Expanding AML powers: promise and pitfalls

Pakistan's decision to expand its anti-money laundering framework represents a necessary response to evolving financial crimes. Its effectiveness, however, will depend less on enlarging statutory powers than on the institutional competence, accountability and constitutional safeguards governing their exercise.

On Oct 27, the National Executive Committee on Anti-Money Laundering and Countering the Financing of Terrorism approved three significant measures: including maritime piracy among predicate offences under the Anti-Money Laundering Act, 2010 (AMLA); recognising the Pakistan Virtual Assets Regulatory Authority (PVARA) as an AML/CFT regulator; and raising the currency transaction reporting threshold from Rs2 million to Rs3 million. These measures deserve careful examination.

First, the reference to piracy concerns maritime piracy under section 28 of the Pakistan Maritime Zones Act, 2023, not infringement of intellectual property. Section 29 already prescribes imprisonment extending to ten years for piracy, with more severe punishment where murder is committed. Separately, section 4 of AMLA provides imprisonment extending to ten years, a fine up to Rs25 million and forfeiture for money laundering.

Making piracy a predicate offence enables investigators to pursue criminal proceeds arising from maritime offences. It does not automatically establish money laundering whenever piracy occurs. The prosecution must establish the statutory ingredients of laundering and the criminal origin of the property. This distinction matters because Pakistan's enforcement history demonstrates how expansive powers can become instruments of harassment when legal safeguards are disregarded.

The inclusion is consistent with the FATF framework, which identifies piracy among designated categories of predicate offences. However, the Committee's approval must be followed by the legally required notification and implementation arrangements. An executive announcement cannot substitute for statutory compliance.

Second, PVARA's inclusion in Schedule IV of AMLA, has greater economic significance. Virtual assets present opportunities for investment, financial innovation and cross-border payments. They also create risks involving anonymous ownership structures, rapid movement of funds, sanctions evasion, fraud and concealment of criminal proceeds.

Licensing alone cannot establish effective supervision. PVARA must develop enforceable standards for beneficial ownership identification, customer due diligence, suspicious transaction reporting, blockchain analytics, asset segregation and compliance with FATF's Travel Rule.

Coordination with SBP, SECP, FMU and investigating agencies is indispensable. Regulatory overlap without clearly defined responsibilities will create confusion rather than accountability.

Third, increasing the cash transaction reporting threshold to Rs3 million requires particular caution. Reducing unnecessary reporting can improve the quality of financial intelligence. However, criminals can structure transactions below prescribed thresholds. Banks must therefore maintain effective suspicious transaction monitoring irrespective of transaction amounts. A higher reporting threshold must never become a safe harbour for illicit funds.

The proposed extension of AML investigative powers to provincial anti-corruption establishments raises another concern. Without transparent procedures, trained investigators, independent supervision and judicial safeguards, these powers may become instruments of selective prosecution.

Articles 4, 10A, 14 and 24 of the Constitution require legality, due process, respect for privacy and protection against arbitrary deprivation of property. Lack of laws has never been a challenge. There has been a longstanding proposal for coordinated financial-crime intelligence, specialised prosecution and meaningful institutional accountability. AI can improve transaction monitoring and asset tracing, but automated suspicion must never replace admissible evidence and judicial scrutiny.

The real measure of reform is not the number of offences added to statutory schedules or regulators granted additional powers. It is whether criminal proceeds are detected, successfully prosecuted and recovered without victimising innocent citizens or legitimate businesses.