HIGH LEVEL APG DELEGATION TO VISIT REGARDING STALLED AML

UNCLAS SECTION 01 OF 02 ISLAMABAD 002866

SIPDIS


SIPDIS
WARSAW FOR RSEAMAN, ABU DHABI FOR GMULLINAX
STATE FOR SCA/PB AND EB/ESC/TFS LLAMBERT
TREASURY FOR PDERGARABEDIAN, ASHARMA
JUSTICE FOR LSAMUEL

E.O. 12958: N/A
TAGS: KTFN PTER EFIN PK
SUBJECT: HIGH LEVEL APG DELEGATION TO VISIT REGARDING STALLED AML
LEGISLATION



1. (U) This is an action cable. Please see paragraph 8.


2. (SBU) Summary: The Asia Pacific Group is sending a high level
delegation to Pakistan July 2-3 in order to impress on the GOP the
seriousness with which they regard Pakistan's lack of progress on
passing anti-money laundering legislation, which has languished in a
standing committee of Parliament for almost two years. An amendment
to the Banking Companies Act, which would have included many of the
anti-money laundering provisions in the stalled bill, was attached to
budget legislation, but was rejected by the Senate on June 23.
Parliamentarian Haroon Piracha, a member of the Standing Committee on
Finance in the National Assembly, expressed frustration at the lack
of movement on the bill, but also voiced concerns over potential
economic ramifications. Piracha was unaware of the high-level
mission as well as of the serious consequences that could result if
the APG takes action against Pakistan for failing to pass an
internationally acceptable anti-money laundering bill. We request
instructions to demarche the GOP on these consequences, to ensure
that the Government is cognizant of the possible ramifications of its
foot dragging. End Summary.


3. (SBU) Background: In 2002, the Department of Justice (DOJ) worked
closely with the GOP to craft an anti-money laundering (AML) bill
that would meet international standards. Before the bill could reach
the Cabinet for a vote, it was changed in order to "harmonize" with
the Indian AML legislation - which did not meet international
standards, according to the DOJ. Eventually the GOP revised the bill
again; however, it still fell short of what was needed to meet
Financial Action Task Force (FATF) requirements. In September 2005,
the AML draft legislation was approved by the Cabinet. While it was
closer to
meeting international standards, it still fell short in several key
areas; namely money laundering itself was not considered an
independent crime, and asset seizure and forfeiture provisions were
inadequate. The bill was sent to the Standing Committee on Finance
for review and possible amendment before being sent to a vote by the
full National Assembly.


4. (SBU) On June 28, Econoff met with Parliamentarian Haroon Piracha
from the ruling PML-Q party. Piracha, a US-educated banker, joined
the Standing Committee on Finance in December 2006. Piracha informed
Econoff the Standing Committee had completed its review of the bill
and passed it back to the Ministry of Finance (MOF).


5. (SBU) The Standing Committee on Finance formed a subcommittee
comprising 5-7 members in order to expedite the committee's final
review of MOF changes before sending it to the full National Assembly
for a vote. Piracha said the subcommittee had not met yet. (Note:
In a conflicting statement, Javed Malik, Additional Secretary,
Ministry of Finance, told Econcounselor June 12 that the bill was
currently being reviewed by this subcommittee and that the
legislation would be put into final form by June 25 and submitted to
the National Assembly. Malik was aware of the APG's impending visit
and appeared anxious to demonstrate that progress was being made, but
as of June 29, the bill is still in limbo. End Note) Econoff offered
to have the Embassy's Legal Advisor review the final amendments with
the subcommittee, an offer Piracha welcomed, once he returned from a
trip abroad in a few weeks.


6. (SBU) Although he agrees that a comprehensive money-laundering
bill should be passed, Piracha voiced concerns over its potential
economic ramifications. He feared that recent banking sector reforms
that encouraged overseas Pakistanis to send their remittances through
legal banking channels instead of hawalas or hundis could be undone.
Concerns about monitoring of transactions might also discourage
investment in Pakistan. The provision for asset forfeiture, he
believed, could be abused for political reasons. Piracha promised to
give us a copy of the final version of the bill.


ISLAMABAD 00002866 002 OF 002



7. (SBU) Econoff informed Piracha that a high-level mission from the
Asia Pacific Group (APG) was scheduled to visit Pakistan July 2-3 to
discuss the status of the AML bill and the consequences of further
inaction. (Note: The APG is a regional, FATF-like organization tasked
with disrupting money-laundering channels. End Note) Econoff
informed Piracha of the negative ramifications if Pakistan were to be
placed on the APG's "watch list." They include: the cessation of all
correspondent banking relations between the U.S. and Pakistan; the
generation of a Suspicious Transaction Report for all transactions
involving Pakistani banks; and a three-day hold on all international
money transfers cleared through U.S. banks. Piracha expressed shock
at the extent of possible APG sanctions, and agreed it was imperative
Parliament pass the bill quickly. Piracha said all parliamentarians
were concerned about the date of the next elections, and that if they
happen more quickly than expected, the new legislature would have to
start from "ground zero" with the AML bill. Piracha believes the
bill should be voted on no later than September in order to ensure
this Parliament will review it, otherwise it will be another long
wait.


8. (SBU) Action Requested: It does not appear that there is general
awareness in Pakistan of the possible repercussions of failing to
pass AML legislation in the near future. The impending visit of the
APG delegation is a signal that patience is wearing thin. Post
requests Demarche instructions for delivery to the GOP highlighting
the consequences of being placed on the APG's watch list.



PATTERSON