
Standard Bank and its senior management have co-operated with the FCA investigation
and have taken significant steps at significant cost towards remediating the issues
identified, including seeking advice and assistance from external consultants.
Standard Bank settled at an early stage of the investigation and qualified for a 30%
discount on its fine. Without the discount the fine would have been £10.9 million.