An assessment of effectiveness of anti-money laundering regime in preventing money laundering through financial institutions in Pakistan

Abstract

Money laundering (ML) is one of the greatest challenges that the global community faces today. Many governments impose procedures honouring Financial Action Task Force (FATF) to prevent ML through Financial institutions (FIs). Although Pakistan has AML regime which impose obligations upon FIs in preventing ML, yet the regime appears to be unsuccessful in preventing ML. The objective of the research is to analyse AML regime in Pakistan and its implementation through FIs to assess its effectiveness through various jurisprudential approaches, and comparing the position of AML in the Malaysian context. The research is doctrinal and non-doctrinal in nature based on statutes, international conventions and semi-structured interview and employs historical, analytical and comparative method. Additionally, the research assesses effectiveness of AML regime by applying five “success-effectiveness indicators:” ML risk assessment; preventive measures; regulatory supervision; financial intelligence; and investigation and prosecution. The research has few key findings. Firstly, from the crime deterrence perspective, Situational Crime Prevention approach which includes overlapping concepts of Rational Choice Theory and Deterrence Theory is a better model to achieve ML prevention. Secondly, Pakistan has fragmented AML laws based on ML predicate offences. Thirdly, regarding effectiveness indicators: FIs have sound ML risk understanding and have ML preventive measures, yet relevant provisions are contradictory and vague and appears burdensome on FIs; regulatory-supervisory framework has inconsistencies in terms of provisions of “power,” “autonomy” and “independence”; and Financial Intelligence Unit (FIU) has yet to obtain membership in international FIUs group. Lastly, Pakistan has multi-agency approach on investigation and prosecution for ML predicates, yet there is no formal referral mechanism among the agencies. Comparatively, the Malaysia has clearer and better provisions of law in preventing ML through its FIs. Therefore, it is suggested to either symmetrize all AML statutes through amendment or provide one comprehensive AML law. The concerned AML authorities must provide clarity in regulations and guidelines. The AML institutional framework needs improvements on matters of “independence” and “autonomy” to secure global membership. Implementation of the regime can be enhanced by adopting either single agency approach or through clearly defined joint investigative mechanism.