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Article excerpt

Reportedly, a network of some private unregulated charity organizations have also emerged as a significant s ou rce o f i lli ci t f un ds fo r do m e sti c as w el l a s i n ter nat i on a l ter r or is t networks Haider, Prior to , there was no well-developed law or apparatus in Pakistan to combat money laundering. However, with the promulgation Anti-Money Laundering Act and establishment of an effective Financial Monitoring Unit FMU , the country is now having an effective law to control the crime and put the money launderers and terrorist financiers behind the bars.

The issue of money laundering has drawn great attention of the Government of Pakistan. The purpose of this study is to provide useful analysis of the global Anti-Money Laundering AML and Countering the Financing of Terrorism CFT regime and that what legal, legislative, regulatory and law enforcement measures have been taken by Pakistan in response to meeting the international requirements and standards.

An attempt has been made to assess the legislative development in Pakistan viz a viz money laundering and terrorist financing and to suggest possible measures for their improvement in the light of international laws knowledge gained through empirical research. This exploratory research work serves as a trailblazer for the future researchers to probe the matter further.

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Money laundering is a global menace and is deep-rooted in the major industrial economies of the world. As early as in s, the world powers started realizing to curb the deadly combination of the ill-gotten money, its subsequent siphoning off to different destinations world-over.

The United Nations sensitized its signatories of the lethal consequences of the money laundering, and encouraged them through Vienna Convention, Palermo Convention and Marida Convention to evolve legal frameworks and find ways and means to counter the same. Since , the FATF has worked to produce a comprehensive set of international standards against money laundering and terrorist financing.

The increase in the level of foreign money creates a source of monetary expansion that reduces control of the money supply. Cash holdings smuggled into the economy have a high premium because of the rapidly depreciating kyat. Direct-lending options have become attractive in Burma due to the increasing international enforcement of money laundering laws.

Informal and illegal credit markets have become very influential. There are many unmet credit needs among companies, so unofficial means of financing proliferate.

Under the Burmese junta, however, there are no such standards so there is no financial integrity either. Funds from criminal activity can easily be processed through Burmese institutions, either because its employees and directors are corrupt or because the institution itself turns a blind eye to the criminal nature of such funds.

There are no free commercial interest rates to reflect the true cost of money. If banking were left free to develop in response to the demand for its services, it would produce better results. First, because their transaction costs are much lower, criminal lenders do not carry backlogs of non-performing loans which burden the banks.

Fourth, criminal lenders can use violence to ensure repayment. Spending behaviour becomes influenced not only by the official money supply but also by adding informal credit.

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Interest rates become much less useful for estimating money demand and the government ends up with less accurate information on which to base fiscal and monetary policies. In situations of reduced money growth, hard currency can strengthen reserves, ease the hardship associated with expenditure-reducing policies, and moderate foreign debt.

In this light, the junta welcomes drug money as a potentially stabilizing force. It is a source of capital without being conditionally attached. There is a pressing need to counter money laundering in Burma. Actually under this law, financial institutions can do anything as long as they have permission from the Central Bank, i.

The law is vague enough to allow criminal organizations to perform financial operations. Although Articles 6 to 8 clearly define the activities of financial institutions, Article 9 says that the Central Bank may permit a financial institution to engage in more activities. Article 29 says that financial institutions shall acquire and keep the legal documents for credit operations, but under Article 30 b financial institutions may get permission from the Central Bank for an exemption to documentation.

Chapter 7 is supposed to regulate the auditing, reporting and supervision by the Central Bank, but it does not describe these activities in detail. Under Article 81, if personnel or auditors of financial institutions disclose information obtained in the performance of financial activities, they shall on conviction be punished with a fine which may extend to 10, kyats or with imprisonment which may extend to two years, or with both.

Under Article 82, if anyone carries out the activities of the financial institution without a licence granted by the Central Bank, the penalty can be a fine which may extend to 50, kyats or imprisonment of up to five years, or both. This places the officials of the Central Bank above the law. The law includes provisions governing the control of foreign exchange transactions and inspection of financial institutions, but leaves it completely up to the Bank how to do this.

Article 91 authorizes the junta to permit the Central Bank to engage in any operation relating to the financial sector.

Can the AML system be evaluated without better data?

Article 93 is particularly vulnerable to abuse, stipulating that in taking legal actions against the Central Bank, prior sanction of the Central Bank must be obtained—never mind the Rule of Law. The Act does not say anything regarding the possible sources of foreign exchange, or about reporting suspicious or unusual transactions. Although the Act contains some articles that could be useful against money laundering, it confers such wide powers on the military Controller of Foreign Exchange that it becomes vulnerable to abuse.

For example, the Act does not say anything about the accountability of the Controller.

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Article 16 stipulates that money lenders are not allowed to use violence or intimidation to ensure repayment, but otherwise the Act is not really useful in the fight against criminal finance. The Act does not provide for adequate screening measures, so criminal lenders can participate like anyone else. Nothing is said about an inspection mechanism or about the sources of money. Another deficiency is the absence of a legal requirement to report suspicious or unusual transactions. The Acts could be useful tools against money laundering if only Burmese banks and police were not so corrupt.

The Act added to this that such inspection may not be carried out by officers below the rank of District Superintendent of Police. However, the junta abolished this Act in The law contains some useful legal tools for addressing money laundering, the seizure of drug-related assets, and the prosecution of drug conspiracy cases. However, Burmese drug officials claim they lack sufficient expertise to deal with money laundering and financial crimes.

Unfortunately this law does not criminalize money laundering for crimes other than drug trafficking. The law provides some useful legal tools against money laundering. The Financial Action Task Force on Money Laundering FATF , an intergovernmental body within the Organization for Economic Cooperation and Development, made useful recommendations that have been established as the international standard for effective anti-money laundering measures.

Of course, countries have diverse legal and financial systems and may not be able to take identical measures. Therefore this paper gives some specific guidelines to be implemented according to the current circumstances in Burma. The following measures should be part of that Law in order to make it effective.


These measures are not necessarily difficult, provided there is the political will to act. The following measures are essential for the creation of effective anti-money laundering legislation in Burma: 1 The new law should give a clear overview of crimes that serve as a basis for money laundering prosecution.

It should, at least, include fraud, official bribery, misappropriation of public funds, tax evasion, violation of currency exchange regulations, drug trafficking, gambling ventures, prostitution, human trafficking, arms smuggle, and crimes of violence. This gives a clearer picture of the status of financing for any given company.

It would also discourage companies to borrow from illegal or informal sources. Regulation of Bank of Indonesia No. The Proceeds of Crime Act Bove, A.

Emile et al. Gallant, M. Baldwin, F. Bell, R. Department of State, Department of Justice, U. Glynn, Patrick, Stephen J. Hampton, Mark P. Internal Revenue Service, Part.

Bank Secrecy Act, Section Leiken, Robert S. KPK, 27 March Shepherd, Kevin L. Simeon, Djankov, et all.