Anti Money Laundering Regime in Pakistan

This blog discusses the Anti Money Laundering Regime in Pakistan in detail and give all the necessary information about Anti Money Laundering Regime, its salient features, stages of money laundering, Common Sources of illegal money, Basic Elements of AML Regime, Domestic Legal Framework-Pakistan, Legal Framework – AMLA 2010, Salient Features of AMLA 2010, AMLA 2010 & Tax Offences, Sequence of ML Proceedings, Role of Tax Bar, Some High Risk Elements- For LEAs & Consultants.

We will discuss following in detail:

• What is Money Laundering (ML)
• Stages of ML
• Common Sources of illegal money
• Basic Elements of AML Regime
• Domestic Legal Framework-Pakistan
• Legal Framework – AMLA 2010
• Salient Features of AMLA 2010
• AMLA 2010 & Tax Offences
• Sequence of ML Proceedings
• Role of Tax Bar
• Some High Risk Elements- For LEAs & Consultants

What is Money Laundering?

• Illegal, or dirty money, is put through a cycle of transactions, or washed, so that it comes out the other end as legal, or clean, money.
• Money is moved around the financial system again and again in such manner that its origin gets hidden.
• Money generated from illegitimate source is converted into that derived from legitimate source.

Step One: Placement

The physical disposal of cash or other assets derived from criminal activity.

During this initial phase, the money launderer introduces the illegal proceeds into the financial system. This phase can involve transactions such as:

Breaking up large amounts of cash into smaller sums and depositing them directly into a bank account.

Transporting cash across borders to deposit in foreign financial institutions, or to buy high-value goods — such as artwork, antiques, and precious metals and stones — that can then be resold for payment via cheque or bank transfer.

Step Two: Layering

• The separation of illicit proceeds from their source by layers of financial transactions intended to conceal the origin of the proceeds.
• This second stage involves converting the proceeds of the crime into another form and creating complex layers of financial transactions to disguise the audit trail, source and ownership of funds.

Step Three: Integration

• Supplying apparent legitimacy to illicit wealth through the re-entry of the funds into the economy in what appears to be normal business or personal transactions.
• This stage entails using laundered proceeds in seemingly normal transactions to create the perception of legitimacy. The launderer, for instance, might choose to invest the funds in real estate, financial ventures or luxury assets.

Common Sources of Illegal Money

• Tax Evasion
• Corruption
• Fraud
• Terrorism
• Illegal trafficking of drugs, weapons, people
• Smuggling
• Contract killing, extortion

 Domestic Legal Framework – Pakistan

• Anti-Money Laundering Act, 2010 (AMLA)
• Income Tax Ordinance 2001
• Sales Tax Act 1990
• Federal Excise Act 2005
• Anti-Terrorism Act, 1997
• National Accountability Ordinance,1999
• Federal Investigation Agency Act, 1975
• Prevention of Smuggling Act, 1977
• Control of Narcotics & Substance Act, 1997

Salient Features of AMLA 2010

• Policy bodies- NEC, GC-
• Regulatory Authorities/Self Regulatory bodies
• Courts
• Public Prosecutors
• Reporting entities-Financial institutions & DNFBPs
• Financial intelligence framework-FMU-a Nucleus
• Investigating & Prosecution Agencies
• List approach-Schedule I to AMLA provides for a List of predicate offences
• Comprehensive definition of ML Offence
• Investigation
• Attachments/seizure of POC
• Forfeiture/Punishments
• Management of forfeited Assets-Administrators
• International cooperation

AMLA 2010 & Tax Offences

• DG I&I-IR notified as Investigating & Prosecuting Agency u/s 2(xviii) of AMLA 2010.
• Predicate Offences of tax for ML

–Section 192, 192A, 194 and 199 of Income Tax Ordinance 2001

–Sub-Sections 11 and 13 of Section 33 read with section 2(37) of Sales Tax Act 1990

–Sub-section (3) of section 19 of Federal Excise Act 2005

Predicate Offence of ML – Income Tax

• Section XIIA of schedule I to the AMLA 2010 specifies the following offences under the Income Tax Ordinance,2001 as predicate offences for Money laundering:

–where tax sought to be evaded is ten million rupees or more

• 192 Prosecution for false statement in verification-
• 192A Prosecution for concealment of Income
• 194 Prosecution for improper use of National Tax Number [Certificate}
• 199 Prosecution for abetment

Predicate Offence of ML – Sales Tax Act 1990

• Section VIIA of schedule I to the AMLA 2010 :

–Entries 11 of Section 33 of Table (Offences and Penalties)

• Submission of false or forged document
• destroys, alters, mutilates or falsifies the records
• Knowingly or fraudulently makes false statement, false declaration, false representation

–Entries 13 of Section 33 of Table (Offences and Penalties)

• Tax fraud

Predicate Offence of ML – FED 2005

• Section XIV of schedule to the AMLA 2010
• illegally removes, stores, keeps, or withdraws any goods
• conveying, depositing or dealing with any goods with intent to defraud the Government of any duty of excise due thereon
• fraudulent evasion of any duty of excise
• avails adjustment of duty not admissible

Legal Requirement for ML Proceedings

• Income tax offences specified in the schedule-I to AMLA 2010 requires that the tax sought to be evaded is 10 Million or above
• In the Case of Offences under the Sales Tax Act 1990 and Federal Excise Act 2005, consultation of FMU is mandatory .(Section 41 of AMLA 2010)

Sequence of ML Proceedings

• Preliminary inquiry under tax laws
• Administrative approval of the Directors
• Call up Notice
• Cognizance-Complaint/FIR
• Provisional Attachment under section 8 of AMLA 2010
• Investigation under section 9 of AMLA 2010
• Final investigation Report & Challan-Prosecution stage
• Court Trial
• Judgment-Section 4 of AMLA 2010
• Management of forfeited assets –section 11 of AMLA 2010

Role of Tax Bar – As a Public Prosecutor

• For ML proceedings LEAs are dependent on Courts:

–Attachment/seizure of POC section 8

–Court Permission for survey and Search- section 13 and 14

–Monthly progress reports to the court –section 8

–Final Investigation report along with Challan- section 9

–Court Permission for use of investigative techniques

–Prosecution/Trial

–Forfeiture /Punishment

Role of Tax Bar – As a Consultant

To the taxpayer:

–Awareness & educating

–Guidance to the taxpayers

–In mandatory filing process

–Filing of documents in Audit

–Representing the taxpayer in courts

To the LEA:

–Reduce Audit work load

–Quick disposal

–Mutual learning

— Self Regulation

Some High Risk Elements

• For Both LEAs and Consultants/practitioners

–NPOs/NGOs/Charities, Trusts, Clubs, Societies

–PEPs

–Housewife accounts

–Proprietorships and self employed individuals/ professionals

–Landlords

–Real Estate

–Online transactions

–Cash /Wire transfers

For more information on FBR’s new regulations / circulars/ SROs/ amendments in taxation laws in Pakistan please visit https://www.fbr.gov.pk/

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