The Anti-Money Laundering Act (AMLA) passed in 2010, during the tenure of the PPP-led coalition government, and amended in 2015 are attempts to deal with illegal sources of income defined narrowly as income from crime. It is significant to note that AMLA was passed in years when Pakistan was on an International Monetary Fund (IMF) programme – Stand-By Arrangement in 2010 and Extended Fund Facility (EFF) in 2015. The former programme was suspended after failure to meet critical programme conditions while the latter programme was completed. One IMF structural benchmark under the EFF was for the government to enact a law that would allow it to prosecute income tax evaders under the AMLA – a condition that the relevant Senate Standing Committee resisted. The 2015 Act had already empowered the investigating or prosecuting agencies to treat sales tax/excise duty offences, inadmissible adjustment of Federal Excise Duty and false statements/declarations made by taxpayers as a predicate offence under money laundering crime. On 15th May 2016, the Ministry of Finance issued a notification in compliance with the IMF structural benchmark to include income tax evasion in the list of tax crimes considered as predicate offence under AMLA.
Be that as it may, there have been very few cases pursued by the FBR with respect to income tax evasion as a predicate offence under the AMLA. The reason, many argue, is because of the composition of the national economic committee established as per the Act that was “empowered to combat money laundering”. Its membership includes (four) federal ministers – Finance, Law and Justice, Foreign Affairs, and Interior, State Bank of Pakistan Deputy Governor, (three) Chairmen National Accountability Bureau, Federal Board of Revenue, and Securities and Exchange Commission of Pakistan, (three) Directors General – Financial Monitoring Unit (under SBP), FIA and Anti-Narcotics Force, and any other member nominated by the government. While few would challenge the composition of the NEC members, yet in a country where NAB Chairman informed the court that he would not proceed against a sitting prime minister and investigate serious allegations against him, the SECP chairman is facing charges of forcing his staff to manipulate the record to favour the country’s former chief executive and where a former SBP Deputy Governor was accused of being complicit in money laundering by the incumbent finance minister the composition clearly appears to favour the party in power.
The Internal Revenue Service in the US has used money laundering statutes to help cut down on tax evasion where money laundering is defined as wilful tax evasion. Unlike Pakistan (reference to the 1992 Protection of Economic Reforms Act) the US statutes (or indeed those legislated in most other developed countries) do not allow outward remittances to the extent of an individual or company’s assets and discourage foreign currency accounts by not paying any interest on those accounts.
But all tax evasion (as opposed to tax avoidance or what is allowed legally by a country’s tax system) is not money laundering. Pakistani tax experts correctly argue that untaxed money, given our large illegal undocumented economy, cannot be defined as money laundering as it is not sourced to a crime (though the ambit of filers has been considerably widened), and propose the need to redefine and amend the AMLA. This is indeed a valid point and Business Recorder supports this redefinition based on our unique economic set-up where the undocumented sector is believed to be almost 50 percent of the documented sector.