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Understanding the AML law

Last month, the Financial Action Task Force (FATF) announced that Pakistan would continue to remain on its grey list. The main consideration for not placing it on the while list or out of grey list has been the implementation status of Anti-Money Laundering (AML) provisions. Furthermore, an analysis of proceedings by the accountability organisations against politicians and other persons reveals that in many cases the underlying charge is framed under the AML law. This requires a proper understanding of the AML law as is in force in Pakistan in view of the fact that it is comparatively a new law introduced in 2010.

In this series of articles I would try to describe the following issues:

1. That the concept of AML law as was generally understood has been completely transformed by recent legislations on the subject and in almost all cases the statutes relate to ‘Proceeds of Crime’ regulation in which the AML law is only a part.

2. In Pakistan, the action that can be undertaken by way of prosecution proceedings are being directly adopted for proceedings under AML law. This manner of application of law requires reconsideration.

What is Anti- Money Laundering?

AML provisions and statutes for that purpose are not old in Pakistan. Such provisions are comparatively recent financial regulations in western countries too. AML provisions in the UK are part of ‘Proceeds of Crimes Act 2002’. The UK Act is so comprehensive that even without rules it consists of over 475 elaborated sections. AML is just one of the chapters of that Act. In the US, the laws relating to AML are contained in the Anti-Money Laundering Act, 1986 and the recent Anti-Money Laundering Act 2020. The US law of 1986 is almost similar to the UK statute and deals with the handling, ownership and other aspects of ‘Proceeds of Crime’. This means that in both the UK and USA the statutes relate to proceeds of crime.

Pakistan’s AML law as contained in the AML Act, 2010, in my view, is also a replica of the UK and the US laws. It deals with matters relating to proceeds of crimes which under the present extended meaning in the new global scenario is being deemed/ termed to be AML. In the Pakistan law, the offence of money laundering has been defined as:

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 such property is proceeds of crime;

(b) conceals or disguises the true nature, origin, location, disposition, movement or ownership of property, knowing or 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 such property is proceeds of crime;

or (d) participates in, associates, conspires to commit, attempts to commit, aids, abets, facilitates, or counsels the commission 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 be inferred 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 respective predicate offence shall not be required. 4. Punishment for money l

In simple sense, the action as referred to in (a) and (c) above, are actions that were not considered as AML in the common sense and the action under AML emanates only where actions as referred to in (b) are involved. Be that as it may, it is to be clearly understood that inclusion of actions under (a) and (c) has completely changed the perspective of the concept of AML. If there is a proceeds of any crime which is treated as a predicate crime then possessing the same is an AML action whether or not there is any act by the possessor to conceal or disguise that property or asset. This is a very major change. The severity of this problem has been multiplied in our culture where there is rampant concealment of income that such an action is effectively a predicate crime under the AML law.

Distinction between Proceeds of Crime Laws and AML concept

Prior to any further discussion on this subject, it is essential to identify the recently developed and overlapping relationship between Proceeds of Crime regulations and AML. In my view, the legislative history of the Indian law on this subject very clearly exhibits the nature and status of the change. This issue becomes clearer when we see the changes that Indians have made in 2013 to their Prevention of Anti-Money Laundering Act, 2002. The act of money laundering under the Indian Act is defined as under:

3. Offence of money-laundering.—Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of offence of money-laundering.

2 [Explanation.—For the removal of doubts, it is hereby clarified that,—

(i) a person shall be guilty of offence of money-laundering if such person is found to have directly or indirectly attempted to indulge or knowingly assisted or knowingly is a party or is actually involved in one or more of the following processes or activities connected with proceeds of crime, namely:—

(a) concealment; or

(b) possession; or

(c) acquisition; or

(d) use; or

(e) projecting as untainted property; or

(f) claiming as untainted property, in any manner whatsoever;

(ii) the process or activity connected with proceeds of crime is a continuing activity and continues till such time a person is directly or indirectly enjoying the proceeds of crime by its concealment or possession or acquisition or use or projecting it as untainted property or claiming it as untainted property in any manner whatsoever.

The italicised words in the aforesaid definition of the Indian legislation which were placed in 2013 provide an easy reference to understand the shift of AML to Proceeds of Crime regulation. Prior to the insertion of these words any activity in relation to proceeds of crime used to become an act of AML only when that money was ‘projected’ as untainted money.

This meant that for being AML two acts were essential:

• Activity in relation to a Proceed of Crime; and

• Projecting the same as untainted money.

Now after the change of law in India also, the second condition in relation to AML has been removed. Now, AML in Pakistan, the UK and India is simply a process or activity in relation to the ‘proceeds of crime’. This means that old theories relating to ‘launder’ or ‘cleaning up’ are not relevant and the right title of this statute is what the UK has adopted since inception being ‘Proceeds of Crime Act, 2002’.

Underlying Reasons for the Extension of the Concept of AML

In order to appropriately appreciate the concept of proceeds of crime regulation it is essential to identify why the proceeds of crime regulations were superimposed over AML. In my view, which is based on review of the UK law on the subject there were two primary reasons.

1. A special statute was required to freeze or confiscate the proceeds of crime to preempt the use of such funds in non-kosher transactions. Use of funds for terrorism was one of the major motivating factors.

2. Secondly, the persons dealing in financial transactions were also made responsible to report suspicious transactions. In other words, the law is also applicable on the person who has the knowledge of such proceeds.

Both these aspects have been brilliantly explained by the UK Home Office whilst providing an overview of the Proceeds of Crime Act, 2002 of the UK Overview of the Proceeds of Crime Act 2002 Overview 1.

The Proceeds of Crime Act 2002 (“POCA”) sets out the legislative scheme for the recovery of criminal assets with criminal confiscation being the most commonly used power. Confiscation occurs after a conviction has taken place. Other means of recovering the proceeds of crime which do not require a conviction are provided for in the Act, namely civil recovery, cash seizure and taxation powers. The aim of the asset recovery schemes in POCA is to deny criminals the use of their assets, recover the proceeds of crime and disrupt and deter criminality.

2. The Act also provides for a number of investigative powers, such as search and seizure powers, and powers to apply for production orders and disclosure orders, and allows for the “restraint” or “freezing” of assets to prevent dissipation of assets prior to a confiscation order being made.

Part 6: Revenue Functions 14. Part 6 provides the NCA with revenue functions, enabling them to make a tax assessment under section 29 of the Taxes Management Act 1970 where the source of income cannot be identified and are suspected to be criminal assets. The NCA utilises these powers to undertake tax investigations and raise a tax demand where there is a reasonable suspicion that an individual has accrued income or gain as a result of criminal conduct. These powers are separate from those of HM Revenue and Customs.

Part 7 provides for various money laundering offences. A person commits an offence if he or she:

• conceals, disguises, converts or transfers criminal property or removes it from England and Wales or Scotland or Northern Ireland;

• enters in to or becomes concerned in an arrangement which he or she knows or suspects facilitates the acquisition, retention, use or control of criminal property;

• acquires, uses or has possession of criminal property.

17. Part 7 of POCA requires financial institutions and businesses in the regulated sector to report to the UK Financial Intelligence Unit, which is part of the NCA, any suspicions about criminal property or money laundering. Even if a person is not in the regulated sector they must report any suspicions if they come across any suspicious activity through their trade, business or profession.

If we reiterate the whole concept then it means that ultimate objective of the Proceeds of Crime Act is:

The aim of the asset recovery schemes in POCA is to deny criminals the use of their assets, recover the proceeds of crime and disrupt and deter criminality

The comments in the aforesaid paragraphs only provide a general rationale and primary principles of the proceeds of crime act as contained in our AML Act, 2010. In the subsequent articles, I will try to explain the institutional and procedural mechanisms which are required to be instituted in Pakistan, especially in relation to predicate crime or offence relating to concealment of income. Needless to say, we have to comply with FATF conditions.

Syed Shabbar Zaidi, "Understanding the AML law," Business Recorder. 2021-07-07.
Keywords: Economics , Economic growth , Economic zones , Economic activity , Economic conditions , Stat Bank , Money laundering , Possession , Financial transactions , POCA , NCA

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