anti-money laundering act, 2010

ANTI MONEY

LAUNDERING ACT, 2010BY SYED MUHAMMAD IJAZ, FCA, LL.B. ADVOCATE HIGH COURT

PARTNER HUZAIMA IKRAM & IJAZ

SPECIAL THANKS TO MY MENTOR AND USTAD-E-MOHTARAM DR. IKRAMUL HAQ FOR HIS RESEARCH ON PANAMA PAPERS

Table of contents

Overview

AML ACT 2010

AML-CFT regulations for Banks and DFIs & AML Rules 2008

AML and Fiscal Statutes

Money Laundering, Pakistan and the Tax Heaven

The Panama issue

Hudaibia Papers & other cases

Bilateral and Reciprocal Agreements

Q & A session

Overview

Overview

Anti-Money Laundering Act, 2010 Act No. VII of 2010

An Act to provide for prevention of money laundering

WHEREAS it is expedient to provide for prevention of money laundering, combating financing of terrorism and forfeiture of property derived from, or involved in, money laundering or financing of terrorism and for matters connected therewith or incidental thereto;

Short title, extent and commencement. — (1) This Act may be called the Anti- Money Laundering Act, 2010.

It extends to the whole of Pakistan.

This section shall come into force at once

Overriding And Savings/Validation of

Actions

39. Act to have overriding effect. — (1) Subject to sub-section (2), the provisions of this Act shallhave effect notwithstanding anything inconsistent contained in any other law for the time being inforce.

(2) The provisions of this Act shall be in addition to, and not in derogation of, the Anti Narcotics ForceAct, 1997 (III of 1997), the Control of Narcotics Substances Act, 1997 (XXV of 1997), the Anti-terrorismAct, 1997 (XXVII of 1997) and the National Accountability Ordinance, 1999 (XVIII of 1999) and anyother law relating to predicate offences.

40. Validation of actions, etc.- Anything done, actions taken, orders passed, instruments made,notifications issued, agreements made, proceedings initiated, processes or communication issuedpowers conferred, assumed or exercised, by the Federal Government, Financial Monitoring Unit or itsofficers on or after the 5th January, 2008 and before the commencement of this Act, shall be deemedto have been validly done, made, issued, taken, initiated, conferred, assumed, and exercised andprovisions of the Act shall have, and shall be deemed always to have had, effect accordingly

AML ACT 2010

Money Laundering

2(n) “offence of money laundering” has the meaning as defined in section 3;

3. Offence of money laundering. —A person shall be guilty of offence of money laundering, if the person: —

(a) acquires, converts, possesses, uses or transfers property, knowing or having reason to believe that suchproperty is proceeds of crime;

(b) conceals or disguises the true nature, origin, location, disposition, movement or ownership of property, knowingor having reason to believe that such property is proceeds of crime;

(c) holds or possesses on behalf of any other person any property knowing or having reason to believe that suchproperty is proceeds of crime; or

(d) participates in, associates, conspires to commit, attempts to commit, aids, abets, facilitates, or counsels thecommission of the acts specified in clauses (a), (b) and (c).

[Explanation-I.]— The knowledge, intent or purpose required as an element of an offence set forth in this section may beinferred from factual circumstances in accordance with the Qanun-e-Shahadat Order, 1984 (P.O. 10 of 1984).

[Explanation II.- For the purposes of proving an offence under this section, the conviction of an accused for the respectivepredicate offence shall not be required.]

IMPORTANT DEFINITIONS

2. Definitions. — In this Act, unless there is anything repugnant in the subject or context, —

(o) “person” means an individual, a firm, an entity, an association or a body of individuals, whether incorporatedor not, a company and every other juridical person;

(q) “proceeds of crime” means any property derived or obtained directly or indirectly by any person from thecommission of a predicate offence or a foreign serious offence;

(r) “property” means property or assets of any description, whether corporeal or incorporeal, movable orimmovable, tangible or intangible, and includes deeds and instruments evidencing title to, or interest in, suchproperty or assets, including cash and monetary instruments, wherever located;

[(ra)“property involved in money laundering” means proceeds of crime, property derived or obtained directly orindirectly from the offence of money laundering and property used or intended to be used in commission of theoffence of money laundering, a predicate offence or a foreign serious offence;]

(s) “predicate offence” means an offence specified in the Schedule to this Act;

(z) “transfer” means sale, lease, purchase, mortgage, pledge, gift, loan, or any other form of transfer of right,title, possession or lien.

IMPORTANT DEFINITIONS

2. Definitions. — In this Act, unless there is anything repugnant in the subject or context, —

(i) “foreign serious offence” means 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;

PREDICATE OFFENCES-THE SCHEDULE

Section –I The Pakistan Penal Code, 1860 (Act XLV of 1860)

Section –II The Arms Act, 1878 (XI of 1878)

Section –III The Foreigners Act, 1946 (XXXI of 1946)

Section III-A Prevention of Corruption Act, 1947 (II of 1947)**

Section IIIB Foreign Exchange Regulation Act, 1947 (VII of 1947)-Illegal forex business**

Section –IV The Copyright Ordinance, 1962 (XXXIV of 1962)

Section –V The Pakistan Arms Ordinance, 1965 (W.P. Ordinance XX of 1965)

Section-VIA Securities Act, 2015 (Act III of 2015)***

Section 122 (Prohibition of Insider trading) read with section 159

Section 133 (Market Manipulation) read with section 159


Section –VII The Emigration Ordinance, 1979 (XVIII of 1979)

Section –VIIA**** The Sales Tax Act, 1990

33 (entries 11 and 13 of Section 33 of Table) Offences and Penalties

Section –VIII The Control of Narcotic Substances Act, 1997 (XXV of 1997)

Section –IX The Anti-Terrorism Act, 1997 (XXVII of 1997)

Section –IXA The Pakistan Environmental Protection Act 1997 (XXXIV of 1997)*

Section -X National Accountability Ordinance, 1999 (XVIII of 1999)


Section –VI The Customs Act, 1969 (IV of 1969)**

Section 2(s) read with clause 8, 89 of section 156(1)

Section 15 read with clause 8, 9, 89 & 90 of section 156 (1)

Section 16 read with clause 8, 9, 89 & 90 of section 156 (1)

Section 32 read with clause 14 of section 156 (1)

Section 32A read with clause 14A of section 156(1)

Section 139 read with clause 70 of section 156 (1)

Section -XI The Registered Designs Ordinance, 2000 (XLV of 2000)*


Section -XII The Trade Marks Ordinance, 2001 (XIX of 2001)*

Section – XIIA- The Income Tax Ordinance, 2001*****

Section 192 and section 192A

Section -XIII The Prevention & Control of Human Trafficking Ordinance, 2002 (LIX of 2002)*

Section XIV The Federal Excise Act, 2005****

19(3) Offences, penalties, fines and allied matters

* Inserted through SRO No. 3 dated January 8, 2011

** Inserted through Federal Government notification dated 1st April 2015

*** Inserted through Federal Government notification dated 21st December 2015

**** Inserted through Federal Government notification dated 3rd February 2016

***** Inserted through Federal Government notification dated 14-5-2016

Punishment under AML ACT 2010

4. Punishment for money laundering. —Whoever commits the offence of [moneylaundering] shall be punishable with rigorous imprisonment for a term which shall notbe less than one year but may extend to ten years and shall also be liable to fine whichmay extend to one million rupees and shall also be liable to forfeiture of propertyinvolved in money laundering or property of corresponding value.

Provided that the aforesaid fine may extend to five million rupees in case of a companyand every director, officer or employee of the company found guilty under this sectionshall also be punishable under this section.

Hierarchy under AML Act 2010Fe

dera

l G

ove

rnm

en

t

National Executive

Committee to

Combat ML [NEC]-

Within 30 days of

commencement of

this Act.

General Committee

(GC)

Sub-Committee

(one or more)

Financial Monitoring Unit-FMU

(an independent authority)- to be

housed in SBP and headed by a

Financial Sector Expert with

administrative oversight by GC

Sub-Committees

(one or more)

CONSTITUTION OF AUTHORITIES-NEC

Minister for Finance or Advisor to the Prime Minister on Finance/concerned Minister Chairman

Minister on Foreign AffairsMember

Minister for Law and JusticeMember

Minister for Interior Member

Governor SBP Member

Chairman SECP Member

Director General (To also act as Secretary of NEC)Member/

any other member to be nominated by the Federal GovernmentMember

CONSTITUTION OF AUTHORITIES-GC

Secretary FinanceChairman

Secretary InteriorMember

Secretary Foreign AffairsMember

Secretary LawMember

Chairman NABMember

Chairman FBR Member

Director General-FIAMember

Director General- Anti Narcotics ForceMember

Deputy Governor SBPMember

Commissioner SECPMember

Director General- FMU (Shall also act as secretary of the GC)Member

(i)any other Member to be nominated by Federal GovernmentMember

POWER/FUNCTIONS/RESPONSIBILITIES

OF COMMITTEES

NEC

•Meet not less than twice a year

•Develop review, implement and oversight strategy to fight

and TF

•Determination of offences to be considered as predicate

offence in Pak

•Guidance and sanction in framing rules and regulation

•Make recommendations to FG for implementation of this Act

•Framing National Policy to combat ML and FT

•Discuss issues and issue directions to agencies relating to ML

and TF

•Such other functions assigned by FG

•NEC can delegate or assign its functions to GC or sub-

committees

GC

•Take measures necessary for review and monitoring of

performance of investigation agencies Financial Institutions

and Non Financial businesses

•Review training programs for Government, Fis, NFIs,

professions and other persons relating to ML and TF

•Assistance to NEC in carrying out its functions and duties

•Discuss issues of national importance relating to ML and TF

•Approve FMU budgetary proposals

•Approve FMU staffing requirements, pay, allowances

and compensation packages and incidental matters

•Undertake such other functions as assigned by NEC

FMU

•Receive suspicious transaction reports “STRs/CTRs” from

reporting entities

•Analyze “STRs/CTRs- in this respect FMU can call for record

information from any agency or person in Pakistan in relation

to transaction in question. All such agencies or person shall

promptly provide the information requested

•Disseminate to other agencies after analyzing STRs and

records for investigation and further actions as per AMLA

or any other applicable law.

•Create/Maintain database for STRs/CTRs and other related

materials

•Coordination and compliance with other international

agencies.

•Submission of annual reports to NEC and GC

•SBP and SECP regulations for ML and TF

•Other functions as may be necessary for the purpose of this

Act.

Reporting, Prosecution/Punishment,

Appeals

Reporting

•Every reporting entity [as defined in 2(u), 2(f), 2(m) and

any other entity as may be designated by FG through

notification in official Gazette- File STRs [if it knows,

suspects or has reason to suspect] that the transaction

or pattern or transactions of which the transaction is a

part;-

•Funds from illegal resources or crime proceeds

•Designed to evade any requirements of this section 7

•Has no apparent lawful purpose

•Involves financing of Terrorism, terrorist acts or

organizations or individuals involved in terrorism

Investigation and prosecution

•Call for information and reports-Authority u/s 7

•Attachment of property involved in ML or TF –section

and seizure under section 14 or 15

•Investigation section 9- 30 days notice is a must for

calling of information and explanations

•Vesting or property in FG section 10

•Power of survey –section 13

•Power to arrest-Section 16-Officer may after obtaining

warrant from the Court or the nearest Judicial

Magistrate arrest such person

•Confiscated or obtained record can be retained for 90

days only unless the court authorizes extended period

Section 19

Appeals

•Court of Sessions established under the Code of

Criminal Procedure, 1898 (V of 1898) shall, within its

territorial jurisdiction, exercise jurisdiction to try and

adjudicate the offences punishable under this Act and

all matters provided in, related to or arising from this

Act

•23. Appeal to High Court.—Any person aggrieved

final decision or order of the Court may prefer an

appeal to the High Court within sixty days from the

of communication of the decision or order on any

question of law or fact arising out of such decision or

order:

•Provided that the High Court may, if it is satisfied that

the appellant was prevented by sufficient cause from

filing the appeal within the said period, allow it to be

submitted within a further period not exceeding sixty

days

Reporting, Prosecution/Punishment,

Appeals

Reporting

• STR not later than 7 working days

• Records to be kept for at least 5 years

• The provisions of section 7 shall have effect

notwithstanding any obligation as to secrecy

under any law or document

• STRs only to be submitted to FMU

• Every reporting entity shall conduct

customers DDs as per requirement of their

regulators

Investigation and prosecution

• Section 21--Notwithstanding anything

contained in the Code of Criminal

1898 (Act V of 1898) and subject to sub-

sections (2) and (3),— offences are non-

cognizable and non-bailable

• Court shall take cognizance only on written

request of IO or other officer authorized by

FG, PG or FMU

• Section 22. Application of Code of

Procedure, 1898 (Act V of 1898) to

proceedings before Courts

Appeals

Other important points-

36. Notices, etc. not to be invalid on certain grounds.—No notice, summons, order, document or otherproceeding, furnished or made or issued or taken or purported to have been furnished or made or issued or taken inpursuance of any of the provisions of this Act shall be invalid, or shall be deemed to be invalid merely by reason ofany mistake, defect or omission in such notice, summons, order, documents or other proceedings if such notice,summons, order, document or other proceeding is in substance and effect in conformity with or according to theintent and purpose of this Act.

33. Liability for failure to file Suspicious Transaction Report and for providing false information. — (1) -shall be liable for imprisonment for a term which may extend to three years or with fine which may extend to one hundredthousand rupees or both

In the case of the conviction of a reporting entity, the concerned regulatory authority may also revoke its licence orregistration or take such other administrative action, as it may deem appropriate

34. Disclosure of information. — (1) The directors, officers, employees and agents of any reporting entity, financialinstitution, non-financial business or profession or intermediary which report a suspicious transaction or STR pursuant to thislaw or any other authority, are prohibited from disclosing, directly or indirectly, any person involved in the transaction that thetransaction has been reported.

(2) A violation of the sub-section (1) is a criminal offence and shall be punishable by a maximum term of three years imprisonment

or a fine which may extend to five hundred thousand rupees or both.

Other important points-2

37. Offences by companies. — (1) Where a person committing a contravention of any of the provisions ofthis Act or of any rule, regulation, direction, or order made hereunder is a company, every person who, atthe time the contravention was committed, was responsible for such contravention in the conduct ofthe business of company shall be deemed to be guilty of the contravention and shall be liable to beproceeded against and punished accordingly:

Provided that nothing contained in this sub-section shall render any such person liable to punishment if heproves that the contravention took place without his knowledge or that he exercised all due diligenceto prevent such contravention.

(2) Notwithstanding anything in sub-section (1) where a contravention of any of the provisions of this Actor of any rule, regulation, direction or order made hereunder has been committed by a company and it isproved that the contravention has taken place with the consent, connivance or knowledge of any director,manager, secretary or other officer of any company, such director, manager, secretary or otherofficer shall also be deemed to be guilty of the contravention and shall be liable to be proceeded againstand punished accordingly.

Explanation. ——For the purposes of this section, “director” in relation to a firm, means a partner in thefirm.

Other important points-3-various powers

FG has power to amend schedule or any entry therein by notification in official gazette

FG may in consultation with NEC can make rules by notification in official gazette

Subject to the supervisions and control of GC the FMU can issue regulations by notification in

official gazette

For removing difficulty or inconsistencies FG through notification in official gazette can make

such provisions as deem necessary

AML – CFT REGULATIONS

AML-CFT REGULATIONS FOR FIs AND

NON FINANCIAL COMPANIES

PART - A Definitions

PART - B Regulations

Regulation - 1 Customer Due Diligence (CDD)

Regulation – 2 Correspondent Banking

Regulation – 3 Wire Transfers/Fund Transfers

Regulation – 4 Reporting of Transactions (STRs/CTRs)

Regulation – 5 Record Keeping

Regulation – 6 Internal Controls, Policies, Compliance, Audit & Training

Annexure – I Minimum Documents to be obtained from Various Types of Customers underAML/CFT Regulations

Annexure – II Examples or Characteristics of Suspicious Transactions (Red Alerts)


NON FINANCIAL COMPANIESR

1-

Cu

sto

mer

DD

When CDD measures are to be applied

CDD Measures for Establishing Business Relationship Identification of Customers

Verification of Identity

Identification and Verification of Natural Persons Acting on Behalf of Customer

Identification and Verification of Identity of Beneficial Owners

Information on the Purpose and Intended Nature of Business Relations

Timing of Verification

CDD Measures for Occasional Customers/ Walk-inCustomers and Online Transactions

Where CDD Measures are Not Completed

Ongoing Monitoring

Anonymous or Fictitious Account

Review of Products and services

Joint Accounts

Government Accounts



R2- Correspondent BankingR3- Wire Transfers/Fund

Transfers

• Responsibility of the

Ordering Institution

• Responsibility of the

Beneficiary Institution

• Responsibility of

Intermediary Institution

R4-REPORTING OF

TRANSACTIONS

• Examples and characteristics

of some suspicious

transactions (Red Alerts) that

may be a cause for increased

scrutiny for AML/CFT

purposes are listed at

‘Annexure-II’.



R5- RECORD KEEPING

• RECORD KEEPING

R6- NTERNAL CONTROLS, POLICIES,

COMPLIANCE, AUDIT AND TRAINING

• Bank/DFIs own AML/CFT policies, procedures

& controls

• Foreign Branches and Subsidiaries

• Compliance

• Audit

• Employee Due Diligence

• Training

Annexure-I-Minimum Documents to be

obtained from Various Types of Customers

under AML/CFT Regulations

• Individuals

• Sole Proprietors

• Partnership

• Limited Companies/ Corporations

• Branch Office or Liaison Office of Foreign

Companies

• Trust, Clubs, Societies and

Associations etc

• NGOs/ NPOs/Charities

• Agents Accounts

• Executors and Administrators

• Minor Accounts

AML-CFT REGULATIONS FOR FIs AND NON

FINANCIAL COMPANIES-RED ALERTS

Annexure-II- The Red Alerts- General Comments

The following are examples or characteristics of possible suspicious transactions for money laundering or financing of terrorism. This list of situations may be taken as a means of highlighting the basic ways in which money may be laundered. The examples provided are not exhaustive and may serve only as guidance of banks/DFIs to recognize suspicious activities.

While each individual situation may not be sufficient to suggest that money laundering is taking place, a combination of such situations may be indicative of such a transaction. A customer's declarations regarding the background of such transactions shall be checked for plausibility and explanation offered by the customer may be accepted after reasonable scrutiny.



Annexure-II- Transactions which do not make economic sense or inconsistent with customer’s business or profile

i) A customer’s relationship having a large number of accounts with the same bank, frequent transfers between different accounts orexaggeratedly high liquidity;

ii) Transactions in which assets are withdrawn immediately after being deposited, unless the customer's business activities furnish a plausible reason for immediate withdrawal;

iii) Transactions that cannot be reconciled with the usual activities of the customer, for example, the use of Letters of Credit and other methods of trade finance to move money between countries where such trade is not consistent with the customer's usual business;

iv) Provision of bank guarantees or indemnities as collateral for loans between third parties that are not in conformity with market conditions;

v) Unexpected repayment of an overdue credit without any plausible explanation

vi) Back-to-back loans without any identifiable and legally admissible purpose;

vii) Paying in large third party cheques endorsed in favour of the customer;

viii) Substantial increases in deposits of cash or negotiable instruments by a professional firm or company, using client accounts or in-house company or trust accounts, especially if the deposits are promptly transferred between other client company and trust accounts;

ix) High velocity of funds through an account, i.e., low beginning and ending daily balances, which do not reflect the large volume of funds flowing through an account;



Annexure-II- Transactions which do not make economic sense or inconsistent with customer’s business or profile

x) Mixing of cash deposits and monetary instruments in an account in which such transactions do not appear to have any relation to the normal use of the account;

xi) Multiple transactions carried out on the same day at the same branch of a financial institution but with an apparent attempt to use different tellers;

xii) The structuring of deposits through multiple branches of the same bank or by groups of individuals who enter a single branch at the same time;

xiii) The deposit or withdrawal of cash in amounts which fall consistently just below identification or reporting thresholds;

xiv) The deposit or withdrawal of multiple monetary instruments at amounts which fall consistently just below identification or reporting thresholds, if any, particularly if the instruments are sequentially numbered;

xv) Customers making large and frequent deposits but cheques drawn on the accounts are mostly to counter-parties not normally associated with customer’s business;

xvi) Extensive or increased use of safe deposit facilities that do not appear to be justified by the customer's personal or business activities;



Annexure-II- Transactions which do not make economic sense or inconsistent with customer’sbusiness or profile

xvii) Goods or services purchased by the business do not match the customer's stated line of business;

xviii)A retail business has dramatically different patterns of currency deposits from similar businesses in the same general location;

xix)Loans are made for, or are paid on behalf of, a third party with no reasonable explanation;

xx) Suspicious movements of funds occur from one financial institution to another, and then funds are moved back to the first financial institution.

xxi)The deposit of excess balance in the accounts linked to credit cards/store value cards.

xxii)Unusual pattern of purchase through credit cards/store value cards etc.



3. Transactions involving large amounts of cash

i) Exchanging an unusually large amount of small-denominated notes for those of higher denomination;

ii) Purchasing or selling of foreign currencies in substantial amounts by cash settlement despite the customer having an account with the bank;

iii) Frequent withdrawal of large amounts by means of cheques, including traveler’s cheques;

iv) Large cash withdrawals from a previously dormant/inactive account, or from an account which has just received an unexpected large credit locally or from abroad;

v) Large cash withdrawals made from a personal or business account not normally associated with customer’s profile;

vi) Company transactions, both deposits and withdrawals, that are denominated by unusually large amounts of cash, rather than by way of debits and credits normally associated with the normal commercial operations of the company, e.g. cheques, letters of credit, bills of exchange, etc;

vii) Depositing cash by means of numerous credit slips by a customer such that the amount of each deposit is not substantial, but the total of which is substantial;



3. Transactions involving large amounts of cash

viii) The deposit of unusually large amounts of cash by a customer to cover requests for bankers' drafts, money transfers or other negotiable and readily marketable money instruments;

ix) Customers who together, and simultaneously, use separate tellers to conduct large cash transactions or foreign exchange transactions;

x) Large cash deposits made to the account of an individual or legal entity when the apparent business activity of the individual or entity would normally be conducted in cheques or other payment instruments



4. Transactions involving locations of concern & wire transfers

i) Transactions involving foreign currency exchanges or deposits that are followed within a short time by wire transfers to locations of specific concern (for example, countries identified by national authorities/international bodies, UN or FATF etc.);

ii) A personal or business account through which a large number of incoming or outgoing wire transfers take place without logical business or other economic purpose, particularly when this activity is to, through or from locations of specific concern (as mentioned above);

iii) The use of multiple accounts to collect and then funnel funds to a small number of foreign beneficiaries, both individuals and businesses, particularly when these are in locations of specific concern (as mentioned above);

iv) Obtaining credit instruments or engaging in commercial financial transactions involving movement of funds to or from locations of specific concern when there appears to be no logical business reasons for dealing with those locations (as mentioned above);




v) The opening of accounts of financial institutions from locations of specific concern (as mentioned above);

vi) The business relationships conducted in unusual circumstances e.g. significant unexplained geographic distance between the bank and the customer;

vii) The receipt of small or large amounts (in cash, using online or otherwise) from various locations from within the country especially if such deposits are subsequently transferred within a short period out of the account and/or to a destination not normally associated with the customer;

viii) Substantial increase in cash deposits by a customer without apparent cause, especially if such deposits are subsequently transferred within a short period out of the account and/or to a destination not normally associated with the customer;

ix) Building up large balances, not consistent with the known turnover of the customer's business, and subsequent transfer to account(s) held overseas;

x) Transfer of money abroad by an interim customer in the absence of any legitimate reason;




xi) Repeated transfers of large amounts of money abroad accompanied by the instruction to pay the beneficiary in cash;

xii) Large and regular payments that cannot be clearly identified as bona fide transactions, from and to countries or geographicareas identified by credible sources;

• as having significant levels of corruption, or other criminal activity

• as providing funding or support for terrorism activities

• as associated with the production, processing or marketing of narcotics or other illegal drugs etc.

xiii) Wire transfers ordered in small amounts in an apparent effort to avoid triggering identification or reporting requirements;

xiv) Wire transfers to or for an individual where information on the originator, or the person on whose behalf the transaction is conducted, is not provided with the wire transfer, when the inclusion of such information would be expected;

xv) Use of multiple personal and business accounts or the accounts of non-profit organizations or charities to collect and then funnel funds immediately or after a short time to a small number of foreign beneficiaries.

xvi) Customer who generally use credit cards/store value cards out of their defined geographical location or locations prone to money laundering and terrorist financing.



5. Transactions involving unidentified parties

i) Provision of collateral by way of pledge or guarantee without any discernible plausible reason by third parties unknown to the bank and who have no identifiable close relationship with the customer;

ii) Transfer of money to another bank without indication of the beneficiary;

iii) Payment orders with inaccurate information concerning the person placing the orders;

iv) Use of pseudonyms or numbered accounts for effecting commercial transactions by enterprises active in trade and industry;

v) Customer’s holding in trust of shares in an unlisted company whose activities cannot be ascertained by the bank;

vi) Customers who wish to maintain a number of trustee or clients' accounts that do not appear consistent with their type of business, including transactions that involve nominee names.



6. Other suspicious accounts or customers

i) Large sums deposited through cheques or otherwise in newly opened accounts which may be suspicious;

ii) The customers who are reluctant to provide minimal information or provide false or misleading information or, when applying to open an account, provide information that is difficult or expensive for the bank to verify;

iii) An account opened in the name of a moneychanger that receives structured deposits;

iv) Customers whose deposits contain counterfeit notes or forged instruments;

v) An account operated in the name of an offshore company with structured movement of funds;

vi) Accounts that receive relevant periodical deposits and are dormant at other periods. These accounts are then used in creating a legitimate appearing financial background through which additional fraudulent activities may be carried out;

vii) A dormant account containing a minimal sum suddenly receives a deposit or series of deposits followed by daily cash withdrawals that continue until the sum so received has been removed;

viii) An account for which several persons have signature authority, yet these persons appear to have no relation among each other (either family ties or business relationship);




ix) An account opened by a legal entity or an organization that has the same address as other legal entities or organizations but for which the same person or persons have signature authority, when there is no apparent economic or legal reason for such anarrangement (for example, individuals serving as company directors for multiple companies headquartered at the same location,etc.)

x) An account opened in the name of a recently formed legal entity and in which a higher than expected level of deposits are made in comparison with the income of the promoter of the entity;

xi) An account opened in the name of a legal entity that is believed to be involved in the activities of an association or foundation whose aims are related to the claims or demands of a terrorism organization;

xii) An account opened in the name of a legal entity, a foundation or an association, which may be linked to a terrorism organization and that shows movements of funds above the expected level of income;

xiii) Shared address for individuals involved in cash transactions, particularly when the address is also a business location and/or does not seem to correspond to the stated occupation (for example student, unemployed, self-employed, etc.);

xiv) Stated occupation of the customer is not commensurate with the level or type of activity (for example, a student or an unemployed individual who receives or sends large numbers of wire transfers, or who makes daily maximum cash withdrawals at multiple locations over a wide geographic area);




xv) Regarding non-profit or charitable organizations, financial transactions for which there appears to be no logical economic purpose or in which there appears to be no link between the stated activity of the organization and the other parties in the transaction;

xvi) A safe deposit box is opened on behalf of a commercial entity when the business activity of the customer is unknown or such activity does not appear to justify the use of a safe deposit box;

xvii) Safe deposit boxes are used by individuals who do not reside or work in the institution's service area despite the availability of such services at an institution closer to them;

xviii) Unexplained inconsistencies arising from the process of identifying or verifying the customer (for example, regarding previous or current country of residence, country of issue of the passport, countries visited according to the passport, and documents furnished to confirm name, address and date of birth);

xix) Official embassy business is conducted through personal accounts.

xx) Large deposits on pretext of transfer/disposition of property.

xxi) Frequent and unusual advance payments against imports

AML RULES 2008

1. Interpretations

2. Maintenance of record-IO shall maintain the inventory of record and keep the record till the conclusion of enquiry

3. FMU can seek co-operation from foreign institutions as a result of bilateral or multilateral agreements

4. Administrator appointed u/s 11 shall keep the record of maintenance, conditions etc. of properties

5. Documents received from outside Pakistan my be assumed to be duly authenticated if it is attested and signed by the diplomatic representative of that country in Pakistan or Pakistan’s diplomatic representative in that country.

AML ACT 2010 AND

FISCAL STATUTES

FISCAL OFFENCES/STATUES AND

AMLA

41. Act not to apply to fiscal offences. - (1) Except with prior consultation of FMU, an

investigating or prosecuting agency shall not charge any person with the offence of money

laundering in relation to a predicate offence punishable under the Sales Tax Act, 1990 (VII of

1990) and the Federal Excise Act, 2005.

(2) In relation to the laws specified in sub-section (1), no offence other than the following shall

be notified as predicate offence, namely:-

a.Sub-Sections 11 and 13 of Section 33 read with section 2(37) of the Sales Tax Act, 1990; and

b.Sub-section (3) of section 19 of the Federal Excise Act, 2005."

AML, PAKISTAN AND TAX

HEAVES

THE PANAMA FIASCO

Case for disqualification

In the wake of publication of‘ The Panama Papers: how the world’s rich and famous hide their money offshore’ [The Guardians, April 3, 2016], implicating the close family of

Prime Minister in offshore companies, there was a demand for his resignation. Since Prime Minister refused to oblige, case for disqualification is now before the Honourable Supreme

Court. The following issues/points are worth consideration:

Admitted/Incontrovertible facts a) Offshore companies are owned by the offspring of Prime Minister

b) Offshore accounts are maintained through proxies

c) There are properties in London that are owned through offshore companies

d) Loans have been obtained using properties owned by offshore companies

e) Loan payments were made abroad

THE PANAMA FIASCO

Issues/Implications

a) Moral

i. Shelter of offshore companies should not be taken by public office holders

ii.Argument of compulsion of doing business abroad by offspring is untenable as sons of Chief

Minister of Punjab are doing business in Pakistan.

b) Political

i. Question of accountability within political parties

ii.Head of party becomes head of state enjoying unfettered/unchallenged powers to escape any

kind of inquiry/accountability.

c) Legal provisions—Constitutional/Election Laws

i. Article 62(f)(d)/63(q)(r) of Constitution

ii.Section 12(2)(c)(d)(f) and 99 of Representation of People Act, 1976

THE PANAMA FIASCO

Various provisions of the Income Tax Ordinance, 2001

Section 39(3) gifts other than prescribed manner is fictional income

Ss. 90/91 Transfer of assets

S. 85(3)(a)—“Associates” include relatives.

Transactions between “associates” section108

Section 109: Tax avoidance scheme is no longer permissible

Section 111 for unexplained money, investment, expenditure etc

THE PANAMA FIASCO

Nawaz Sharif did not declare assets/liabilities of Maryam Safdar though she is dependent on him for creating assets and meeting major expenses. It is also clear from record that Mohammad Safdar did not declare assets of his wife when father-in-law says gift of Rs. Rs. 31,700,000 was given on 31-06-2011! Maryam Safdar became the sole shareholder of Nescoll in 2006 and letter to this effect was filed with Mossack Fonseca. She was also co-owner in another BVI company, Coomber Group, through which in June 2007 loan of £3.5m was secured from Deutsche Bank. By not disclosing interests/assets/loans in offshore companies of Maryam Safdar, Nawaz Sharif and/or Mohammad Safdar in 2013 apparently violated section 12(2)(c)(d)&(f) and 99 of Representation of People Act, 1976.

THE HUDAIBIA CASES AND AL-

TOWFEEK CASE

The late father of Prime Minister, Mian Muhammad Sharif, was owner of one flat in Mayfair, London, as per order of QueenBench, London, in the case of recovery of loan from Hudabiya Mills by Al-Towfeek Investment Bank. On his death, shares ofHudabiya Paper Mills were shown in his assets by Prime Minister as inherited, but property was not! Nawaz said he had nointerest in London property and Al-Towfeek case. The fact is that he was operating through son as para 6, page 1082of judgment of Supreme Court reported as 2000 PLD SC 869) confirms Hussain Nawaz as director in Hudabiya in1999.

The counsel of Hudabiya Engineering (Pvt.) Ltd did not refute the above transactions but took the plea that“Messrs Hudabiya obtained loan of a few crores of rupees against the accounts opened in the name of KashifMasood and other mentioned in F.I.R. No.12/94 and Mrs. Sikandara Masood Qazi and other in case of F.I.R.No.13/94.” According to counsel, “this was a simple money transaction between the parties that is to say MessrsHudabiya, aforesaid account-holders and the bankers voluntarily and with each other's consent.” He claimed that that therewas no question of “committing fraud and cheating in the affairs”. It is a matter of fact that Qazi family later on clarifiedthat they had nothing to do with the foreign currency accounts opened in Pakistan and that they were cheated—Ashoddy track record, The News, April 16, 2016.According to the British newspaper Independent [Pakistan PM ‘mademillions in UK’, October 20, 1998]: “….money was laundered through "fictitious bank accounts" and, using family business

interests, was siphoned into offshore accounts”

http://tns.thenews.com.pk/shoddy-track-record/#.VymectR97IU

http://www.independent.co.uk/news/pakistan-pm-made-millions-in-uk-1179392.html

THE HUDAIBIA CASES AND AL-

TOWFEEK CASE

Later, a larger bench of Lahore High Court in its judgement, , in Hudabiya Engineering (Pvt) Limited v Federation of Pakistan and 6 others1998 PTD 34, held as under:“On consideration of various provisions of the Protection of Economic Reforms Act, 1992, we have reached the conclusion that sofar as foreign currency accounts are concerned, the holders thereof, have complete immunity from inquiry and scrutiny andcomplete secrecy must be maintained in respect of those accounts which cannot be violated by any agency or functionary. Thatbeing so, neither the Income Tax Authorities nor Federal Investigation Agency had any jurisdiction to hold any inquiry in respect ofthe transactions in the foreign currency accounts nor could the same be made basis of criminal prosecution.”

The larger bench of Lahore High Court adjudicated the issue purely on technical grounds and did not give any verdict on theaccusations of money laundering using section 5 of Protection of Economic Reforms Act, 1992, levelled in FIRs. The fact of usingforeign currency accounts was not refuted by the counsel of Hudabiya Engineering (Pvt.) Ltd. The High Court quashed the case onlegal grounds not commenting on the fact that there was sufficient evidence available that account holders were either fake or had noconnection with the business affairs of company.

The larger bench of Lahore High Court in Hudabiya Engineering (Pvt) Limited v Federation of Pakistan and 6 others [1998 PTD 34] alsoignored that benefit of section 5 of the Protection of Economic Reforms Act, 1992 could have been taken only by the persons whopurportedly opened foreign currency accounts and not by the company and its directors. It was incumbent on the directors under corporategovernance not to take benefit of any tainted funds. On the contrary, the company and its directors sought refuge under a special law tohide untaxed and undeclared money.

THE AUGUST SUPRME COURT OF WP

29, 30 OF 2016 AND 3/2017

Para

No.

Hrbl. Judge(s) WP/No Petitioners Respondents

First

Page

&

page 6

1. Mr. Justice Asif Saeed Khan Khosa

2. Mr. Justice Ejaz Afzal Khan

3. Mr. Justice Gulzar Ahmed

4. Mr. Justice Sh. Azmat Saeed

5. Mr. Justice Ijaz ul Ahsan

29/2016 Imran Ahmad Khan Niazi

PARA 1 OF ORDER

1. Nawaz Sharif shall be referred to in

this judgment as respondent No. 1-

2. Mariam Safdar shall be referred to as

respondent No. 6

3. Captain (Retired) Muhammad Safdar

shall be referred to as respondent No.

9

4. Mr. Hussain Nawaz Sharif as

respondents No. 7

5. Mr. Hassan Nawaz Sharif shall be

referred to as respondent No. 8

6. Samdhi (father-in-law of one of his

daughters) namely Mr. Muhammad

Ishaq Dar shall be referred to as

respondent No. 10

PAGE

6 1. Mr. Justice Asif Saeed Khan Khosa





30/2016 Sheikh Rasheed Ahmed

PAGE 6 OF THE ORDER

that respondent No. 1 in Constitution

Petition No. 29 of 2016 (who is

respondent No. 4 in the other two

petitions

PAGE

6 1. Mr. Justice Asif Saeed Khan Khosa





03/2017 Siraj-ul-Haq, Ameer Jamaat-e-Islami,

Pakistan PAGE 6 OF THE ORDER

that respondent No. 1 in Constitution

Petition No. 29 of 2016 (who is

respondent No. 4 in the other two

petitions

THE AUGUST SUPRME COURT OF WP

29, 30 OF 2016 AND 3/2017

DECISION

• 3 TO 2- BY MAJORITY

• 2 IN FAVOUR OF DISQ. 3 IN FAVOUR OF MORE PROBE

IMPORTANT

POINTS

• 21 POINTS BY JUSTICE EJAZUL AHSAN

• REJECTION OF DOCUMENTS PRESENTED BY RESPONDENTS

• CONSTITUTION OF JIT

• SUPERVISION OF JIT BY SUPREME COURT ON FORTNIGHTLY BASIS AS JIT WILL SUBMIT FORTNIGHTLY REPORST

OTHER POINTS

• TWO JUDGES WHO ARE GOING TO BE THE CHIEF JUSTICE OF THE FUTURE HAS CONCLUDED AGAINS THE PM. THEREE HAVE DEFERRED THE DECISION

• THIS IS NOT A CLEAN CHIT. DRAGGING AND GRILLING WILL START NOW FOR PM AND FAMILY

• YES THE DEPARTMENTS ARE UNDER INFLUENCE AND SC HAS MITIGATED THIS FACT BY SUPERVIISION ON FORTNIGHTLY BASIS

THE 21 questions

28. We have heard the learned counsel of the parties at length and examined the record submitted by the parties before us at various stages of the hearings. To our mind, inter alia,

the following questions need to be answered on the basis of submissions made by learned counsel for the parties, the assertions made in the petitions and the stance adopted by the

Respondents in their respective concise statements. We have also considered additional documents filed by the parties through numerous Civil Miscellaneous Applications filed at

various stages of hearing of these petitions:

i. What was the source of funds for acquisition of the Mayfair Properties in London, UK?

ii. Whether Respondents No.7 & 8, owing to their tender ages had the financial resources in early nineties to possess, purchase or acquire the Mayfair Properties?

iii. Who is the real and beneficial owner of Nescol Limited and Nielsen Enterprises Limited?

iv. Whether sufficient material has been placed on record to explain the source of funds used for acquisition of the Mayfair Properties?

v. Whether Respondent No.1 has any direct or indirect, legal or beneficial right, title or interest in the Mayfair Properties or any of the businesses of Respondents No.7 and /or 8.

vi. Whether enough documentary evidence comprising of account statements and banking documents etc has been produced before us to establish generation of funds through

legitimate sources and movement of such funds through banking channels for acquisition of the Mayfair Properties and businesses of Respondents No.7 & 8. If the answer is in the

negative, what is its effect?

vii. Whether the two letters dated 05.11.2016 and 22.12.2016 submitted on behalf of Respondent No.7 allegedly written by Sheikh Hamad can be taken into consideration for the

purpose of substantiating the stance taken by Respondent No.

THE 21 QUESTIONS

viii. Whether the business transactions allegedly occurring in 1974, 1978 and 1980 in Dubai and the documentation produced on behalf of Respondent No.7 in this regard show

legitimate business activity generating sufficient funds to have supported subsequent transactions claimed to have been undertaken in Qatar, Saudi Arabia and UK?

ix. Whether there is sufficient material to support the claim of Respondent No.7 that a sum of 12 million Dirhams was invested in the real estate business of the Thani family in

Qatar which multiplied manifold between 1980 to 2000 and consequently led to availability of requisite funds for settlement of dues of Hudaibiya Paper Mills Limited (HPML),

provision of funds to Respondents No.7 & 8 in Saudi Arabia and the UK respectively and transfer of Mayfair Properties in favor of Respondent No.7 by way of a final settlement of

accounts?

x. Whether Respondent No.1 failed to provide a satisfactory explanation regarding the ownership of the Mayfair Properties and whether he was able to satisfy this Court that he has

no nexus or connection with the Mayfair Properties and other businesses of his children?

viii. Whether the business transactions allegedly occurring in 1974, 1978 and 1980 in Dubai and the documentation produced on behalf of Respondent No.7 in this regard show

legitimate business activity generating sufficient funds to have supported subsequent transactions claimed to have been undertaken in Qatar, Saudi Arabia and UK?

ix. Whether there is sufficient material to support the claim of Respondent No.7 that a sum of 12 million Dirhams was invested in the real estate business of the Thani family in

Qatar which multiplied manifold between 1980 to 2000 and consequently led to availability of requisite funds for settlement of dues of Hudaibiya Paper Mills Limited (HPML),

provision of funds to Respondents No.7 & 8 in Saudi Arabia and the UK respectively and transfer of Mayfair Properties in favor of Respondent No.7 by way of a final settlement of

accounts?

x. Whether Respondent No.1 failed to provide a satisfactory explanation regarding the ownership of the Mayfair Properties and whether he was able to satisfy this Court that he has

no nexus or connection with the Mayfair Properties and other businesses of his children?

THE 21 QUESTIONS

xi. Whether Respondent No.6 was/is the beneficial owner of the Mayfair Properties. What is the effect of the trust document allegedly executed between

her and Respondent No.7. What is the legal effect of the letter written by Mossack Fonseca to Financial Investigation Agency of British Virgin Islands (BVI),

confirming that the Respondent No.6 is the beneficial owner of the Mayfair Properties?

xii. Whether Respondent No.6 is/was at the relevant time a dependent of Respondent No.1 and if so, whether Respondent No.1 had rendered himself liable

to disqualification by making a misstatement in his Nomination Papers for the general elections of 2013 and concealing the same from the tax authorities?

xiii. Whether Respondent No.1 had been guilty of tax evasion in consequence of which he was liable to be disqualified in terms of Article 62 (1) (o) of the

Constitution of Islamic Republic of Pakistan, 1973?

xiv. Whether the affidavits submitted on behalf of Mr. Tariq Shafi can be relied upon and believed in order to establish generation and transmission of funds

in the manner claimed by Respondents No.1 & 7?

xv. Whether sufficient material has been placed on record explaining the source of funds for establishing Azizia Steel Mills in Jeddah, Saudi Arabia and its

sale in 2005?

xvi. What were the sources of funds utilized by Respondent No.8 to set up Flagship Investments Limited and a number of other companies, set up/taken over

by Respondent No.8?

xvii. Whether Respondent No.7 adequately explained the mode and manner and the financial resources utilized for setting up Hill Metal Establishment in

Saudi Arabia

. xviii. Does Respondent No.1 have any direct, indirect, legal, beneficial or equitable right, title or interest in Hill Metals Establishment, considering that he

has regularly received amounts ostensibly by way of gifts for amounts in excess of US $ 7,612,350 from Respondent No.7? In the year 2015-16 alone a sum

of approximately US $ 2.3 Million were received from the account of Hill Metals Establishment.

xix. Whether regular and consistent receipt of huge amounts of money from/on account of Hill Metals Establishment shows a financial/ ownership interest

and stake of Respondent No.1 in the said business.

xx. Whether there are contradictions and discrepancies in the speeches, press interviews and statements made by Respondent No.1 and other members of his

family at different times before different fora explaining ownership of Mayfair Properties and the sources of funds for purchase of the Mayfair Properties and

other businesses of Respondents No.7 & 8. Further, whether there are irreconcilable discrepancies in the stance taken by Respondent No.1 and the statements,

interviews and plea taken by Respondent No.7 and other members of his family before this Court?

THE 21 QUESTIONS

Whether there is enough evidence available before this Court furnishing basis for disqualification of Respondent No.1 or to issue a declaration under Article

62(1)(f) of the Constitution and disqualify them from being member of the Parliament?

AML AND BILATERAL

AGREEMENTS

BILATERAL/RECIPROCAL AGREEMENTS

26. Agreements with foreign countries. — (1) The Federal Government may enter into an agreement on reciprocal basis withthe Government of any country outside Pakistan for—(a) the investigation and prosecution of any offence under this Act or under the corresponding law in force in that country;(b) exchange of information for the prevention of any offence under this Act or under the corresponding law in force in thatcountry;(c) seeking or providing of assistance or evidence in respect of any offence under this Act or under the corresponding law inforce in that country;(d) transfer of property relating to any offence under this Act or under the corresponding law in force in that country.27. Letter of request to a contracting State etc.—(1) Notwithstanding anything contained in this Act or the Code of CriminalProcedure, 1898 (Act V of 1898), if, in the course of an investigation into an offence or other proceedings under this Act, theinvestigating officer or any officer superior in rank to the investigating officer believes that any evidence is required in connectionwith investigation into an offence or proceedings under this Act and he is of opinion that such evidence may be available in anyplace in the contracting State, he may, with the prior permission of the head of that investigation agency, issue a letter of requestto a court or an authority in the contracting State competent to deal with such request to—(a) examine facts and circumstances of the case; and(b) take such steps as he may specify in such letter of request.

BILATERAL/RECIPROCAL AGREEMENTS

28. Assistance to a contracting State in certain cases.—Where a letter of request is received by the Federal Government from a

court or authority in a contracting State requesting for investigation into an offence or proceedings under this Act or under the

corresponding law in force in that country, the Federal Government may forward such letter of request to the Court or to the authorized

officer or any authority under this Act as it thinks fit for execution of such request in accordance with the provisions of this Act or, in the

manner sought by the contracting state so long as doing so would not violate laws of Pakistan or is, in any manner, not prejudicial to the

sovereignty, security, national interest or public order.

29. Reciprocal arrangements for processes and assistance for transfer of accused persons. — (1) Where a Court, in relation to

the offence of money laundering, desires that, —

(a) a summons to an accused person;

(b) a warrant for the arrest of an accused person;

(c) a summons to any person requiring him to attend and produce a document or other thing or to produce it, or

(d) a search warrant,

issued by it shall be served or executed at any place in any contracting State, it shall send such summons or warrant in duplicate in such

form, to such court, judge or magistrate through such authorities as the Federal Government may specify in this behalf and that court, judge

or magistrate, as the case may be, shall cause the same to be executed.

Important URLs

1. www. fmu.gov.pk

2. www.sbp.org.pk

FMU Presentation.pptx

CONCLUDED- THANK YOU VERY MUCH