Pakistan Fails To Stem Money Laundering, Terrorism Financing: US Report

The 2013 International Narcotics Control Strategy Report submitted to the U.S. Congress blames Pakistan for its failure to adequately implement anti-money laundering action plan, or to address certain deficiencies in its terrorism finance laws.

The two-volume report prepared by the State Department offers a comprehensive assessment of the efforts of foreign governments in 2012 to reduce illicit narcotics production, trafficking and use, in keeping with their international obligations under U.N. treaties.

The Report also examines anti-money laundering policies and practices and related financial crimes. The Drug and Chemical Control section covers the efforts of 92 countries and jurisdictions. Pakistan is among 65 major money laundering countries whose efforts to implement strong anti-money laundering and counter-terrorist financing regimes are described in the second section, Money-Laundering and Financial Crimes.

The report, under the Foreign Assistance Act, calls upon Pakistani authorities to adopt legislation to address the deficiencies and to investigate and prosecute money laundering and terrorism financing and not focus on the predicate offense creating the proceeds of crime.

The report points out that weak legislation and lack of implementation also have stymied Pakistan's anti-money laundering (AML) regime. Enforcement deficiencies, particularly regarding the movement of cash, leave Pakistan's informal financial sector vulnerable to illicit exploitation, it added.

The report notes that unlicensed hawaladars continue to operate illegally throughout Pakistan, particularly in Peshawar and Karachi. The State Bank of Pakistan (SBP) requires all money exchange companies to obtain licenses and meet minimum capital requirements. It is illegal for money exchange companies or hawaladars to operate without a license, but few hawaladars have been registered by the authorities, the State Department says.

It suggests a set of measures to address these deficiencies: "Pakistan should resolve remaining legal inadequacies related to the criminalization of money laundering; demonstrate effective regulation over exchange companies, specifically by creating an appropriate sanctions regime and increasing the range of preventive measures applicable to such services; implement effective controls for cross-border cash transactions; and develop an effective asset forfeiture regime."

Pakistan's porous borders with Afghanistan, Iran, and China facilitate the smuggling of narcotics and contraband between Afghanistan and overseas markets. The country suffers from financial crimes associated with tax evasion, fraud, corruption, trade in counterfeit goods, contraband smuggling, narcotics trafficking, and terrorism. The black market economy generates substantial demand for money laundering and illicit financing, according to the report.

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