Govt pledges AML action

PM forms supervisory committee after inquiry finds Rs70b solar panel scam

ISLAMABAD:

Pakistan has assured the International Monetary Fund (IMF) that it will enhance interagency data sharing to curb money laundering, as the government has finally decided to move against officials who could not detect nearly Rs70 billion in alleged money laundering through the import of solar panels.

Prime Minister Shehbaz Sharif has established a supervisory committee that will now monitor disciplinary action against officials who failed to detect and stop the money laundering disguised as solar panel imports a few years ago, showed the notification. The committee was formed after reviewing an inquiry report on trade?based money laundering through solar panel imports. The committee has started holding meetings to discuss the findings and monitor implementation of the report's recommendations, sources added.

The inquiry report observed that the solar panel money laundering case reflects a total failure of government structures, and the scam was very easily executed by exploiting systemic weaknesses, inefficiencies and inaction. An earlier inquiry committee had been constituted to ascertain the facts, determine the exact magnitude of the scam, estimate the volume of foreign currency outflows as trade?based money laundering, and ascertain the reasons for the failure to detect the scam in time.

In trade?based money laundering, launderers over?invoice imports and under?invoice exports to move money out of the country. According to previously published data, from 2017 to 2022, about 6,232 import documents were over?invoiced, and Rs69.5 billion were laundered from Pakistan through solar panel imports.

As part of the understanding reached under the third staff?level agreement with the IMF, Pakistan has now assured the global lender that it "will enhance interagency data sharing by exploring a range of data points and policy instruments, including through coordination on foreign currency reporting on import payments and customs Data". The IMF was further told that the government would ensure better monitoring and mitigate the risks of trade?based money laundering at both macro?trend and transactional levels. The Financial Monitoring Unit (FMU) actively shares financial intelligence with relevant agencies, especially leveraging proactive outreach by customs.

However, according to the solar panel inquiry report findings recently shared with the prime minister, the FMU exhibited weak controls and undertook ineffective currency and specious transaction analysis. The Securities and Exchange Commission of Pakistan (SECP) registered bogus companies with minimal capital, performed no analysis of annual returns or audit reports, and failed to pre?empt money laundering risks through effective monitoring.

The sources said that the inquiry report also stated that the State Bank of Pakistan (SBP) was found to have ineffective bank inspections despite elaborate money laundering regulations. The central bank delayed penalties and took action only when the Senate Standing Committee on Finance intervened. It did not report any disciplinary action against responsible bank officials.

Commercial banks cleared over?invoiced values from 2017 to 2022, and no effective action or post?audit was undertaken during that period. The banks facilitated criminal elements to launder billions of rupees without taking any responsibility, which under SBP regulations was their primary function. Government structures failed to deter organised criminal activity, departments operated in silos, and no inter?agency coordination prevented early detection or mitigated trade?based money laundering. Each agency deflected responsibility, citing another's mandate, and assumed that the other agency was rigorously monitoring.

The inquiry committee has recommended disciplinary action against officers and supervisory management responsible for facilitating money laundering, and criminal proceedings against bank officials who facilitated criminal elements. It has recommended departmental and disciplinary action against responsible officers of the FMU, SECP, Inland Revenue Service, Customs and anti?money laundering agencies.

The committee also recommended that the SBP strengthen compliance monitoring through real?time and automated tools, conduct internal performance audits of inspection and enforcement units, and establish an accountability regime for repeated non?compliance by banks.

Sources said Pakistan has assured the IMF that, based on the ongoing update of the 2023 National Risk Assessment and under coordination by the National AML/CFT Authority, it will prioritise reforms with a focus on enhancing the effectiveness of AML/CFT supervision of, and preventive measures by, designated non?financial businesses and professions (DNFBPs). The government will improve the availability and accuracy of beneficial ownership information, especially on SECP's central registry, to prevent misuse of legal entities. For DNFBPs, notably real estate agents, the tax authorities and the FMU will address low levels of suspicious transaction reporting (STRs) through ongoing reform of the STR framework and by requiring entities to register with the goAML system.

The prime minister's supervisory committee, headed by Establishment Division Secretary Barrister Nabeel Awan, will monitor disciplinary proceedings related to the over?invoicing of solar panels by importers. It will monitor disciplinary proceedings against the officers and employees of relevant organisations who are found responsible for the administrative lapses or facilitating over-invoicing of the solar panels by importers.

It will also determine supervisory responsibility, identify officials and employees not cited in the inquiry committee's report, and review overall progress, submitting a fortnightly report to the Prime Minister's Office.