CODEL LYNCH'S JANUARY 29 MEETING WITH SBP GOVERNOR RAZA,

UNCLAS SECTION 01 OF 02 ISLAMABAD 000308

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON PGOV PREL
SUBJECT: CODEL LYNCH'S JANUARY 29 MEETING WITH SBP GOVERNOR RAZA,
PROGRESS ON AML BILL

REF:

A: 09 ISLAMABAD 2973
B: 09 ISLAMABAD 1992

(SBU) Summary: On January 29, a Congressional Delegation led by
Representative Stephen Lynch met with State Bank of Pakistan
Governor Salim Raza and Financial Monitoring Unit Director General
Azhar Qureshi. Qureshi detailed the progress that Pakistan made in
reforming its Anti-Money Laundering and Countering the Financing of
Terrorism regime in the past couple years. Most notably, Qureshi
explained that Pakistan's Parliament is close to passing Pakistan's
first anti-money laundering law, which will provide a permanent
legal framework that no longer relies on executive ordinances.
Separately, Governor Raza provided insight on the global economic
crisis from his days as a commercial banker. Raza believed that as
financial sector develops new regulations, it find the proper
balance in protecting depositor assets and ensuring there is enough
liquidity for investment in developing economies. End Summary.

Pakistan Makes Strides on AMF/CTF legislation
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2. (SBU) Representative Lynch congratulated Raza and Qureshi for the
recent passage of the 2009 AML bill in the National Assembly, and
hoped that final approval in the Senate would be quickly
forthcoming. Lynch said that establishing a permanent AML Law was a
great step forward for economies wishing to protect their financial
sector from criminal malfeasance. He noted that the U.S. Treasury
Department has excellent programs to help countries improve their
anti-money laundering and countering the financing of terrorism
(AML/CFT) regimes and Financial Intelligence Units (FIU). (Note:
The FMU is Pakistan's FIU. End note.). Treasury Attache elaborated
on Treasury's efforts in AML/CFT technical assistance, which has
included the provision of tailored AML/CFT training courses to the
staff of the FMU, in addition to several other Pakistani agencies
responsible for investigating financial crimes. Treasury also plans
to provide a resident advisor to the FMU to assist in the training
of thirty new FMU staff to be hired by June.


3. (SBU) Qureshi welcomed Lynch's remarks, and noted that, while
Pakistan criminalized the financing of terrorism under the
Anti-Terrorism Act of 1997, it was not until late-2007 that money
laundering was criminalized under the first Anti-Money Laundering
Ordinance (AMLO). Despite this achievement, Qureshi provided a
frank assessment of the 2007 AMLO and the 2009 AMLO deficiencies in
meeting Financial Action Task Force (FATF),Asia Pacific Group
(APG),and Egmont International Standards (ref A). Among the most
salient problems with the current AMLO, Pakistan still required a
mutual legal assistance treaty (MLA),or some other bilateral
agreement, with a country in order for the FMU to exchange
information. Qureshi commented that the Finance Ministry was
cooperating with the Ministry of Law to immediately draft an
amendment to the future AML Law to address the information exchange
issue. Overall, Qureshi felt that Pakistan lacked a comprehensive
framework for international cooperation and information sharing, but
hoped the Government would correct the issue before Pakistan sought
Egmont membership in May 2011.


4. (SBU) Congressman Lynch asked Qureshi what challenges he
encountered combating money laundering and terrorist financing in a
largely cash based economy. Qureshi quickly acknowledged that the
1992 Protection of Economic Reform Act did not put restrictions on
the amount of cash one could courier into the country, and made
enforcement of bulk cash smuggling problematic. The Federal
Investigation Agency (FIA) and Customs officials still had
discretion to stop someone at the border or the airport if they had
suspicion of a crime, but this happened infrequently and was legally
problematic for the FMU. (Note: Customs officials are legally
prohibited from sharing information with the FMU.) Qureshi
explained that due to strict foreign exchange controls at the time,
the Government in 1992 created lax courier laws to encourage other
ways of bringing money into the country. However, the recent
reforms of the Pakistan Remittance Initiative corrected most of the
tough foreign exchange rules, and made remitting money through banks
and legitimate foreign exchange companies easier for expatriates
(ref B). Lynch commented that Pakistan should try using currency

ISLAMABAD 00000308 002 OF 002


transaction reports, which do not lead to arrest or detention. That
information could possibly then be shared with neighboring countries
and FIUs to determine patterns of abuse.

Governor Raza on the Global Economy and Bank Regulation
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5. (SBU) Governor Raza provided his insight on the affects of
banking deregulation on the global economic crisis. Representative
Bob Inglis asked Governor Raza what advice he would give FED
Chairman Bernanke, as one central banker to the other, if given the
opportunity. Raza answered that no commercial banker over the age
of 40 understood the mathematical models and derivatives used by
younger investors in banks and hedge funds. Raza further recalled
his colleagues were prevented from using their depositors' assets
and engaging in risky trading, and instead used only the partners'
assets. However, Raza said that despite all of the bad press
associated with investment banking in the past decade, it did
provide much needed liquidity for some emerging economies. Raza
felt that, as new regulations are developed in the banking sector,
it was important to find a balance for protecting depositors and
ensuring there is enough liquidity for worthwhile investments.


6. (U) Participants:

U.S.
Representative Stephen Lynch
Representative Bob Inglis
Representative Bob Platts
Representative Betty Sutton
Representative Joe Donnelly
Deputy Chief of Mission Gerald Feierstien
Scott Lindsay, Majority PSM for House Oversight and Government
Reform
Erin English, U.S. Treasury Attache
Alamanda Gribbin, Embassy Control Officer

Pakistan
Governor State Bank of Pakistan Salim Raza
Director General Financial Monitoring Unit Azhar Qureshi