The Counsel

Money Laundering and Politically Exposed Persons (PEPs)

By Samara Ahmad

Money laundering is an inevitable issue in most of the developing countries. It has always been critical for the developing countries to eradicate financial crimes. Financial Action Task Force (FATF) was established to combat money laundering and financial crimes around the world. According to FATF money laundering is the processing of criminal proceeds to disguise their illegal origin in order to legitimize the ill-gotten gains of crime.

Pakistan money laundering legislation has undergone many changes since the anti money laundering bill was introduced in the National Assembly of Pakistan on September 22, 2005. . In February 2010, FATF blacklisted eight countries for not complying with the international standards. Pakistan was also blacklisted. As a result Pakistan made amendments and enacted a separate act Anti Money Laundering (AML) Act 2010.

It has been a serious problem with Pakistan to have efficient and effective law regime against the politicians or powerful persons. They usually use financial institutions to launder their illegal money.

The financial institutions must incorporate ‘Customer Due Diligence’ measures to monitor the source of the wealth. There should be unbiased authorities to deal with money laundering crimes. Pakistan AML Act 2010 requires that there should be a National Executive Committee consisted of ministers and political personalities to issue policies and regulations and also monitor AML crimes. This is very controversial in order to combat money laundering. The members or directors of the authorities should be neutral and unbiased persons.

An enhanced ongoing monitoring of the profile of politically exposed persons (PEPs) is strongly recommended. It is the duty of the authorities to make sure the implementation of anti money laundering laws in the system. Pakistani authorities are not particularly adroit to take action against PEPs. Pakistan needs to sustain its AML laws and measures against the politically exposed persons to ensure to apply all international standards in order to combat money laundering and financial crimes irrespective of any discrimination.

The advent of globalization has also brought some problems with it. Now money can be transferred through different jurisdictions. Money launderers tend to use jurisdictions with weak legislation against money laundering. Politicians sometimes launder their illegal money offshore. The countries having low standards and weak anti money laundering legislation is usually used by the launderers. The size of Switzerland’s offshore private wealth is really high. There are some corruption cases against the PEPs of the developing countries. The former President Sami Abacha of Nigeria is accused of laundering US $ 660 m in Swiss Banks.

It goes without saying that Pakistan has been victim of corruption and money laundering crimes. There are sufficient laws to eradicate this issue. But it is an axiomatic truth that the existence of laws does not make any difference unless implemented.

There are still some deficiencies left in AML Act, 2010. The composition of National Executive Committee needs to be reviewed and should be consisted of non political regulators. The financial and non financial institutions should work together and fully apply customer due diligence to trace the source of money.

The Author is an Advocate of the High Courts and holds an LLM in International Commercial Law from Cardiff University, UK.