PAKISTAN'S ANTI-MONEY LAUNDERING ORDINANCE LAPSES,

C O N F I D E N T I A L SECTION 01 OF 03 ISLAMABAD 002973 SENSITIVE SIPDIS E.O. 12958: DECL: 06/27/2019 TAGS: ECON EFIN EAID PGOV PREL PK SUBJECT: PAKISTAN'S ANTI-MONEY LAUNDERING ORDINANCE LAPSES, BUT RE-ISSUED AT THE ELEVENTH HOUR ¶1. (C) Summary: In a last minute attempt to keep some kind of anti-money laundering regime in place after the Supreme Court directed that a string of Musharraf-era ordinances be promulgated as laws or allowed to lapse, President Zadari issued a revised Anti-Money Laundering ordinance (AMLO) on November 26. The government,s failure to pass a law is likely to disappoint both the Financial Action Task Force (FATF) and the G-20, and FATF may decide to take further, more serious action on Pakistan at its February plenary. The banking sector may also soon see practical effects with regards to correspondent bank relationships, letters of credit and the country,s general financial reputation. End Summary. Pakistan,s Nine Year Failure to Pass Anti-Money Laundering Law -------------- -------------- ¶2. (SBU) Pakistan accepted the Asia Pacific Group on Money Laundering (APG) the sub Financial Action Task Force (FATF) regional body - requirement that members develop, pass and implement anti-money laundering and countering the terrorism of finance (AML/CFT) legislation when it joined the FATF in ¶2000. Despite its commitment, Pakistan took no action until the APG threatened to suspend Pakistan's APG membership in ¶2007. To avoid suspension, President Musharraf issued an executive ordinance implementing the long-awaited AML bill. ¶3. (SBU) In July 2009, the constitutionality of the AMLO (along with 36 other Musharraf-era ordinances on a variety of subjects) was challenged in court. On July 31, 2009, the Supreme Court ruled that all 37 ordinances in effect on that date would expire, consistent with relevant Constitutional provisions, 120 days after the date of the ruling. (Note: Article 89 of Pakistan's Constitution empowers the executive branch to issue ordinances which have the effect of law, but only when the legislature is not in session. Even then, the ordinances only have a life of 120 days and by law must be renewed. In practice, given Parliament,s infrequency in passing laws, the ordinance process has frequently been used as a mechanism for implementation of even non-controversial laws. While these ordinances theoretically have a lifespan of only four months, in practice, they have continued in force indefinitely. End Note). FATF Acts -------------- ¶4. (SBU) In October 2009, the FATF issued a strongly worded statement expressing concern that Pakistan's AMLO was due to expire on November 28, 2009, and strongly urging Pakistan to implement a permanent, comprehensive AML/CFT framework before the expiration of the AMLO. In the absence of concrete progress, the FATF threatened action against Pakistan in order to protect the financial system from the money laundering and financing of terrorism risks emanating from Pakistan." Senior GOP officials, including Finance Minister Shaukat Tarin and State Bank Governor Salim Raza, pushed the National Assembly to take action on the bill, warning that failure to do so could negatively impact Pakistan's correspondent banking relationships, letters of credit, and financial reputation. ¶5. (C) As international concerns over Pakistan,s inaction mounted, the U.N. and World Bank sponsored a workshop on AML/CFT for Pakistani Parliamentarians in early November, hoping to focus Pakistan's parliamentarians on the importance of addressing the complex challenges posed to Pakistan and its economy by money laundering and terrorism financing. Several senior parliamentarians assured the U.N. team that passing an AML Law was one of their highest priorities during the current legislative session. The Chairman of the Senate Standing Committee on Finance, Ahmed Ali, repeatedly told Treasury Attache that Parliament was acutely aware of the FATF's warning and the November 28 deadline. ISLAMABAD 00002973 002 OF 003 ¶6. (SBU) However, as the deadline to adopt the legislation loomed, hopes that the National Assembly would act began to dim. Members dickered, asked for rewrites by the Ministry of Finance, and, in the end, the legislature went out of session with no action taken on the bill. Accordingly, the existing AMLO lapsed on November 28, consistent with the Supreme Court,s order. (Comment: This result was probably to have been expected given the parliament,s poor legislative record: Since August 2008, Pakistan's Parliament has only passed five laws, and two of those were federal budgets. End Comment.) We Have A New Ordinance, But You Can,t See It -------------- ¶7. (C) Anticipating the legislature,s failure to act, the Ministry of Law and Justice worked with the Finance Ministry to prepare a new draft ordinance, which was duly issued on November 26 just two days before the existing AMLO was to expire. However, copies of the new ordinance have not been publically distributed, even to the relevant AML institutions, such as the State Bank of Pakistan. Embassy staff were told by Law Ministry officials that the Law Ministry was not authorized to release copies of the new Ordinance to anyone, that the Ordinance was actually still just in draft form, and that it contained mistakes that needed to be corrected. One contact at the Law Ministry staff confided that the ordinance was rushed out primarily as a means of showing the international community that Pakistan was doing something. ¶8. (C) At best, the new AMLO has a legal shelf life of 120 days, consistent with Article 89 of the Constitution, although it can be renewed, theoretically in perpetuity. At worst, the reissuance of the AML law as an ordinance may well be unconstitutional. Pakistan's lawyers and legal scholars are of divided opinion as to whether any of the 37 ordinances identified by the Supreme Court in its July 31 opinion can be properly reissued in this fashion. The Supreme Court directed the legislature to act within 120 days (by November 28, 2009) if it wanted any of the ordinances, including the AMLO, to continue in effect. If the legislature did nothing, the ordinances would expire. This cloud of legal uncertainty leaves any attempt at enforcement of the AML in jeopardy. At a minimum, any enforcement efforts brought by the government under the AMLO will be subject to arguments by defense lawyers that it is legally invalid under the Supreme Court's July 2009 opinion. Separately, Acting Finance Secretary Rana Asad AMIN confided to Treasury Attache, in mid-November, that the Finance Ministry's legal department was preparing a new AMLO if the AML bill failed to pass in the Parliament. However, the legal counsel told him that such an AMLO would be legally questionalbe, and only had a "five percent chance of standing up in court." The New AMLO: What We Hope We are Getting -------------- ¶9. (SBU) The new AMLO reportedly broadens the definitions of money laundering and financial institutions, and improves the autonomy and authorities of the Financial Monitoring Unit (FMU),which is Pakistan's Financial Intelligence Unit (FIU). (Note: A FIU is a central, national agency responsible for receiving, requesting, analyzing and disseminating to the competent authorities, disclosures of financial information concerning suspected proceeds of crime and potential terrorism financing. End Note.) Presuming the Parliament passes the AML Bill and it remains largely unchanged from the AMLO, the GOP will still need to submit additional amendments to the AML Law in order for it to address all of the APG's concerns. ¶10. (C) Director General of the FMU, Azhar Qureshi, in a conversation with Treasury Attache on December 7, noted some ISLAMABAD 00002973 003 OF 003 improvements in the new AMLO. He said he had largely succeeded in persuading the Finance Ministry to adopt the definition of money laundering from the U.N. Convention against Transnational Organized Crime (the "Palermo Convention"). Qureshi hoped the new language would make it easier for prosecutors to make stand alone money laundering cases. Among the other changes, the AMLO now criminalizes holding property with knowledge that such property is proceeds of a crime. Furthermore, the FMU will have greater autonomy from the State Bank of Pakistan. Qureshi did note that the new AMLO still requires Pakistan to have bilateral mutual legal assistance treaties with countries before sharing financial information with another FIU. Lastly, Qureshi commented that he intended to write to seek the FMU's acceptance into the Egmont Group in May 2011 (Note: The Egmont Group is an international network designed to improve interaction among FIUs in the areas of communication, information sharing, and training coordination. To meet the standards of Egmont membership, an FIU must be centralized unit within a nation or jurisdiction to detect criminal financial activity and ensure adherence to laws against financial crimes, including terrorist financing and money laundering. Pakistan,s acceptance into Egmont at this time is unlikely given the disarray surrounding its AML laws. End Note.) ¶11. (C) Comment: Although the Finance Ministry and the Executive have not always shown alacrity in pushing an AML bill, much of the failure to pass an ordinance lies with the Parliament. Not only did the National Assembly fail to pass new legislation, by forcing the GOP to issue an ordinance, Pakistan's new AMLO is legally questionable and thus does not provide the overall legal safeguards necessary to protect the unprecedented levels of donor funds coming into Pakistan from criminal malfesance. Pakistan's own law enforcement officials agree the country desperately needs a permanent AML Law. End Comment PATTERSON