US FOR ANTI-MONEY LAUNDERING REGIME

KARACHI. The US State Department has advised Pakistan to establish
anti-money laundering regime to curb drug-related and white-collar
crimes. Sources said a department's report has stressed the need for
Islamabad to enact a legislation that "fully criminalizes" money
laundering beyond drug trafficking.

Besides, "a system of reporting suspicious transactions by all financial
institutions operating in Pakistan must be implemented," says the
International Narcotics Control Strategy report of the US State
Department. Finally, given the major role that "hawala" transactions
play in money laundering, the government has been asked to develop and
implement "anti-hawala" counter-measures.

The report has identified three key sources of illicit funds: narcotics
trafficking, corruption and smuggling. Currently, the report admits that
there is very little production of narcotics in Pakistan but says that
the narcotics traffic organizations are active in this huge trade,
trans-ship drugs produced in Afghanistan and launder the proceeds abroad
by means of hawala (also called hundi) - an alternative remittances
system. Pakistan also remains an important country for the precursors or
chemical acetic anhydride destined for Afghanistan for heroin
laboratories.

The government is reported to be working on anti-money laundering
legislation. Some banks including the National Bank of Pakistan have
advised their staff to "know their customers". Pakistan also became a
member of the Asia-Pacific Group on money laundering last year. The
Governor of State Bank, Dr Ishrat Husain, has asked commercial banks not
to deviate from banking ethics to secure business.

The US report acknowledges that Pakistan has "criminalized" the
laundering of narcotics trafficking proceeds. The Control of Narcotics
Substances Act provides for forfeiture of assets associated with
narcotics trafficking.

The government has promulgated new ordinances addressing various
financial crimes, particularly tax evasion and corruption. But the
report points out that Pakistan does not have a financial intelligence
unit and several agencies play a major role in the investigation of
financial crimes.

The State Department has also pledged to work with the government of
Pakistan to expedite extradition requests by USA for persons involved in
drug trafficking and to strengthen Pakistan's ability to attack money
laundering. It would also encourage Islamabad's efforts against
white-collar crimes.

Pakistan has been listed by the US among the countries/jurisdiction of
primary concern - major money laundering countries involved in
narcotics-related money laundering or jurisdictions where financial
institutions engage in transactions of significant amounts of proceeds
from other serious crimes.

The report seeks action against "hawalas." Of the officially estimated
$5-6 billion, only about $1 billion comes through official channels and
the rest come from unofficial channels including hundiwallas.

The US report cautions that money laundering is a problem not only in
the world's major financial markets and offshore centers, but also for
emerging markets. As emerging markets open their economies and financial
sectors, they become increasingly viable targets for money laundering
activity.