Updated National Risk Assessment Report 2019

Annexure IO-3(1)-NRA Report
PAKISTAN NATIONAL RISK ASSESSMENT
ON
MONEY LAUNDERING AND TERRORISM FINANCING
2019 Update
Pakistan National Inherent Risk Assessment on Money Laundering and
Terrorist Financing - 2019 Update
Contents
Foreword ................................................................................................................................................. 4
List of Acronyms ...................................................................................................................................... 5
Executive Summary ................................................................................................................................. 6
Chapter 1: Overview of Government Actions to Address Inherent ML/TF Risks .................................... 9
Chapter 2: Methodology for Conducting 2019 National Risk Assessment............................................ 11
Chapter 3: Overview of the National Setting for ML/TF Threats and Vulnerabilities ........................... 14
Chapter 4: Assessment of Money Laundering Threats .......................................................................... 19
4.1 Crimes Identified as High ML Threat................................................................................... 20
4.2 Crimes identified as Medium High ML Threat .................................................................... 26
4.3 Crimes identified as Medium ML Threat ............................................................................. 29
4.4 Crimes identified as Medium Low ML Threat..................................................................... 30
Chapter 5: Assessment of TF Threats ................................................................................................... 31
5.1 Assessment Methodology for TF Threats posed by Terrorist Organizations .................... 31
5.2 General Terrorism and TF Threats ...................................................................................... 34
5.3 Sectoral Analysis of TF Threat .............................................................................................. 41
5.4 Analysis of TF threat of specific TOs .................................................................................... 47
Chapter 6: Assessment of the Inherent ML/TF Vulnerabilities by Sector ............................................. 65
6.1 Overview .................................................................................................................................. 65
6.2 Banking (High Vulnerability) ................................................................................................ 66
6.2.1 Products................................................................................................................................ 66
6.2.2 Types of Customers .............................................................................................................. 69
6.2.3 Geography ............................................................................................................................ 71
6.2.4 Delivery channels ................................................................................................................. 71
6.3 Microfinance Banks (High ) ................................................................................................... 72
6.4 Non-Banking Financial Companies & Modarabas (Medium High Vulnerability) ........... 72
6.5 Modarabas ............................................................................................................................... 72
6.6 Asset Management Companies & Collective Investment Schemes (AMCs & CISs)
(Medium High Vulnerability) ................................................................................................ 74
6.7 Other Financial Institutions ................................................................................................... 76
6.7.1 Exchange Companies (High Vulnerability) .......................................................................... 76
6.7.2 Developmental Financial Institutions (DFIs) (Low Vulnerability) ....................................... 76
6.7.3 Central Directorate of National Saving (CDNS) (High Vulnerability) ......................... 76
6.7.4 Pakistan Post (High Vulnerability) .................................................................................... 77
6.8 Securities Market (Medium High Vulnerability) ................................................................. 77
6.8.1 Products and Services .......................................................................................................... 78
6.8.2 Customers............................................................................................................................ 78
2
6.8.3 Geography ............................................................................................................................ 80
6.8.4 Delivery channels ................................................................................................................. 80
6.9 Insurance Industry .................................................................................................................. 80
6.9.1 Life Insurance Sector (Medium Vulnerability) .................................................................... 81
6.9.2 Non-life Insurance Sector (Low Vulnerability) .................................................................... 82
6.10 Designated Non-Financial Businesses and Professions (DNFBPs) ................................... 82
6.10.1 Real Estate Dealers (High Vulnerability) ........................................................................... 83
6.10.2 Dealers in Precious Metals And Stones (Medium High Vulnerability) ............................. 83
6.10.3 Accountants, Auditors and Tax Advisors (Medium Vulnerability) ................................... 83
6.10.4 Lawyers (Medium High Vulnerability)............................................................................... 84
Chapter 7: Assessment of the Inherent Vulnerabilities of Legal Persons and Arrangements............... 85
7.1 Introduction ............................................................................................................................. 85
7.2 Companies Registered with SECP ......................................................................................... 85
7.3 Cooperatives formed under the Cooperative Societies Act 1925 ........................................ 86
7.4 Legal arrangements................................................................................................................. 89
Chapter 8: Assessment of Non-Profit Organizations (NPOs) at Risk of TF Abuse ................................. 91
Chapter 9: Financial Inclusion Overview, Products and Risk Analysis ................................................... 94
9.2 Financial Services and Financial Inclusion (FI) in Pakistan ............................................... 94
9.3 Products of Micro Finance Banks (MFBs)............................................................................ 95
9.4 Customer Profile ..................................................................................................................... 96
Chapter 10: Consequences of Money Laundering (ML) and Terrorism Financing (TF) ......................... 99
10.1 Governance and Political Consequences for Pakistan ....................................................... 99
10.2 Financial Consequences for Pakistan .................................................................................. 99
10.3 Integrity of the financial system is impaired....................................................................... 99
10.4 Social Consequences for Pakistan ...................................................................................... 100
10.5 Increased social power of criminals. .................................................................................. 100
10.6 Economic and Reputational Consequences for Pakistan................................................. 100
10.7 Consequences for Non-Profit Organizations (NPOs) in Pakistan .................................. 100
Chapter 11: Conclusion, including institutionalizing the Country’s Risk-Based Approach (RBA) ........ 102
3
Foreword
The newly elected Government of Pakistan fully grasps the significance of putting in place a strong regime for
Anti Money Laundering (AML) and Combating the Financing of Terrorism (CFT). We believe that these objectives
are essential towards achieving the objectives of economic development and to project the country’s image as a
reliable partner in the global financial and criminal justice system.
A number of important initiatives have already begun such as eradication of terrorist organisations,
documentation of the economy, enhancement of cooperation with other countries and risk based fencing of its
borders. This is truly the beginning of a fundamental and sustained reform process in the country.
As a part of this reform drive, it was resolved that a comprehensive update of the National Risk Assessment of
Money Laundering (ML) and Terrorist Financing (TF) in the country shall be undertaken. The objective was to
articulate an updated and accurate assessment of ML/TF risks that Pakistan faces and to simultaneously develop
and implement a comprehensive plan to continue to counter them.
This updated NRA is meant to provide ample information and understanding regarding the current threats and
vulnerabilities underpinning ML/TF risks. It will also ensure that effective controls are in place to mitigate these
identified risks. The peace and harmony within a nation and the robustness of its financial system can only be
achieved through the strengthening of its weak systemic links and through close international cooperation. To
this end, the government is committed to putting in place a dynamic monitoring system that is capable of
adapting to the present-day environment of rapid technological changes and evolving/innovative products.
The people of Pakistan have suffered immeasurably for decades as a result of terrorism and criminal activity. The
newly elected government of Pakistan is fully committed to providing its people a safe, secure and prosperous
country. The prevention of money laundering and terror financing is an essential and indispensable component
of this commitment. This updated NRA will serve as the primary tool in achieving our goals.
Hammad Azhar
Federal Minister for Economic Affairs
Government of Pakistan
4
List of Acronyms
MER Mutual Evaluation Report

AML Anti-Money Laundering MFB Micro-Finance Bank
AML Act Anti-Money Laundering Act, ML Money Laundering
2010 MLA Mutual Legal Assistance
AMLO Anti-Money Laundering MOF Ministry of Finance Ministry
Ordinance MOFA of Foreign Affairs Ministry of
ANF Anti-Narcotics Force MOI Interior
APG Asia Pacific Group on Money MOL Ministry of Law and Justice
Laundering MOU Memorandum of Understanding
ATA Anti-Terrorism Act, 1997 MVTS Money Value Transfer Services
BCO Banking Companies Ordinance, NAB National Accountability Bureau
1962 NACTA National Counter Terrorism
CDD Customer Due Diligence Authority
CFT Counter-Financing of Terrorism NAO National Accountability
CNSA Control of Narcotics Substances Act, Ordinance, 1999
1997 NAP National Action Plan
CrPC Code of Criminal Procedure, NBFIs Non-Bank Financial Institutions
1898 NCCPL National Clearing Company of
CTR Cash-based Currency Pakistan Limited
Transaction Report NEC National Committee on AML/CFT
DG (I&I) Directorate General (Intelligence NGOs Non-Government Organizations
& Investigation) of FBR NRA National Risk Assessment
DG IR Directorate General (Inland NPOs Non Profit Organizations
Revenue Service) of FBR OECD Organization for Economic

DNFBPs Designated Non-Financial Cooperation and Development
Businesses and Professions PEPs Politically Exposed Persons
ECs Exchange Companies PME Pakistan Mercantile Exchange
EDD Enhanced Due Diligence PPC Pakistan Penal Code, 1860
FATA Federally Administered Tribal PSX Pakistan Stock Exchange
Areas RERA Real Estate Regulatory Authority
FATF Financial Action Task Force SBP State Bank of Pakistan
FBR Federal Board of Revenue SBP Act State Bank of Pakistan Act, 1956
FIA Federal Investigating Agency SECP Securities and Exchange
FIU Financial Intelligence Unit Commission of Pakistan
FMU Financial Monitoring Unit of SECP Act Securities and Exchange
Pakistan Commission of Pakistan Act,
GC General Committee on AML/CFT 1997
ICAP Institute of Chartered SRO Statutory Regulatory Order
Accountants of Pakistan STR Suspicious Transaction Report
ICMAP Institute of Cost & Management TF Terrorist Financing
Accountants of Pakistan UN United Nations
KPI Key Performance Indicators UNSCR United Nations Security Council
KPK Khyber Pakhtunkhwa Resolution
KYC Know Your Customer WeBOC Web Based One Customs
LEAs Law Enforcement Agencies
5
Executive Summary
The current update provides an overview of the inherent ML/TF risks in Pakistan i.e., before the application of
any mitigation measures. These measures include a range of legal, regulatory, supervisory, and operational and
enforcement measures to combat ML and TF activities in Pakistan. The inherent ML/TF risk assessment considers
the ML/TF threats and inherent vulnerabilities of Pakistan as a whole through a coordinated approach. In this
context, a number of parameters have been considered apart from the financial and non-financial sectors, while
taking into account the consequences of ML and TF.
The assessment of ML threats included a review of all crimes based on the seriousness and magnitude of the
crimes both domestically and internationally, the amount of potential proceeds generated, and the capacity of
the criminal actors to launder proceeds (including third party launderers) and the sectors used to launder
proceeds, according to information and data including Intelligence. A threat analysis concerning all crimes,
including the 21 designated predicate offences under the FATF Standards, which was complemented by a threat
analysis of illegal MVTS/ Hawala/Hundi and cash smuggling. In total 23 ML threats were rated; 7 ML threats were
rated high for Illicit Trafficking in Narcotic Drugs, Corruption and Bribery, Smuggling, Cash Smuggling, Tax Crimes,
Illegal MVTS, Terrorism/TF; 9 as medium-high for Organized Crime, Human Trafficking, Arm Trafficking, Robbery,
Market Manipulation, Cybercrime, Fraud and forgery, Kidnapping, Extortion; and 5 as medium for Sexual
Exploitation, Trafficking of Good, Counterfeiting Currency, Piracy of Products, Murder; and 2 as medium low for
Environmental Crime and Marine Piracy.
The updated report looked more specifically at the inherent risk of terrorism and TF threat that Pakistan in facing.
Pakistan faces a significant internal security threat which is eminent from the fact that more than 18,000 terrorist
attacks have been perpetrated by terrorist organizations since 2001. But there has been an overall decrease in
terrorist threats (from which TF risks emanate). The year 2018 was the fourth consecutive year where the
number of terrorism incidents decreased. The declining trend of terrorism has been acknowledged by United
Nations Security Council (UNSC) in its 22nd report issued by its Analytical Support and Sanctions Monitoring Team
on 27th July 20181. In spite on the declining trend of terrorism, however, the updated assessment shows that
the terrorist organizations within and outside Pakistan are still posing, to varying degrees, a TF threat to the
country. In this regard 41 terrorist organizations were identified and analyzed as detailed in the table:
No. of TOs Risk Names of Terrorist Organizations (TOs)

2 High Daesh and TTP.
10 Medium High AQ, JeM, JuD/ FIF, TTA, LeT, HQN, JuA, BLA, LeJ and BLF.
8 Medium SSP, LeJ-Al-Almi, UBA, BRA, BLT, BRAS, HuA and Unknown.
21 Medium Low Jesh-ul-Islam, Lashkar-i-Islam, SMP, Lashkar-e-Balochistan, Balochistan
and Low Republican Guards, Self-radicalized (lone wolf) terrorists, Hazb-ul–Tehrir, Ahl-e-
Sunnat Wal Jamat, Tehreek-e-Jafaria Pakistan, Jeay Sindh Mottahida Mahaz,
Harkat-ul-Mujahideen, Tehreek - e- Taliban Swat, Al-Badar Mujahideen, Ansar-
ul-Shariya, Balochistan Waja Liberation Army, Baloch Republican Party Azad,
Balochistan United Army, Balochistan National Liberation Army, Balochistan
1
https://www.un.org/sc/ctc/news/document/s-2018-705-twenty-second-report-analytical-support-sanctions-monitoring-team-
submitted-pursuant-resolution-2368-2017-concerning-isil-daesh-al-qaida-associated/, https://dailytimes.com.pk/284883/un-
report-acknowledges-pakistans-efforts-against-terrorism/
6
Liberation United Front, Baloch Student Organization Azad, Balochistan Muslla
Defa Tanzeem.
The national inherent vulnerability assessment consisted of an assessment of inherent ML/TF vulnerabilities of
Pakistan as a whole (e.g., economy, geography, demographics, social and religious) and its key economic sectors
and financial and non-financial products. The porous border, hostile neighborhood, high number of afghan
migrants, the long coastal line, the level of poverty etc. has exposed the country to the significant risk of money
laundering and terrorist financing.
The financial sector of Pakistan consists of banks, non-bank finance companies (NBFC) & modarbas, asset
management companies & collective investment schemes (AMC & CISs), and other financial institutions including
exchange companies (ECs), development finance institutions (DFIs), the Central Directorate of National Savings
(CDNS), and the Pakistan Post Office, brokers and investment advisors, and insurance companies. The DNFBP
sector comprises real estate dealers, dealers in precious metals and stones (mostly jewelers), auditors and
accountants, lawyers and notaries. Lawyers engage in company service providers (CSP) activities but there is no
separate category of CSPs in Pakistan. Trust services are not offered by any specialized service providers in
Pakistan; however, for the purpose of establishment of trusts, services of lawyers may be obtained.
The inherent ML/TF vulnerabilities have been evaluated for various sectors, both financial and non-financial. The
inherent ML/TF vulnerabilities are identified for 17 economic and financial sectors taking into consideration their
customers, products and geographical locations. The assessment indicates 8 sectors as highly vulnerable i.e.,
Banking, MFBs, Exchange Companies (EC), EC B category, Real Estate Dealers, Hawala/Hundi, CDNS, Pakistan
Post; 5 medium high i.e., , Lawyers & Notaries, Securities, AMCs & CISs, Dealers in Precious Metals, NBFCs &
Modaraba; life insurance assessed and , Auditors and Accountants as medium whereas Non-life insurance and
Development Financial Institution (DFIs) as low.
The analysis of the inherent vulnerability specifically looked at the inherent risks associated to legal entities and
arrangements and their formation. A variety of legal persons may be formed in Pakistan, including private and
public companies, foreign companies and companies without share capital. These must all be incorporated under
the Companies Act, 2017 and registered with the SECP. Moreover, Limited Liability partnerships (LLPs) are
registered under the Limited Liability Partnership Act, 2017 and registered with the SECP. In addition,
cooperatives may be formed under the Cooperative Societies Act 1925, with registration under provincial
registrars. The total number of legal persons registered in Pakistan is over 100,000 and the various structures
display varying degrees of vulnerabilities due to their complexities or ability to obscure ownership. Overall, the
corporate sector primarily comprises small size, domestic, private limited companies. Most of the corporate
sector is therefore seen as having a relatively low level of inherent vulnerability. Pakistan has a trust law governed
primarily by the Trust Act 1882 and by case law. Furthermore, Waqfs, which are a form of Islamic charitable
trust, also operate in Pakistan. All legal arrangements are seen as inherently vulnerable to ML/TF.
Close attention was given to the analysis of the NPO sector’s vulnerability to TF. The NPO sector in Pakistan is
vibrant and plays a major role in delivering essential social services and disaster relief. Besides other factors,
the increasing trend of charitable giving is also based on the religious beliefs of the masses. The NPO sector in
Pakistan comprises of NPOs under federal law, provincial laws, and International NGOs operating in Pakistan
called INGOs. Their internal governance is controlled by their respective constitutions, memoranda, rules or by-
7
laws required to be filed with the concerned registration authorities. More than half of the 18,500 functionally
active NPOs in Pakistan fall under the FATF defined NPOs as they are involved in service-type activity, and are
also involved in raising or disbursing charitable funds. Overall, a large segment of the NPO sector in Pakistan is
seen as having a significant inherent vulnerability for TF. Given the significant TF threats in Pakistan, the overall
TF risk is also very significant. The unregistered NPOs are of high risk and serious concern.
Considering that issues of financial inclusion may affect the ML and TF risks, a specific assessment was done
which looked also at products and services that can promote financial inclusion. In order to enhance the outreach
of financial services and curtail the poverty level, financial inclusion has been one of the primary objectives of
the Government. Accordingly, a separate legal and regulatory framework for MFBs was introduced in 2001. The
microfinance banks are serving over three million active borrowers as of June 30, 2019. In view of business
growth and technological innovations in the sector, SBP continues to further strengthen the regulations in areas
of governance, AML/CFT, consumer protection, and operations to help MFBs. MFBs deal with a variety of
customers belonging to different demographic, economic and geographic segments over both their retail outlets
and digital channels. Since there is no ceiling for deposit taking this sector is rated highly vulnerable.
The consequences of ML and TF in Pakistan are both evident and serious. The High ML and TF risks in Pakistan
can adversely affect the financial and non-financial sectors and the society as a whole. The assessment will help
Pakistan in strengthening its AML/CFT Regime. The stakeholders are encouraged to use the findings of this Report
in their assessment and mitigations of the ML/TF risks.
8
Chapter 1: Overview of Government Actions to Address Inherent ML/TF Risks
1. Recommendation 1 of the FATF 40 Recommendations states that countries should implement a risk-
based approach to AML/CFT and that a country’s identification, assessment, and understanding of the ML/TF
risks is a central element in implementing such an approach. Such a national risk assessment should not be a
static exercise, but should rather be on-going in light of the evolving nature of risks due to newly emerging threats
and vulnerabilities. In addition, strategies to mitigate must evolve to meet evolving risks.
2. Pakistan completed its first comprehensive ML/TF National Risk Assessment in 2017. After two years,
the Government chose to update its risk assessment in its entirety. In doing so, it focused on changes in the
threat and vulnerabilities faced by the country, from both a domestic and transnational perspective. The
Government also considered the relevant findings of the 2019 APG Mutual Evaluation and the areas for
improvement in identifying (and mitigating) TF risks identified by the FATF.
3. The Government has prioritized the assessment of its inherent ML/TF risks and vulnerabilities in
preparing this new NRA, i.e., the risks faced by the country prior to considering mitigation of those risks. The
Government’s efforts have focused on the identification and assessment of the various components of threats
and vulnerabilities. With a more focused and up-to-date identification and assessment of inherent risks in
Pakistan, AML/CFT stakeholders and the private sector will be in a position to better assess, prioritize, and
allocate their resources more efficiently, in a way that is commensurate with the inherent risks identified.
4. A key finding of this NRA is that, as a general matter, the ML/TF threats and vulnerabilities facing
Pakistan, and therefore the ML/TF risks are greater than previously identified, and that therefore they require
increased mitigation efforts.
5. Pakistan is continuing to assess the quality and effectiveness of measures in place to mitigate the ML/TF
risks identified. Based on the identified gaps in its controls, Pakistan will continue to improve and developing
additional measures at both the strategic and operational levels to mitigate more effectively the evolving ML/TF
risks. These measures are laid out in an internal detailed AML/CFT roadmap over the medium-term, which is
developed, shared, monitored and updated in a coordinated way by all relevant AML/CFT stakeholders and
endorsed by the Government.
6. This updated NRA is pivotal in supporting the implementation of the Government’s new roadmap to
improve its entire AML/CFT system. Pakistan recognizes that ML/TF risks can only be mitigated and managed
and that in some situations, residual risks can remain high. Pakistan’s renewed efforts are meant to bring those
risks to a more manageable level.
7. In addition to updating the NRA and developing its medium-term roadmap, it should be noted that the
Government had already taken important steps in the last year to strengthen the effectiveness of its AML/CFT
system. In particular, it has strengthened its national coordination with a new Committee led by a Federal
Minister and supported by a dedicated interagency team.
8. Pakistan has focused on CFT efforts at both the strategic and operational level. Since its 2017 NRA,
Pakistan has experienced an overall decrease in terrorist incidents, resulting from the National Action Plan (NAP)
9
implementation/anti-terrorism operations by security forces. The downward trend in terrorism can be attributed
to a hybrid mix of kinetic (such as Operation Zarb-e-Azb and Raad-ul-Fasad) and non-kinetic state responses. Law
Enforcement Agencies (LEAs) and security forces launched a series of operations to dismantle terrorist hideouts,
including in the Federally Administered Tribal Areas (FATA), as well as in other areas across the country.
9. The LEAs have taken enforcement actions against terrorist organizations, including, most importantly,
key entities of concerns. These enforcement actions include bringing terrorism cases and TF investigations
against UN listed/ proscribed and affiliated entities and persons. The number of TF investigations, persons
arrested, and persons convicted in TF cases shows a significant growth over time.
10. The Government has also implemented targeted financial sanctions against designated/proscribed
entities in line with its obligations under UNSC 1267 & 1373. These financial sanctions are implemented under
executive orders (SROs) issued under United Nations (Security Council) Act, 1948. Over the years a number of
assets and facilities owned directly or indirectly by the organization have been seized by the Government. An
effective crackdown has been initiated against proscribed entities throughout the country. Besides, freezing of
bank accounts of listed entities and associated persons, the Government has seized properties of proscribed
entities (namely JuD, FiF and JeM), which remain under government custody and control. Charitable institutions
formerly under the control of these entities are now under the control of and managed by the Government. A
number of clerics who have supported sectarian or jihadist ideology have also been proscribed under ATA, 1997
(4th Schedule). The Government has strengthened its laws and supervision in relation to NPOs and has revoked
the registration of entities, including NPOs, having links with proscribed organizations.
11. The Government has put in place a series of reforms and deterrence measures to combat TF, including
enacting legislation to combat TF, improving the quality of intelligence gathering, putting in place effective TF-
related suspicious transaction reporting, monitoring, and analysis, enhancing regulatory oversight with respect
to AML/CFT compliance by reporting entities, establishing a truly autonomous and independent financial
intelligence unit (the FMU), providing greater resources to LEAs to combat TF, including implementing a more
complete freezing regime against terrorist funds, increasing vigilance on border points against bulk cash couriers,
improving and expanding multilateral law enforcement investigations and proceedings, and in general,
increasing public outreach and awareness of the importance of fighting TF.
12. To curb bulk cash smuggling, special Currency Declaration Units (CDUs), which seek out undeclared cash,
are now operational at all airports in Pakistan. Accordingly, a considerable amount of currency has been seized
during the period 2012-18. These seizures by Pakistan Customs also led to prosecution of the arrested persons.
Pakistan Customs also screens its seizure actions against 1267 and 1373 lists as well as the list of domestically
proscribed entities and individuals. The Government will also direct greater resources to improve intelligence
gathering and LEA actions to uncover other forms of bulk cash smuggling, including via non-official border
crossings (such as throwing bundles of cash over border fences).
13. The efforts taken so far and the measures planned by the Government in its medium-term roadmap
demonstrate that Pakistan can be recognized as a reliable, committed, partner in the global fight against ML/TF.
10
Chapter 2: Methodology for Conducting 2019 National Risk Assessment
14. When Pakistan conducted its first National Risk Assessment (NRA) in 2015-17, it used the World Bank
(WB) methodology. In so doing, the NRA focused on the analysis of all vulnerabilities leading to the identification
of residual ML/TF risks rather than on inherent threats, and vulnerabilities. The risk assessment was comprised
of several interrelated modules. These were populated with “input variables” which represent factors related to
ML/TF threats and vulnerabilities. The risk assessment included risk of threats from illegal proceeds from
primarily domestic predicate offences and from primarily domestic TF, and risk assessments of vulnerabilities to
ML and TF from key sectors, including financial institutions and designated non-financial businesses and
professions (DNFBPs) after the application of mitigation efforts. Each sector was then assigned an overall risk
rating of High, Medium High, Medium, Medium Low and Low, which resulted in the overall rating of National ML
and TF Risks as Medium. In 2018, Pakistan conducted a more focused Terrorist Financing Risk Assessment (TFRA),
also using the WB methodology, and concluded that the overall (residual)TF risk was rated as Medium-High.
15. This updated NRA focuses on the inherent ML/TF threats and vulnerabilities. It seeks to include
transnational threats in a more complete form. It also considers changes in threats and vulnerabilities since the
last NRA, and includes improved data and representative case studies. It is aimed at understanding current
inherent risks that warrant a revision of the risk rating of the previous NRA. Only then can Pakistan create and
implement an appropriate contemporary strategy and action plan for risk mitigation.
16. The methodology for this NRA refers to the following concepts as defined by the 2013 FATF Guidance
on NRA:
A threat is a person or group of people, object or activity with the potential to cause harm to, for example, the
state, society, the economy, etc. In the ML/TF context this includes criminals, terrorist groups and their
facilitators, their funds, as well as past, present and future ML or TF activities.
Vulnerabilities comprise those things that can be exploited by the threat or that may support or facilitate its
activities. In the ML/TF risk assessment context, looking at vulnerabilities as distinct from threat means focusing
on, for example, the factors that represent [weaknesses in AML/CFT systems or controls or certain features of a
country. They may also include] the features of a particular sector, a financial product or type of service that
make them attractive for ML or TF purposes. Note: this revised NRA focuses on inherent vulnerabilities, so we
have put the reference to weaknesses in AML/CFT in brackets.
Inherent risk: refers to ML/TF risk prior to the application of AML/CFT controls.
Consequence refers to the impact or harm that ML or TF may cause and includes the effect of the underlying
criminal and terrorist activity on financial systems and institutions, as well as the economy and society more
generally.
Likelihood of ML/TF: the likelihood of ML/TF threat actors exploiting inherent vulnerabilities.
17. The methodology used to update the NRA was developed in-house, taking into consideration the 2017
NRA and the TFRA 2018. In addition, the ML/TF threat assessment leveraged ML/TF typologies, updated data on
crimes, including suspicious transaction reports (STRs), FMU disclosures by possible crimes, regions and sectors,
11
investigations and confiscations by LEAs, representative case studies, open sources, and expert opinions of both
the public and private sectors, including research papers by academics and other experts, and other articles in
reputable journals. Views of a broad range of both public and private sector actors were also solicited as
described in greater detail below. This NRA will refer to this set of relevant information as Threat intelligence.
This Threat Intelligence was then assessed against a list of risk factors and assigned risk ratings.
18. This NRA considers ML threats separately from the TF threats. Although there is some overlap, the
nature of these criminal activities is different, warranting separate ML and TF threat assessments.
19. The inherent ML/TF vulnerabilities of the financial and DNFBP sectors were assessed by considering the
sector’s economic significance, the products and services offered, the customers, the geographic reach, and
delivery channels available. The ratings of the sectoral inherent vulnerabilities considered both ML/TF elements
together since ML/TF threats often seek to exploit similar sets of vulnerable features and characteristics of
products and services offered by sectors to launder proceeds of crime or to fund terrorism. When products or
sectors were potentially being exploited differently for ML or TF, it is noted. Therefore, higher level of
vulnerability could be due to a potential for abuse for ML, for TF, or for both.
20. The threats and sectoral inherent vulnerabilities were first identified, analyzed, and categorized as High,
Medium High, Medium, Medium Low and Low. This process was assisted by the NRA Working Group. This group
consisted of all relevant stakeholders, including financial sector supervisors/regulators, law enforcement
agencies (LEAs) and Government departments. In making its risk recommendations, the NRA Working Group
reviewed the relevant data and expert opinions, including:
i. Stakeholder views on the incidence of the commission on ML predicate offences. This information was
obtained from relevant public and private sector stakeholders at the national level via a questionnaire sent
by email. The responses were collated and analyzed and made available to the NRA Working Group.
ii. Stakeholder views on ML Threats and financial sector vulnerabilities. This information was obtained via Risk
Assessment Workshop, which was attended by more than 200 participants from the financial and non-
financial sector including banking, development finance institutions (DFIs), exchange companies, asset
management companies, brokerage houses, insurance, Modaraba companies, and DNFBPs, including
chartered accountants, cost and management accountants, along with senior officials from the SBP, the
Mutual Funds Association, and the Modaraba Companies Association.
21. As a general matter, when sufficient or reliable data for a ML/TF risk rating were available this data
constituted the primary factors in selecting a rating. Only when such data was not available did expert opinion
and survey data constituted the primary factors.
22. It should be noted that as a general matter, national context (or inherent vulnerabilities) and
consequences were documented and assessed in a more qualitative way at the strategic level and are
summarized in Chapters 3 and 10 respectively.
12
23. Chapters 4, 5 and 6 on assessing ML/ TF threats, and sectoral vulnerabilities respectively, provide
additional details on the assessment methodology. This NRA update also includes an assessment of the
vulnerabilities of legal persons and arrangements in Chapter 7 as well as the identification of NPOs at risk for TF
abuse under Chapter 8.
24. To ensure the broadest assessment of potential risks, the Government assumed that all identified ML/TF
threats could exploit any of the inherent vulnerabilities and therefore decided to not assign any specific ratings
to overall risks for a particular sector or area, or for the country as a whole. The Government’s efforts have
focused on the identification and assessment of the various components of threats and vulnerabilities.
13
Chapter 3: Overview of the National Setting for ML/TF Threats and Vulnerabilities
25. Those national characteristics that can be exploited or abused for ML/TF purposes should be identified
and understood with a view to apply effective AML/CFT measures. In the context of Pakistan, it is important to
consider the following when assessing ML/TF risks.
Geography
26. Pakistan’s geographical landscape and porous borders increase its vulnerability to both ML and TF,
heightening in particular Pakistan’s TF risks associated to cash smuggling. Pakistan is bordered by India to the
east, Afghanistan to the west, Iran to the southwest, and China in the far northeast. Pakistan has longest border
with India (3,171 km) followed by Afghanistan (2,600 km) with elevation ranging up to 24,700 feet and Iran (909
km). It is separated narrowly from Tajikistan by Afghanistan's Wakhan Corridor in the northwest, and shares a
maritime border with Oman. It has a 1,046 km coastline along the Arabian Sea and Gulf of Oman in the south.
27. Indian, Afghani and Iranian territory has also been used in past by anti-Pakistani groups to launch anti-
state covert operations inside Pakistan. This makes both eastern and western borders vulnerable for ML and TF
through drug trafficking, bulk cash movements, and other illicit forms of trade.
Afghan Diaspora
28. Pakistan is host to approximately 1.4 million registered and 1.0 million unregistered Afghans. In 2007,
Pakistan, Afghanistan and the Office of the United Nations of High Commissioner for Refugees (UNHCR) signed
a tripartite agreement, which gave Afghan refugees the right to register and obtain a Proof of Registration (PoR)
Card, identifying them as Afghan refugees eligible for protection and support through UNHCR under Pakistan
refugee laws.
29. These Afghan refugees have been mostly settled in Khyber Pakhtunkhwa and Balochistan for the last 40
years. Their children are educated and settled in Pakistan. Most second and third generation Afghan refugees
are born in Pakistan and are culturally, economically and socially integrated. In some cases, they are also married
to Pakistanis and the families are now integrated. In addition, the border areas of Khyber Pakhtunkhwa and parts
of Balochistan are highly active, with fast moving populations across the border because of common history,
culture, language and blood ties. There are eight formal border crossings jointly managed by the Afghan and
Pakistan governments, as well as many informal crossings, which remains permeable despite increased fencing
and border management systems.
Conflict and Terror

30. The aftermath of 9/11 and the subsequent ‘War on Terrorism’ resulted in violence that cost Pakistan
the lives of thousands and substantial financial and property losses. The mountainous terrain on the eastern and
northern borders also provides isolated and largely hidden routes to organized international
groups/organizations. Additionally, maritime frontiers remain vulnerable to illicit trade and trafficking as scores
of trespassers are frequently apprehended for crossing into Pakistan “by mistake”.
31. The risks maybe greatest in Balochistan, which has the longest border among Pakistan’s subnational
units, and is relatively arid and unpopulated compared to the rest of Pakistan. Here, Baloch militants, who are
largely secular nationalists, operate. Balochistan has historically suffered from ethno-sectarian tensions and
politically motivated violence, including violence from an active separatist movement. Separatist groups such as
the BLA have targeted and killed ethnic Punjabi settlers and others as part of their terror reign.
14
32. Various armed Punjabi sectarian groups operate, and are more prevalent in the South. However, they
carry out attacks in all provincial capitals, but especially Karachi and Quetta. In Sindh, the existence of economic
conflicts among different ethnic groups has a negative effect on the law and order. There is a large Hazara Shi’a
population in Quetta, the provincial capital, which has historically been a target for sectarian violence.
33. Large numbers of Afghan refugees have been encouraged to return to Afghanistan since Operation Zarb-
e-Azb2 and Radd ul-Fasaad3. Operation Zarb-e-Azb (June 2014) was launched against terrorist outfits operating
from North Waziristan by the Pakistan Armed Forces. A comparison of pre- and post-Zarb-e-Azb security situation
shows that Pakistan’s security has considerably improved. Underscoring the success of Operation, the review
identifies future challenges such as reforming the political status of Federally Administered Tribal Areas (FATA),
ensuring economic security of its people and effective Pak-Afghan border management. In February 2017, the
Pakistan Army had launched “Operation Raddul-Fasaad” across the country. The aim of this operation is
threefold: eliminating the residual threat of terrorism; consolidating the gains made thus far by military
operations under Zarb-e-Azb; and de-weaponizating society. However, due to the deteriorating security
situation in Afghanistan, the number of refugees electing to return has declined in 2018 due to lack of security,
inadequate education facilities, non-availability of clean water and housing facilities. While terrorist attacks
declined in 2017 and 2018 as noted in Chapter 5.
Demography
34. Pakistan is the sixth most populous country in the world with a population of 207.7 million (average
annual growth of 2.4%), of which over 31% are between 15 and 29 years old. In addition, there are a large number
of Afghan refugees and internally displaced people (IDPs). The United Nations Development Programme (UNDP)
ranks Pakistan 150th out of 189 countries in its 2018 Human Development Index. The Multidimensional Poverty
Index (MPI) classified nearly 39% of Pakistanis as living in multidimensional poverty. The overall figure masks
significant regional variation in poverty incidence, ranging from over 70% in former FATA and Balochistan, to
around 30% in Punjab and Azad Jammu and Kashmir. Pakistan has a significant poverty gap between urban (9.3%)
and rural (54.6%). There are instances where the same low level of social indicators is exploited by money
launderers for identity theft issues.
35. Punjabis form the largest ethnic group (44.7%), followed by Pashtuns (15.4%), Sindhis (14.1%), Saraikis
(8.4%), Muhajir (7.6%), Balochi (3.6%), and others (6.3%). Karachi and Lahore are cosmopolitan cities and major
business centers; as a result, people from different provinces migrate to these cities. In 2018, the former
Federally Administered Tribal Areas (FATA, also now known as the tribal districts) became a part of Khyber
Pakhtunkhwa province. The former FATA Agencies (now districts) are governed by a series of interim regulations,
distinguishing them from the rest of Khyber Pakhtunkhwa. The population of the border areas of Khyber
Pakhtunkhwa and parts of Balochistan are highly mobile, with people moving across borders because of a
common history, cultural features, and blood ties. It also creates opportunities for sub-nationalists, hostile
agencies, and other problem groups.
36. Pakistan is host to approximately 1.4 million registered and 1.0 million unregistered Afghans, some of
them displaced for nearly 40 years. In 2007, Pakistan, Afghanistan and the Office of the United Nations of High
Commissioner for Refugees (UNHCR) signed a tripartite agreement, which gave Afghan refugees the right to
register and obtain a Proof of Registration (PoR) Card, identifying them as Afghan refugees eligible for protection
and support through UNHCR under Pakistan refugee laws.
2
“An Overview of Pakistan’s Security Situation after Operation Zarb-e-Azb”, Saman Zulfqar, Journal of Current
Affairs, Vol. 2, No. 1 – 2017.
3
“Gains of Radd-ul-Fassad”, Asad Ullah Khan, Institute of Strategic Studies, 2017.
15
Social and Religious Norms
37. The results of the 2017 Pakistan census recorded that the population is over 96% Muslim, with Christians
forming 1.59%, Hindus 1.6%, Ahmadis 0.22% and others 0.32% (including Sikhs, Parsis, Baha’i and Buddhists).
Muslims are divided into two main sects of which the vast majority, at 85%, is Sunni. However, many Sunnis and
Shias have common ties and family relations. A few extremist groups irrespective of their sect were found to be
involved in the terrorist attacks including TTP, Jaish-e Mohammad and LeJ.
38. Sufism, a mystical interpretation of Islam involving saint and shrine devotion, is widespread in South
Asia, including Pakistan. Sufi places of worship have been common targets for extremist Sunni sectarian attacks.
Such attacks include Lal Shabaz Qalandar shrine in Sindh, Sufi shrine in Balochistan by Deash and Data Darbar in
Punjab.
39. The concept of person to person charity, khairat, sadqa, zakat or helping orphans / widows or religious
organization serving Islam stems from Pakistan socio-economic and religious culture. Donations are a principle
source of funding for nearly all assessed NPOs in Pakistan create a significant risk including channels for transfer
of funds particularly in the transnational context. International reports and open source information suggests
that many terrorist organizations derive their funding from licit sources such as donations through fund-raising.
Education
40. According to the Labour Force Survey of 2017-18, the literacy rate was 62.3% in 2017-18, with significant
disparity in gender, that is 72.5% for males and 51.8% for females. Literacy rates in rural areas were at 53.3% and
76.6% in urban areas. Pakistan's public expenditure on education as a percentage of GDP was estimated at 2.4%
in fiscal year 2017-18, which was the lowest in the region. The total enrolment in all educational institutions in
the country increased to 50.6 million compared to 48.0 million during 2016-17, an increase of 5.3%. The number
of institutions is projected to increase by 1.6% in 2018-19, leading to an increase of 4.8% in aggregate enrolment.
Provincial governments are responsible for education services, and budget allocations and quality vary greatly
across the country. Based on publicly available non-government data sources, in 2018 over 25 million boys and
girls between the ages of five and 16 in Pakistan were estimated to be not attending school. Balochistan, followed
by the former FATA (now part of KP) have the highest rates of non-attendance. Gender disparity is greatest in
KP, followed by the former FATA.
41. Access to education is also affected by a poor security environment. The National Action Plan was also
agreed in the wake of the December 2014 attack on a Peshawar Army public school (APS attack) in which more
than 140 children died. Various militant factions still threaten schools, colleges and universities with violent
attacks. More than 550 schools have been attacked between 2004 and 2017 in the former FATA (now KP) alone.
More recently, militants have attacked the Bacha Khan University near Peshawar in KP province and a significant
attack occurred against 12 schools in Gilgit Baltistan in August 2018.
42. An estimated 18,000 to 35,000 madrassas operate across Pakistan. Madrassas provide education free
of charge and often provide food and shelter, increasing their attractiveness to poor families. The number of
madrassas is increasing. Government sees a pressing need for reform of the education curriculum to remove
discriminatory content and combat growing religious intolerance and conservatism. Academic qualifications
provided by madrassas are not recognised, which limits employment opportunities for students.
Economy
43. Pakistan has the world’s 26th largest economy and seventh largest labour force. The World Bank
classifies Pakistan as a lower-middle-income country, with per capita income of around USD 1,500. Pakistan is
16
classified as an emerging market economy, a group that includes 41 countries out of which Pakistan ranks 29th.4
These are Emerging Market/Middle Income countries that are not classified as Advanced or Low-Income
Developing. Per capita incomes in these countries are higher than the low-income developing countries, but
don’t reach the level of the advanced economies.
44. In 2018, Pakistan ranked 136th out of 190 economies for ease of doing business that affected economic
growth. Slow growth leads to a lack of employment opportunities for Pakistan’s growing numbers of young
people. The World Bank estimates youth unemployment in Pakistan has exceeded the overall rate of
unemployment over the last decade.
45. The major trade partners in terms of Foreign Direct Investment, Inward Remittances, Imports and
Exports are United States, United Kingdom, Saudi Arabia, China and United Arab Emirates.
46. Pakistan also has fairly well developed financial sector but has a significant number of Illegal MVTS.
DNFBPS except chartered accountants and cost and management accountants, are not subject to any regulation
or supervision. This makes it harder for authorities to track their activities, and for authorities and the formal
financial sector, especially banks, to identify beneficial owners and controllers to determine, among other things,
if they are associated with terrorism or terrorism finance or other criminal activities.
47. Pakistan has over 100,000 registered companies but has a relatively large undocumented/informal
economy and cash is used extensively. As in other jurisdictions with a cash intensive economy, it is particularly
difficult to “follow the money” if it is transmitted in cash without the intermediation of the formal financial
system.5
48. Pakistan's Shadow Economy is estimated to be 38.4% of GDP. It ranks 88 th out of 146 countries
worldwide. This adds to the difficulty of “following the money.”6
Social Media
49. The Internet has changed the modes of communication due to anonymity, access to a wider range of
population, remote management and relative ease of electronic payments. In Pakistan, the use of Facebook,
Youtube and Twitter is significant as indicated in the table 7 given below:
(Number in Millions)
Population Internet Users Penetration Users Facebook
30-June-2019 % Population % Asia 31-DEC-2018
4
https://pathway.mastercard.com/methodology
5
“Cash-based economies are thus more prone to money laundering as the dominance of cash transactions,
coupled with the narrowness of the financial sector (low levels of penetration), makes it easier for the proceeds
of crime to be integrated into the rest of economy, without the involvement of the financial system in the initial
stages. At a later stage, the use of the financial system may be unavoidable but money laundering would have
already taken place by then.” Humphrey Moshi, “IMPLICATIONS OF CASH-DOMINATED TRANSACTIONS
FOR MONEY LAUNDERING” https://www.files.ethz.ch/isn/154325/Oct2012Moshi.pdf
6
https://pathway.mastercard.com/methodology
7
Asia Internet use, Population Data and Facebook Statistics - June 30, 2019
https://www.internetworldstats.com/stats3.htm
17
Pakistan 207.7 44.6 21.8 % 2.0 % 32.0
50. Enforcement data corroborates the use of cyberspace for the purpose of propagation of extremist
ideology and crowd funding. Crowd funding through social media is also a new arena of TF being exploited by
banned entities and its members due to anonymity and transnational impact and its unregulated nature. It is
illegal to use cyberspace to propagate extremist ideology, crowd funding and or any act thereon in furtherance
of the motive. Enforcement data validates use of encrypted Person-to-Person communication apps for the
purpose of illegal MVTS. Further, exaggerated/wrong reporting by social media creates frustration amongst the
public at large.
18
Chapter 4: Assessment of Money Laundering Threats
51. The assessment of ML threats included a review of all crimes based on the seriousness and magnitude
of the crimes both domestically and internationally, the amount of potential proceeds generated, and the
capacity of the criminal actors to launder proceeds (including third party launderers) and the sectors used to
launder proceeds, according to ML Threat Intelligence8. All the 21 offences designated predicate offences under
the FATF Standards were included. The most significant ML threats in Pakistan are narcotics trafficking,
corruption, goods smuggling, tax crimes and terrorism including terrorist financing. Each of these has a strong
transnational element, with the first and third by definition being transnational (trafficking across the borders,
principally with Afghanistan) and with some proceeds potentially laundered through the UAE, USA, UK, and the
second, corruption, involving the laundering of proceeds through the UAE, USA, UK. In all cases, proceeds
laundered through third countries may round-trip back to Pakistan for integration.
Table 3.1: Ratings of ML threats by types of crimes.

ML Threat Rating
Type of Crime in Pakistan Domestic or Foreign ML
2019 2017
Illicit Trafficking in Narcotic Drugs and
H H Foreign
Psychotropic Substances;
Corruption and Bribery; H H Foreign
Smuggling; (Including in Relation to Customs and

H H Both
Excise Duties and Taxes);
Tax Crimes (Related to Direct Taxes and Indirect
H H Both
Taxes);
Illegal MVTS/Hawala/Hundi H H Both
Cash Smuggling H -- Both
Terrorism, Including Terrorist Financing; H M Both
Participation in an Organized Criminal Group and

MH -- Both
Racketeering
Trafficking in Human Beings and Migrant --
MH Both
Smuggling;
--
Illicit Arms Trafficking; MH Domestic
Fraud and forgery; MH ML Domestic
Kidnapping, Illegal Restraint and Hostage-Taking; MH M Foreign
Robbery or Theft; MH -- Domestic
8
Crime data and other sources of information indicating ML/TF threats and vulnerabilities. See detailed definition
at page __.
19
Extortion; MH M Domestic
--
Insider Trading and Market Manipulation MH Both
--
Cyber Crime MH Both
Sexual Exploitation, Including Sexual Exploitation --

M Both
of Children;
--
Illicit Trafficking in Stolen and Other Goods M Both
--
Counterfeiting Currency; M Domestic
--
Counterfeiting and Piracy of Products; M Both
--
Murder, Grievous Bodily Injury; M Domestic
--
Environmental Crime; ML Both
--
Piracy; ML Both
52. The channels through which laundered proceeds are routed are considered to be mostly unauthorized
and illegal, namely hawala/hundi and cash couriers. Being criminal activities, these have also been rated as High
threat for ML. Legal channels have also been exploited through Benami Accounts, Trade Based Money
Laundering, investments in products which are vulnerable to ML like prize bonds and un-regulated sectors like
Real Estate. Proceeds of crimes may take various routes in and/or out of Pakistan.
4.1 Crimes Identified as High ML Threat
Narcotics Trafficking
53. Pakistan is strategically located at the nexus of south, central, and western Asia, with a coastline along
the Arabian Sea. In particular, Pakistan has a largely porous border with Afghanistan, a major producer of opium
and its derivatives, which is used by narcotics traffickers. According to the UNODC9, Pakistan is considered as
the transit country for opium and its derivatives produced in neighboring Afghanistan and destined for other
countries As such, Pakistan is primarily a transit country, with the bulk of proceeds realized outside of Pakistan,
so that Pakistani-based organized groups only receive a small share for facilitating the transit of the drugs in the
country.
54. Although Pakistan has been working in close collaboration with its foreign counterparts and other
organizations like UNODC, the volume and the estimated proceeds of funds generated through Drug Trafficking
remains a challenge. In addition, a recently reported rise of 87% in the production of illicit opiates in Afghanistan 10
has escalated this threat further. This is therefore making drug trafficking one of the major ML threats for
9
https://www.dawn.com/news/1279631
10
https://www.unodc.org/documents/pakistan//CND_2018_Brochure.pdf
20
Pakistan. The settlement of funds in case of drug trafficking is usually made abroad for example UK, Canada,
China, Sri Lanka and Norway. Note that the very approximate total annual amount of criminal proceeds is limited
to the amount realized in Pakistan for facilitating the transit of the drugs in the country. Most of these funds are
routed through bulk cash movements and unauthorized hawala/hundi and cash couriers.
55. Narcotics trafficking was rated high due primarily to the number of cases filed with LEAs. As per the
details obtained from Anti-Narcotics Force [ANF] (designated law enforcement authority to investigate cases
pertaining to drugs trafficking), a large number of cases have been investigated and prosecuted and led to a
conviction. As a result of these investigations, funds amounting to Rs. 1,757.719 million were frozen and assets
worth Rs. 59.700 million have been forfeited since 2017 till June 2019( the data of 2019 upto June).
Cases Investigated / Prosecuted No. of Cases where Conviction was Obtained
1216
1138
1015 1009
948 953
526
481
421 412
2015 2016 2017 2018 2019
Corruption and Bribery
56. Corruption is one of the most significant predicate offences for ML in Pakistan due to prevalence of this
offence (according to STRs, investigations and experts’ views). Since 2016, 8.08% of STR disseminated pertains
to corruption. It is certainly a root cause of all other crimes, makes the country vulnerable to ML and hinders the
economic growth of Pakistan. As per Global Competitiveness Index 2017-18, published by the World Economic-
Forum, corruption was identified as a major problematic factor for doing business in Pakistan 11. It is one of the
reasons why Prime Minister Imran Khan identified eliminating corruption as a top priority.
57. The Transparency International Corruption Perception Index for Pakistan in 2018 was 33 points out of
100. In 2017, 2016 and 2015, Pakistan scored 30, 32 and 30 points respectively. Pakistan’s Corruption
Perceptions Index averaged 25.08 points from 1995 until 2018, reaching an all-time high of 33 points in 2018.
11
hhttp://reports.weforum.org/global-competitiveness-index-2017-2018/countryeconomy-
profiles/#economy=PAK
21
The World Bank Country Policy and Institutional Assessment transparency, accountability, and corruption in the
public sector rating is (1=low to 6=high), Pakistan maintained its score at 03 during the year 2016-201812.
Pakistan’s rating in the Global Competitiveness Index in the public sector rating was found at 3.4, 3.5 and 3.7
respectively during the year 2016-201813 According to the 2018 Transparency International Corruption
Perceptions Index14, Pakistan is the 117th least corrupt nation out of 175 countries. As per the statistics obtained
927 investigations of corruption cases were initiated in 2018 of which 576 were finalized, below is the year wise
breakdown of inquiries and investigations conducted by the National Accountability Bureau (NAB):
No. of Cases
Year 2013 2014 2015 2016 2017 2018
Total Inquires 873 1,517 1,777 1,588 1,249 927
Finalized 243 585 1,114 826 557 576
Total Investigations 370 467 731 718 548 265
Finalized 129 188 402 376 247 200
Reference Filed 134 208 238 320 199 198
Convictions* 71 72 132 56 105 89
Recoveries (Rs. In Million)
Year 2013 2014 2015 2016 2017 2018
Total 6,556 3,132 12,097 12,722 8,887 28,885
SUMMARY CHART OF COMPLAINT, INQUIRIES &

INVESTIGATIONS
Complaints Finalized Total Inquiries Inquiries Finalized Total Investigations Investigation Finazlized
2098
1777
1772
1588
1575
1517
1474
1249
1160
1114
943
927
873
826
731
718
585
576
557
548
467
402
376
370
265
247
243
200
188
129
2013 2014 2015 2016 2017 2018
12
https://data.worldbank.org/indicator/IQ.CPA.TRAN.XQ?locations=PK
13
http://www3.weforum.org/docs/GCR2017-
h
2018/03CountryProfiles/Standalone2pagerprofiles/WEF_GCI_2017_2018_Profile_Pakistan.pdf
14
https://tradingeconomics.com/pakistan/corruption-rank
22
58. The offence of corruption is usually transnational in nature which means that although the offence may
have been committed within the country, the proceeds are typically laundered in foreign jurisdictions such as
USA, UK and UAE (proceeds of corruption in other countries are rarely laundered through Pakistan, although
there may be round-tripping and final integration of such proceeds in Pakistan).
59. The increasing effectiveness of mutual legal assistance has resulted in total recoveries since FY2003 of
USD 9.5 million was from USA, USD 0.3 million from the UK, and USD 10.7 million from UAE. Cash proceeds are
typically transferred to other jurisdictions using informal channels like Hawala, while proceeds already in the
banking system are most frequently transferred through current accounts.
Smuggling (including in relation to customs and excise duties and taxes)
60. During 2019 (until June) 1,873 cases of smuggling were registered in Pakistan in comparison to 1,142
cases registered in 2018, whereas the amount involved in these cases were reported to be approximately USD
134.52 million. The seizures valued less than 15-20% of the total smuggling proceeds15. Since 2016, 2.41% of STRs
disseminated relate to smuggling. Smuggling is not only a major ML threat to Pakistan, but also one of the factors
that causes low tax revenue. A major portion of the smuggling is occurring through Afghanistan and Iran. From
Afghanistan, the transit goods find their way back into Pakistan and most of the items are fabric, tea, auto parts,
cigarettes, tyres and vehicles. From Iran, petroleum products constitute most of the smuggled goods. Also, FBR
Customs Intelligence has framed six cases where imports have over-invoiced zero duty items or lower duty items.
This also allowed them to send huge amounts of foreign currency abroad as trade-based money laundering.
These instances relate primarily to China, Singapore and USA by individuals/companies that have not been linked
to any organized crime groups.
61. Since Pakistan is rich in natural resources, their unlawful extraction is often smuggled out of the country.
The former FATA and KP regions are particularly endowed with such natural resources as rare wood, fine quality
precious/semi-precious gemstones, and quality marble stone being used in construction. Unfortunately, the
amounts realized from the illicit sale of these natural resources often become a source of financing for terrorist
organisations. For instance, terrorists were involved in stealing from (and otherwise damaging) various
archaeological artifact sites in the KP region. They also maintained close relations with organized crime in Swat,
where they generate proceeds through the illicit sale of timber. The hills of Swat Valley were once covered with
pine forests and presented an attractive view, but terrorist organizations and organized crime have largely
destroyed the ecology of the area. However, enhanced enforcement at the entry and exit points of the country
and successful operations of security forces in the above-mentioned areas have eradicated these particular
terrorist organisations, thereby significantly reducing the threat of TF through these sources.
62. The risk of smuggling of precious stones and natural resources through the long and porous borders
with Iran and Afghanistan appears to continue. Marble is one of the main stones that is prone to smuggling from
Afghanistan along with talc, which is used in the manufacturing of products, including plastics, paints
and cosmetics. Both marble and talc are abundantly produced in Afghanistan. The proceeds of smuggling these
items from Afghanistan to Pakistan may be used in TF. Similarly, smuggling of tiles from Iran also poses a TF
15
Directorate General (Intelligence & Investigation)-Customs; Intelligence Reports 2017-18 & 2018-19
23
threat of smuggling to Pakistan. Iranian tiles have a huge market in Pakistan which creates opportunities for the
smugglers resulting in incentives for the unscrupulous elements on both sides to indulge in this practice by taking
advantage of the relatively less manned routes.
Tax Crime
63. Tax evasion is another menace keeping in view the low tax-to-gross domestic product (GDP) ratio of
12.4% in 2017-18. As per World Bank Report, legal loopholes and low moral values expands tax evasion in
Pakistan. However, strong measures have been taken by the current government regarding broadening of tax
base and documenting the economy through Finance Act 2019, as a result the registered tax payers has
increase above 2.0 million in May 2019 from 1.6 million in Feb.2019.
IIlegal MVTS/Hawala/Hundi
64. The unauthorized provisions of MVTS (Hawala/Hundi) is illegal in Pakistan (i.e. violation of Section 4 (1)
and Section 5 of the Foreign Exchange Regulation Act (FERA), 1947 which is a punishable offence under the Act.
Moreover, violations of Section 4 and Section 5 of FERA, 1947 read with its Section 23 have been incorporated
into the schedule of offences and also punishable under the Anti Money Laundering Act (AML Act) 2010. In this
context, the updated assessment considered this illegal activity also in the analysis of the ML threat.
65. It is difficult to estimate the profits from operation of such illegal MVTS, but based on estimates of the
amounts transferred it should be a significant percentage of cross-border transfers as per reported estimate, it
is 2 to 3% of the amount transferred.
66. Hawala is not only common in Pakistan; it has deep roots in the whole region, hence making it more
difficult to control. Moreover, it is the existence of other predicate crimes, such as corruption, tax evasion,
smuggling that further creates demand for illegal money transfer businesses. In Hawala transactions the transfer
of value takes place without the actual movement of cash. Hence, the actual movement of cash does not take
place until there is a net settlement. This may take place through the formal banking channel, over or under
invoicing in trade transactions and bulk cash movement.
67. The cash-based economy of Pakistan, inherent risk of geography, demography, corruption, tax-evasion,
presence of Afghan nationals in Pakistan, unwillingness to come under the regulatory ambit and most
importantly the anonymity factor in transactions, make the illegal MVTS a preferred choice for criminals for
domestic and transnational transfer of funds. Illegal MVTS is particularly used to settle transactions involving
illegitimate proceeds generated from smuggling, trade-based money laundering, corruption, drugs trafficking,
human smuggling.
68. Since informal MVTS are by definition illegal, it is especially challenging to estimate with accuracy the
total volume of funds being routed through this sector although the amounts are estimated to be significant. As
per the statistics available with Pakistan, the numbers of cases of illegal MVTS registered in each year remained
in the range of 300 – 400. Detailed statistics are as follows:
24
Number of cases Registered Amount Involved (Rs in Million)
1056.21
696.41 718.12
461.63
546.52
330 362 345 329

154
2015 2016 2017 2018 2019
69. 4.2% of all STRs disseminated since 2016 relate to this offence. Nevertheless, due to the total size of
such transfers, that net profits are significant, and that some transfers are indeed ML and/or TF, the offence is
rated as High threat to ML.
Cash Smuggling
70. Cash smuggling through notified as well as through illegal border crossings is prevalent mainly across
western border. Multiple issues such as socio-economic diaspora on both sides of the Afghan border, long porous
border and absence of a formal channel infrastructure for the transfer of funds have always posed a hindrance
in the way of effective and efficient enforcement for the LEAs. Proceeds of crime such as legal /illegal trade,
Hawala and drug trafficking are conducted through this channel with all likelihood of ML/TF related funds
movement utilizing it. The customs currency seizures data has been compiled in standardized formats, to have
all particulars of the arrested cash smugglers, seized currency details, origin and destination, brief of
investigations etc. Data for the past five years has also been scrutinized through NACTA website, in order to
identify any arrested/ nominated cash courier in the list of proscribed lists. Through multilateral MoU,
Directorate of Cross Border Currency Movement (CBCM) of FBR-Customs has shared data of over 200 cases of
cash smuggling with FIA and CTDS to investigate TF aspects which is underway.
71. As per existing mechanism to identify ML/TF aspects, the Investigation officers of Customs have
conducted initial probe to check
(a) Involvement of any trans-national terrorist network or UN designated entities and individuals
(b) Source of funding for cash smuggling, the end user of the smuggling proceeds and
(c) Ttravel history of the arrested person(s) investigated,
25
72. In order to ascertain any linkage of TF with the cash couriers. In 10 such cases detected at Torkham (Pak-
Afghan border), CTD Peshawar has been associated with Customs investigation team and joint inquiries for
detecting any TF linkage are underway.
73. The UAE is the most vulnerable country as 82% of the currency seizers were flowing to UAE when it
comes to movement of cash through designated routes such as international airports. The border with
Afghanistan is where most transfers of bulk cash outside of official border crossings occurs. Due to the total size
of such transfers, it is estimated that net profits are significant and the offence is rated as High threat to ML.
Terrorism Including Terrorism Financing
74. Despite some improvements in recent years, Pakistan continues to face significant terrorism threats
regionally and domestically. The financial support from the Afghan diaspora to terrorist groups plays a significant
role in strengthening the operational and organizational structure of terrorist groups/organizations. The internal
security threat to the country is eminent from the fact that more than 18,000 terrorist attacks were perpetrated
by terrorist organizations since 2001 albeit with a continuous declining trend in last three years (2016-2019).
75. As far as financing of terrorism is concerned, recent intelligence reports, the large number of TF
investigations and STRs all point to significant and increased threats. Funds for terrorism and terrorist
organizations are generated both in Pakistan and in foreign jurisdictions for operations within the country. Funds
generated illicitly in Pakistan include donations to known terrorist organizations, extortion, and kidnapping for
ransom. Funds generated externally include these sources plus funding by hostile intelligence agencies. The
geographic location of Pakistan is in itself the primary inherent characteristic posing high threat towards
incoming transnational TF elements and outgoing financing. Funds appear routed through bulk cash movements
and unauthorized hawala/hundi and cash couriers. As a result, the threat of Terrorism and Terrorism Financing
is rated as High and discussed in detail in Chapter 5.
4.2 Crimes identified as Medium High ML Threat
Participation in an Organized Criminal Group and Racketeering
76. Pakistani organized groups are mostly ethnically based. Organized crime is involved in the commission
of other predicate offences, including narcotics trafficking, human trafficking, assassination, arms smuggling and
various other illegal activities.
77. Criminal groups like Balochistan Liberation Army, Lyari gang, Militant wings of Mahajer Qaumi
Movement, MQM London, splinter groups associated with Taliban and Daesh are a few examples. Since some of
the crimes committed by organized groups like drug trafficking was assigned high rating whereas the
participation in an organized group was assigned a rating of medium high, keeping in view the fact that drug
traffickers used Pakistan as a transit route and organized groups involved in this crime are mainly not Pakistan
based.
26
Human Trafficking / Migrant Smuggling or
Trafficking in Person and Smuggling of Migrants (TiP and SoM)
78. According to the FIA’s Annual Report on Human Trafficking and Migrant Smuggling 2016-17, the latest
trends suggest that criminals are turning to TiP/SoM since these crimes are seen as highly profitable16 and
growing according to the United Nations Office on Drugs and Crime (UNODC).
79. TiP/SoM is an offence in Pakistan and penalized under the Emigration Ordinance 1979 and the
Prevention and Control of Human Trafficking Ordinance 2002. Due to vigorous legal action by FIA, stringent
border security measures and strict immigration policies all over the world caused a decline in the trend.
Recently, due to enforcement action adopted in Pakistan to counter this offence, Pakistan has been upgraded
from Tier-2 Watch-List to Tier-217 from 2017 to 2018.
80. Human Trafficking was conducted both by Pakistani National and Foreigners. The major destinations
are Iran, Turkey, Greece, Italy and Germany. The human trafficker charges between Rs 150,000 to
Rs200,000/per person, in addition to expenditures incurred. In addition, over the last couple of months, several
Chinese nationals have been arrested from the central regions of Pakistan for allegedly trying to smuggle local
girls to China. They reportedly got into staged marriages with those girls so that they could be taken out of
Pakistan allegedly for use in the sex trade. The Chinese embassy in Islamabad, however, has said Pakistani brides
are neither being trafficked to China nor are they being coerced into working in sex trade there. But the embassy
has promised to carry out further investigations.
Illicit Arms Trafficking
81. Illicit arms trafficking is common in large parts of Pakistan. The recent initiative taken by Pakistan
against terrorism has made it difficult for these illicit arms dealers, however, Darra Adam Khel, a village in the
Khyber Pakhtunkhwa province of Pakistan located between the city of Peshawar and Kohat is still known to be
the epicenter of illegal and locally manufactured arms in Pakistan. In fact, Darra Adam Khel’s economy is mostly
driven by the manufacturing and sale of illegal arms.
82. Pakistan adopted the UN Program of Action on Small Arms and Light Weapons (SALW) in 2001. Since
adoption, Pakistan has taken several concrete steps to implement the UN Program of Action on SALW. Efforts,
not only have been directed at controlling proliferation of SALW but also to address the underlying causes
thereof. Although significant progress has been made in Pakistan, it still poses a ML threat. The origin and
laundering of funds generated from illicit arms trafficking is usually done locally with funds coming in from
neighboring countries, such as Afghanistan. 1.2% of STRs disseminated pertains to illegal arms trafficking. MVTS
and cash smuggling are the primary methods to laundering.
16
https://www.unodc.org/documents/pakistan//FIA_Annual_Report_2016_and_2017.pdf
17
The United States (US), State Department’s Human Trafficking Report for 2018
27
Fraud, Forgery and Cheating
83. Fraud, forgery and cheating is a common predicate in most of the regions, generating proceeds of crime
which are laundered both within Pakistan and abroad. Fraud, forgery and cheating accounted for 4% of the total
disseminations made by FMU since 2015 until Oct. 2018, however, as per the statistics obtained from LEAs, 107
cases of fraud and forgery have been registered in 2019 (until June) amounting to Rs. 704.31 million (~4.39 million
USD) whereas 264 cases were registered in 2018 amounting to Rs. 628.22 million (~3.92 million USD). A few large
cases/scams include Axact, Mudarabas Scam etc. As per case studies, most criminal proceeds from fraud and
forgeries were already in the banking system and therefore were laundered primarily via current accounts.
Kidnapping for Ransom
84. There are three kinds of people or groups involved in kidnapping for ransom in Pakistan. The first
category comprises organized criminal gangs; the second consists of those trained by banned militant groups,
often linked to the Taliban and Al-Qaeda. The third category of consists of individuals or groups who get involved
in kidnapping for ransom to settle business or family disputes18. While the first type generally receives a ransom
paid in cash, the second and third may also receive other, non-financial benefits.
85. Although this predicate crime is diminishing for ransom paid in cash, it is still a challenge in a few regions
of Pakistan, especially in Khyber Pakhtunkhwa. According to LEAs, most of the cases of kidnapping for ransom
are controlled from criminals in Afghanistan, hence the funds originated in Pakistan tend to be laundered abroad
usually in Afghanistan via Hawala / Cash smuggling.
Robbery or Theft
86. Robbery/Theft is one of the most common civil crimes in Pakistan, as is the case in many other countries.
Pakistan’s primarily cash-based economy makes it more of a challenge for the authorities because it is easy to
dispose of the stolen goods without leaving the trace of the transaction. During 2019: 60,280 cases (until June)
were reported in comparison to 105,751 cases reported in 2018, however, the amount involved is not known.
Hawala / cash smuggling is the primary channel for ML.
Extortion from business
87. Extortion from business is one of the most common predicates in the metropolitan cities. As the
extorted funds are normally already within the banking system, funds generated from extortion are usually
laundered by Pakistani banks. Extortion was one of the major challenges in 2013 but due to the kinetic measures
taken by LEAs the reported cases of extortion declined sharply.
Insider Trading and Market Manipulation

88. In the Securities Market the threats of market manipulation, insider trading and other market abuse
exist which may also be used for ML purposes, although the impact of this predicate is not very large.
18
https://herald.dawn.com/news/1152820
28
89. The Market Capitalization as a percentage of GDP was 17% in 2019. The illicit proceeds in the securities
market appear to correlate with the practices of price manipulation and insider trading for ill-gotten benefits
from the capital market. There is a possibility of inflow of illicit proceeds from foreign investors in the capital
market. As per the available statistics only 1 case has been registered in 2019 (until June) however the amount
involved is reported to be Rs. 554 million or approximately USD 3.146 million, which is quite significant. The
amount involved since 2016 to June 2019 is estimated to be around Rs 770 million. As the proceeds are normally
already within the banking system, funds generated from these crimes are usually laundered through Pakistani
banks.
Cyber Crime
90. The Cyber Terrorism Investigation unit of FIA Counter Terrorism Wing has identified that cyber space is
being used for confidential communication, dissemination of violent ideologies, crowd-funding, crypto currency
businesses etc. This sector is used as a channel as well as predicate offence for generating funds e.g. child
pornography, hacking of bank accounts, crypto currency business etc.
91. LEAs have identified the following issues during enforcement actions:
i. Servers of all social media platform are outside the jurisdiction of Pakistan, especially the USA and the
UK, although other jurisdictions less internationally integrated may also be involved.
ii. Data of all users who are operating the illegal websites/profiles/accounts are stored on the servers of
companies outside Pakistan, especially the USA and the UK, although other jurisdictions less
internationally integrated may also be involved.
iii. Use of highly technical encrypted websites such as protonmail.com by Terrorist outfits for secure
communications and crypto currencies.
4.3 Crimes identified as Medium ML Threat
Sexual Exploitation, Including Sexual Exploitation of Children
92. During 2019 (until June) three cases were registered against sexual exploitation in comparison to eight
cases registered in 2018. The number of cases registered are quite low but it might be due to reluctance of
people and social pressure. In a recent case it was identified that a couple exploited 45 girls and made videos. In
addition, prostitution in Pakistan is illegal but there are many brothel houses that are working under the garb of
some other profession.
Illicit Trafficking in Stolen and Other Goods
93. Robbery has a high frequency of occurrence in Pakistan, however, trafficking of the stolen goods is not
a very common practice. In a recent incident 400 stolen artifacts of Pakistan were returned by France but it was
the only case noted in many years. Hence, the threat of the offence is rated as Medium for ML, based on expert
opinion.
29
Counterfeiting Currency
94. In line with currency innovation, the banknotes issued by Pakistan comprise of both overt and covert
features, which enables the public to assess the banknotes’ authenticity. In March 2017 responding to the
increased counterfeiting challenges, security features in higher denomination banknotes were further
augmented for manual as well as machine recognition. These features run the gamut from enhanced inks to
protective varnishing and infrared solutions thus making the counterfeiting of currency less of a threat for
Pakistan.
Counterfeiting and Piracy of Products
95. Piracy has been an issue for Pakistan. Weak enforcement regime, negligible public awareness and
absence of effective implementation of relevant laws make it one of the proceeds generating offences in
Pakistan. Common examples include pirated CDs, paperback books etc. Not many cases involving piracy,
counterfeiting and piracy of products have been registered. As per the available statistics only 56 cases
(amounting to Rs. 2.42 million or approximately USD 0.015 million) were registered during 2019 (until June) and
76 cases were reported during 2018 (amounting to Rs. 1.52 million or approx. USD 0.0095 million). The estimated
proceeds generated through this crime are more than Rs. 770 million during the period from 2016 to 2019.
4.4 Crimes identified as Medium Low ML Threat
Murder, Grievous Bodily Injury
96. So far 18,967 cases of murder / grievous bodily injury were registered in 2019 (until June) whereas
40,310 cases were reported in 2018. Cases of murder and grievous bodily injury were usually noted in
personal/family disputes, motivated by religious beliefs and political affiliations. However, possibility of murder
by professionals for the sake of money cannot be ignored.
Environmental Crime
97. Pollution and other environmental challenges have been one of the biggest issues for Pakistan. As per
media reports, environmental crimes are on rise in Pakistan19, for example, rampant burning of forests, illegal
logging of trees on mountains and along banks of various canals and highways, illegal wildlife trade etc.
Piracy
98. Although no case of marine piracy was reported in Pakistan, due to its long costal line this crime was
considered as Medium Low.
19
https://www.thenews.com.pk/print/125585-Environmental-crime-growing-at-alarming-rate
30
Chapter 5: Assessment of TF Threats
5.1 Assessment Methodology for TF Threats posed by Terrorist Organizations
99. Pakistan’s first National Terrorist Financing Risk Assessment was conducted in 2018 by the Working
Group (WG) led by National Counter Terrorism Authority (NACTA) through the collaborative efforts of all relevant
agencies using the World Bank (WB) methodology, including an assessment of terrorism and TF threats,
containing quantitative and qualitative variables based on available Threat Intelligence. This followed the 2015-
2017 ML/TF NRA.
100. Under the WB methodology, using the TF module, the assessment of the TF threats looked primarily at
two main factors: the threat based on terrorism, and the threat based on the direction of financial flows, sources,
and channels.
101. The first goal was to determine Pakistan’s level of both internal and external terrorism threat. The
analysis looked at terrorists and terrorist organizations (TOs) operating both within Pakistan and in other
countries, and at individuals associated with TOs.
102. The second goal was to identify the impact of the terrorism threat on TF. The assessment aimed at
determining the funding needs of different TOs, groups and individuals. In addition, the assessment analyzed
where funds were being received or sent, the sources of those funds, and the channels used for transmission.
Direction of financial flows
103. The assessment looked at the possible directions of TF flows to determine to what extent the TF threat
is primarily internal (generated domestically and used to finance domestic terrorism), external (either generated
domestically and used to finance foreign terrorism, or vice versa) or a combination of both. In some instances,
the TF may simply pass through Pakistan moving from one foreign jurisdiction to another. It is essential to
establish the direction of the flows as this information is needed to determine which CFT controls need to be
adopted or strengthened.
Sources
104. The assessment also aimed at determining the source of TF. It may come from legitimate sources or
from the commission of predicate offences.
Channels
105. In order to assess the level and magnitude of threat that certain sectors, products, or services can be
exposed to, the assessment examined which channels are being used, or are suspected of being used, for TF. For
example, if funds are deposited into a bank account in Pakistan and then wired to an account in a foreign
jurisdiction or vice versa, the channel being used is the banking sector. Alternatively, funds may have been raised
in cash and physically carried by individuals to or from another jurisdiction.
31
106. The WB methodology rates TF threats using a scale of 5, low, medium-low, medium, medium-high and
high, and assigns ratings to assessed TOs in respect of terrorism threat and its impact on TF.
107. The analysis of these threats was based on total Threat Intelligence. Data and other information were
collected from both federal and provincial LEAs and from intelligence agencies by sending them threat
assessment templates/questionnaires using the following assessment variables:
 Data on known terrorist acts and terrorists and organizations, including the number of cases registered,
the number of causalities, and other adverse effects (if any), and the number of convictions.
 Future trends based on this information; including the expected future capabilities of TOs
 Data on TF cases, including cases registered, number of convictions, and financial recoveries made.
 Data on Designation/ proscription of TOs.
 Intelligence information on sources and channels used for income and movement of funds by TOs.
 Intelligence information on the direction of TF.
108. The collation of the information was followed by subsequent extended deliberations by the WG to
finalize the risk assessment, including individual face-to-face meetings with representatives of each LEA. Several
collective meetings of higher-ranking representatives from all stakeholders were also organized in order to
confer all aspects of the risk assessment in a detailed manner and to arrive at decisions based on these
deliberations.
109. The 2018 threat assessment accounted for information about various TOs operating in different
provinces of the country and in the regional context. It took into account information and intelligence with regard
to global, regional, and domestic TOs and their funding operations of relevance to Pakistan, including the sources
and channels of their funding. The data and information provided a basis for future data collection and analysis
of the TOs, their potential and capabilities, sophistication and direction of funding, particularly with the reference
to sources and channels of TF.
110. Since the completion of the 2018 threat assessment, for the April 2019 addendum report the updated
data and other information were collected between the completion date of the 2018 assessment and April 2019
addendum. The data and intelligence were also collected from federal and provincial LEAs and from Pakistani
intelligence agencies. However, additional types of data were collected and analyzed including STRs related to
terrorism or TF, enforcement measures taken against terrorists and TOs such as freezing and seizing assets, data
on assets taken over and details/ intelligence on transnational movement of funds to re-assess/ re-visit the TF
threat of TOs. In addition, various forms of open source information were also added. The earlier assessments
of eight specific entities suspected of TF were also expanded20.
111. Moreover, the April 2019 updated assessment has taken into account international reports and risk
assessments of several countries, reflecting upon the funding of these eight organizations from third countries
in addition to the reliable open source information such as UN Monitoring Team reports, Global Terrorism Index,
etc. LEAs shared specific case studies of TF that included details of the investigation, the nature of the crime, the
amount/ items recovered, and any convictions. The assessment also considered both national and international
20
Please see documentation in the TFRA Addendum.
32
factors influencing the incidence of TF, including instability in Afghanistan, militant movements in the Middle
East, the activities of hostile intelligence agencies in promoting terrorism in Pakistan, and the expansion of proxy
wars to Pakistani territories.
112. The updated assessment was complemented by a revised analysis of the 2018 TFRA vulnerabilities that
is, the sectoral channels that are more exposed to TF abuse considering, inter alia, the occurrence of TF abuse,
the data on assets frozen pursuant to UN, international and domestic listings and complete denial of financial
services to the proscribed organizations and individuals.
113. The updated data and information on all TOs were again collected in August 2019 to further update the
assessment. In addition, and of great importance, this current updated assessment draws from the analysis of
cases studies on recent TF investigations, prosecutions, and convictions both external and internal, as well as to
validate or update, as needed, the findings of the sectoral TF threats analyzed by the 2018 TFRA.
114. During this assessment, a separate Working Group was constituted to analyze transnational TF aspect.
This WG was headed by Federal Investigation Agency and comprised of Ministry of Interior, Ministry of Foreign
Affairs, National Counter Terrorism Authority, provincial CTDs, State Bank of Pakistan, Financial Monitoring Unit
and Intelligence Agencies. For this analysis, data and other information were collected from both federal and
provincial LEAs and from intelligence agencies. The collation of the information was followed by subsequent
extended deliberations in May-June 2019 by the WG to finalize the analysis, including individual face-to-face
meetings with representatives of each LEA. Several collective meetings of subject specialists from relevant
agencies were also organized in order to confer all aspects of risk analysis in an elaborative manner and to arrive
at decisions based on these deliberations. Moreover, other information such as international reports, UN
Monitoring team reports, UNSC 1267 reasons of listing and Interpol data was also considered.
115. Based on this information, the TF threat assessment analyses and rates the TF threats from 41 TOs
including lone wolf terrorists. This evaluation has led to the grading of groups in terms of impact of terrorism on
TF threat, to take into account the dynamic nature of terrorism and TF and that not all TOs pose the same level
of threat to Pakistan. The grading of TF threats was predominantly based on judgment and expert views within
the WG members besides using the available data. The TF threat was determined taking into account the number
and magnitude of attacks (causalities and injuries), future trends of TOs based on pattern of gradual change in
operations, the international linkages, nature of funding, diversity in sources of funds, the diversity in channels
used, number of STRs, number of TF investigations, properties/assets frozen and confiscated, etc.
116. Given below is the summary position of ratings assigned to the TOs posing significant and lower TF
threats:
No. of TOs Risk Names of Terrorist Organizations (TOs)

2 High Daesh and TTP.
10 Medium AQ, JeM, JuD/ FIF, TTA, LeT, HQN, JuA, BLA, LeJ and BLF.
High
8 Medium SSP, LeJ-Al-Almi, UBA, BRA, BLT, BRAS, HuA and Unknown.
33
21 Medium Jesh-ul-Islam, Lashkar-i-Islam, SMP, Lashkar-e-Balochistan, Balochistan Republican
Low and Guards, Self-radicalized (lone wolf) terrorists, Hazb-ul–Tehrir, Ahl-e-Sunnat Wal Jamat,
Low Tehreek-e-Jafaria Pakistan, Jeay Sindh Mottahida Mahaz, Harkat-ul-Mujahideen,
Tehreek - e- Taliban Swat, Al-Badar Mujahideen, Ansar-ul-Shariya, Balochistan Waja
Liberation Army, Baloch Republican Party Azad, Balochistan United Army, Balochistan
National Liberation Army, Balochistan Liberation United Front, Baloch Student
Organization Azad, Balochistan Muslla Defa Tanzeem.
5.2 General Terrorism and TF Threats
117. Pakistan faces a significant internal security threat which is eminent from the fact that more than
18,000 terrorist attacks were perpetrated by TOs since 2001. But there has been an overall decrease in terrorist
threat (from which TF risks emanate). 2018 was the fourth consecutive year where the number of terrorism
incidents decreased. At the end of 2018, the quantum of terrorist attacks was 68% below the peak in 2014 (1816
in 2014) and 72% below the all-time peak attacks in 2010 (2061 in 2010). The declining trend of terrorism has
been acknowledged by the United Nations Security Council (UNSC) in its 22 nd report21 issued by its Analytical
Support and Sanctions Monitoring Team on 27th July 2018. According to the report, extensive counter-terrorist
operations in Pakistan are reported to have led to a reduction in the number of terrorist attacks 22. In terms of
the Global Peace Index 201823, Pakistan’s violent crime and terrorism impact scores improved- the latter for the
fifth consecutive year reflecting the government’s success in curbing the violent activities of both criminals and
militant groups and gains made through improvements in the circumstances related to refugees and Temporarily
Dislocated Persons (TDPs).
118. Despite some improvements in recent years, Pakistan continues to face significant terrorism and TF
threats. Thousands of Pakistani civilians, law enforcement and security forces personnel, and religious minorities
have been targeted by various factions of Tehrik-e-Taliban Pakistan (TTP), Jamaat-ul-Ahrar (JuA), Al-Qaeda,
Islamic State-Khurasan chapter (IS-KP) and violent sectarian groups such as Lashkar-e-Jhangvi (LeJ). The sectarian
violent extremism and terrorism (Sunni vs. Shia) have also been observed at the national level.
119. Pakistan also faces significant external security threat since its inception, Pakistan has faced hostility on
its eastern border culminating into battles, border clashes and internal security debacles. This phenomenon was
aggravated after the War against Terrorism when the western border also got hostile. Pakistan has a highly active
western border with fast moving populations across the border because of common history, cultures and blood
ties. Demography, sectarian lines and presence of Afghan refugees also aggravated the situation and have given
space to terrorist organizations, Hostile Intelligence Agencies (HIAs) and other anti-State elements in furtherance
of their nefarious motives. This resulted in significant drug trafficking, smuggling in all kind and illegal border
crossing in particular.
21 https://www.un.org/sc/ctc/news/document/s-2018-705-twenty-second-report-analytical-support-sanctions-monitoring-
team-submitted-pursuant-resolution-2368-2017-concerning-isil-daesh-al-qaida-associated/,
https://dailytimes.com.pk/284883/un-report-acknowledges-pakistans-efforts-against-terrorism/
22 FATA has now been merged in KP
23 http://visionofhumanity.org/app/uploads/2018/06/Global-Peace-Index-2018-2.pdf
34
120. Owing to this geographic situation, Pakistan is facing terrorism and TF threat, emanating from terrorist
organizations having footprints in Afghanistan like ISISL-K (Daesh), Al Qaeda, HQN and Taliban and terrorist
organizations having presence in Pakistan like TTP and operating mainly in areas adjacent to Pak-Afghan border
areas. Long porous border with Iran and Afghanistan is a major cause of illegal border crossing, cash smuggling,
illegal trade, drug trafficking, kidnapping for ransom, extortion and hawala business.
121. Since its retreat from Iraq and Syria, Daesh has been establishing its footprint in the north and eastern
parts of Afghanistan including areas bordering Pakistan with a very real potential of spillover into parts of
Pakistan. The situation has been compounded by the return of battle-hardened militants from Syria and Iraq.
This organization came to surface for the first time in Pakistan in 2014 in refugee camps of Peshawar where
pamphlets encouraging people to join the organization were recovered. Investigations into actual TF cases have
revealed that some other TOs (for instance TTP, JuA, HuA, BSNs,) operating inside Pakistan, receive funding from
abroad for terrorist acts in Pakistan.
122. Al-Qaeda is mostly a dormant entity in the terrorist landscape of Pakistan. However, there are still a few
sleeper cells in Pakistan and a limited number of hardcore Al-Qaeda operators in neighboring Afghanistan.
123. Although the external terrorism threat to Pakistan is primarily due to TOs operating from neighboring
countries, the phenomena of foreign terrorist fighters has also come to light mainly after the emergence of
Daesh.
124. Pakistan has initiated 70 MLA requests related to TF through its designated Central Authority and
forwarded to different countries since January 2019. The majority of these requests i.e. fourty-two have been
sent to Afghanistan, four to Kuwait, four to UK, four to UAE, three to Qatar, two to KSA, two to Switzerland, two
to USA, two to Malaysia and one each to Germany, Oman, Iran, Egypt and Bahrain. TOs involved in these cases
include TTP, LeJ, JuA, HuA, Daesh, AQ, Emarat-e-Islamia, TTS, BLA, BRA and certain international NPOs. Common
TF issues raised in these MLAs include funding terrorism, providing financial support to the families of TOs, fund
raising for activation of training centers abroad, siphoning out huge amounts from account by cash and bank
transactions in Pakistani and foreign banks and subsequently using such amounts in TF, use of social media for
TF and Pakistani based NPOs receiving foreign funding from abroad allegedly used for TF. In addition, Pakistan
Customs has sent 36 MLA requests to Afghanistan, China and UAE on ML/TF queries, in line with the Pakistan
risk profile. Similarly, a number of requests have also been initiated in order to ascertain a TF linkage with drug
trafficking. Data from mutual legal assistance requests made by Pakistan confirms that a few TOs based in other
countries are a threat to Pakistan.
125. Interpol notices issued against Pakistani nationals, affiliated with entities of concern are mostly those
which are updated on the request of India and USA. Most of them allegedly have nexus with Al-Qaeda-Taliban
regime and and/or connected with incidents in India. On request of Pakistan, red notices against 06 individuals
linked with TTP, LeJ, Hizb-ul-Tahreer and Daesh has been issued. Reportedly these individuals are residing in UK,
UAE, Iran, Oman and Canada. Thus, there is possibility that these entities are posing an incoming transnational
threat to Pakistan. UN Special Notices are issued in respect of 17 Pakistani nationals linked with LeT, JuD, TTA,
TTP, Al-Qaeda, HQN and LeJ. Thus, there might be a possibility that these entities are posing outgoing
transnational threat. These individuals are reportedly involved in terrorism incidents as well TF related activities
35
across the borders. There are 06 Interpol notices issued against Pakistani nationals (Foreign Terrorist Fighters)
affiliated with JeM on request of India.
126. The external terrorism and TF threats are exploiting Pakistan’s highly active and porous borders. As
noted in Chapters 3 and 4, the long porous borders with Iran and Afghanistan are major causes of illegal border
crossing, cash smuggling, illegal trade, drug trafficking, kidnapping for ransom, extortion and hawala business.
Therefore, the geographic location of Pakistan is in itself a primary high inherent vulnerability towards incoming
transnational TF element.
127. The TF threat to Pakistan remains very significant and increasing, as confirmed by the number of new
TF cases identified more recently and when comparing data from the last TFRA addendum (April 2019), as shown
by the tables below:
No. of Cases No. of Arrests No. of Persons

Province Registered Convicted
Apr-19 Aug-19 Apr- 19 Aug-19 Apr- 19 Aug-19
Punjab 189 298 256 344 66 129
KP 233 323 313 400 23 33
Sindh 29 44 48 51 05 05
Balochistan 28 59 15 29 - -
Total 479 724 632 824 94 167
% Increase 51% 30% 78%
128. Looking at the number of TF cases registered by CTDs in the period under review (April 2019-August
2019) the analysis of the data shows an increase from 479 to 724 cases, registering a further growth of 51%. In
addition to above, after April 2019, 09 TF cases have also been registered by FIA. Hence the total number of cases
increased to 733, registering a further growth of 53% for this period. Similarly, the persons convicted in TF cases
which were 94 in April, 2019 increased to 167 in August 2019, reflecting a further growth of 78%.
129. The table below shows relevant TF data for the specific period June 2018 and July 2019, concerning
persons associated with various organizations, including the entities of concern such as Daesh, AQ, TTP, JeM,
LeT, JuD, FiF, and TTA:
36
TF Cases Registered
Organization
June, 2018 April, 2019 July, 2019
DAESH 12 26 38
TTP 95 147 186
AQ 5 7 10
JeM 25 60 87
JUD/FIF 1 14 70
LeT 1 2 9
TTA 1 4 4
Total 140 260 404
% Increase 86% 189%
130. With regards to the eight entities of concern, the comparison with data from June 2018 and April and
July 2019, shows also a very significant increase in the number of convictions and in the value of the funds
deprived from these entities and recovered:
No. of Persons Convicted (EoC)

Organization
Jun-2018 Apr-2019 Aug-2019
DAESH 2 9 12
TTP 11 17 33
AQ 1 1 5
JeM 18 18 38
JuD / FIF - - 11
LeT - 1 1
TTA - - -
Total 32 46 100
% Increase since June
212 %
2018
131. As provided in the above table, the number of persons convicted with regards to entities of concern has
risen from 32 to 100, registering a growth of over 200%. Similarly, there is 22.4 times increase in the amount
recovered with respect to entities of concern.
132. As for the terrorism threat, the TF threat is also domestic and external, as funds are generated both at
home and in foreign jurisdictions for funding or otherwise support TOs and terrorist operations within the
country. The number of assets of certain UN listed entities taken over by the Government also reflects upon the
corresponding TF threat. Some terrorist groups (including TTP, Daesh, BSNs and their affiliates) also derive their
funding and support from within other states sponsoring terrorism in Pakistan. Such funding is usually routed
through Middle East, Afghanistan and some western countries. The human and technical intelligence also
provide necessary leads in this regard. In addition, the TOs are also funded externally by Hostile Intelligence
Agencies (HIAs) and other anti-state elements for the terrorist activities by the using of hawala/hundi and other
37
methods for transfer of money via border areas and funding NPOs. After the shifting of terrorist groups to
Afghanistan following Pakistan’s CT operations, National Directorate of Security of Afghanistan (NDS) officials
accommodated a number of terrorist commanders and established their marakiz (bases) in Afghanistan. The
Research and Analysis Wing (RAW) and NDS officials are providing logistic/financial support to the miscreants for
terrorist activities inside Pakistan.
133. The presence of Afghan refugees/ diaspora in Pakistan also poses a threat from TF perspective. LEAs
data and intelligence reports after analysis allude to that fact that Afghan refugees are perfect vulnerability to
exploitation, and thus a risk to serve as conduit of Transnational TF (structured Hawala, P2P Hawala and cash
mules). The recent investigations into Data Darbar Lahore incident (May 08, 2019) revealed how Afghan nationals
were exploited to execute this incident (suicide bomber as well as facilitators). There is a large number of cases
indicating TF threat emanating from Afghanistan which includes criminal activities such as kidnapping for ransom,
extortion and use of illegal MVTS for transfer of funds. The majority of MLA requests directed to Afghanistan also
corroborate the TF threat in this regard.
134. The narcotics/drugs trafficking or levy on drug trafficking is a source of income of various other
organizations including TTP, Al-Qaeda and HQN. The Global Terrorism Index 2018 provides that Taliban
increasingly leverage criminal networks to raise funds and levy taxes on narco-production, its sale and smuggling.
International reports including UNODC’s World Drug Report 2018 24 claims that this channel is used for TF
purposes. The Monitoring Team for UNSC 1988 Sanctions Committee has noted in its latest report that there was
still no evidence of Daesh profiting directly from the trade in narcotics, although some interlocutors stated that
the group actively taxed criminal networks engaged in narcotics smuggling. A notable exception, however, may
be the case of Qari Hekmatullah’s ISIL branch in Jowzjan. During his time as a Taliban commander, Hekmatullah
presided over a large increase in poppy production in Jowzjan, most notably in the districts of Darzab and Qush
Tepah. According to 2017 reporting by UNODC, Jowzjan had the single-largest increase in poppy cultivation of
any Afghan Province in 2016–17, at 681%. In this context, it would seem that the ISIL branch in Jowzjan may be
directly profiting from poppy cultivation and production. In Pakistan, CTD Balochistan has recently registered a
TF case against a drug smuggler associated with Daesh. The accused has been arrested, narcotics recovered and
investigations are under way. Although, there have not been confirmed cases in which proceeds from drug
trafficking were used for TF purposes, the use of drug trafficking proceeds to support the TOs organizational
needs and their activities cannot be ruled out. One other such case has also recently been registered by the same
provincial CTD.
135. The kidnapping for ransom is believed to be a major source of originating finances by Daesh, TTP and
in some instances HQN in areas adjacent to the western borders. These organizations use escape routes to
Afghanistan through the porous border after conducting operation in said areas. On the other hand, no incident
was reported whereby any entity committed kidnapping for ransom in a foreign jurisdiction whereby ransom
money flowed into Pakistan. However, there are a number of kidnaping for ransom cases which have originated
in Pakistan and financial settlement made in Afghanistan. In one such case, for instance, the ransom for a
Pakistani businessman was paid in Afghanistan and the same money was subsequently used for a terrorist act in
Pakistan. This signifies outward and subsequently inward movement of ransom money for acts of terrorism.
24
https://www.unodc.org/wdr2018/
38
136. Extortion, which is called ‘bhatta’ in vernacular language, remained source of income of Daesh, Al
Qaeda, TTA and TTP in KP, Balochistan and Karachi prior to military operation in previous FATA region,
amalgamation of FATA in KP and enforcement actions by LEAs in KP and Karachi. This offence remained at
rampant with anonymity due to availability of unregistered SIMs in Afghanistan, and spill-over effect of cellular
towers of Afghanistan in border areas of Pakistan. A number of extortion cases have been reported particularly
in KP where calls were received from Afghan mobile numbers seeking extortion. In certain cases, the payment of
extortion money was sought across the border inside Afghanistan.
137. Cash smuggling is also closely monitored as it is considered to be one of the ways for providing funds
to TOs. Cash smuggling is being conducted through notified border crossings as well as through illegal border
crossings mainly across the western border. Socio-economic diaspora on both sides of the Afghan border, the
absence of a formal channel infrastructure for the transfer of funds in that area and long porous border remain
a challenge for LEAs to circumvent this channel. Cash settlement of legal /illegal trade, Hawala and drug
trafficking is conducted through this channel. Under the garb of such settlements, TF related funds movement
also appears to take place through this channel. Pakistan Customs has identified over 100 cases of cash smuggling
during the past 5 years. FIA and CTDs’ investigations from a TF perspective are underway. In particular, the
Customs currency seizures data for the past five years has been scrutinized through NACTA website, in order to
identify any arrested/ nominated cash courier in the proscribed lists. Moreover, the Customs data has been
compiled in standardized formats, to have all particulars of the arrested cash smugglers, seized currency details,
origin and destination, brief of investigations etc. Through multilateral MoU, Directorate of Cross Border
Currency Movement (CBCM) of FBR-Customs has shared this data with FIA and CTDs to investigate TF aspects.
138. The Investigation officers of Customs have conducted initial probes to check (a) involvement of any
trans-national terrorist network or UN designated entities and individuals and (b) source of funding for cash
smuggling, the end user of the smuggling proceeds and (c) travel history of the arrested person(s) investigated,
in order to ascertain any linkage of TF with the cash couriers. In ten such cases detected at Torkham (Pak-Afghan
border), CTD Peshawar has been associated with the Customs investigation team and joint inquiries for detecting
any TF linkages are underway. There are also three TF cases registered by CTDs on account of collection of funds
by Daesh associates moved through internal cash couriers before transferring the funds to Afghanistan through
hawala.
139. As evidenced from the analysis of the case studies, the collection and provision of funds, including
from legitimate sources, remain a significant source of funding TOs and terrorist activities. The analysis of the
latest case studies evidenced that the collection of funds, as well as the provision of funds (through both formal
and informal channels), including through the NPO sector, continue to present a threat for TF.
140. Donations in the form of person-to-person charity, khairat, sadqa, zakat or helping orphans/widows or
religious organizations serving Islam stem from Pakistan’s socio-economic and religious culture. Its benevolence
and greatness are unquestioned however the vulnerability of donations for TF abuse cannot be ignored. The
person-to-person charity coupled with strong urge not to divulge the name of the donor make it even more
vulnerable. Donations have an important international dimension in the context of TF. Donations are a source
of funding for almost all assessed entities of concern.
39
141. Pakistan based proscribed and UN designated organizations (JuD/FiF, LeT and JeM, for instance) have
also been deriving their funding from charities and fund-raising domestically and from abroad including through
social media for social welfare activities in Pakistan or abroad (for example JuD/FiF claims doing so in Somalia,
Yemen, Myanmar and Syria). Such entities may pose outgoing transnational TF threat under the garb of social/
welfare activities abroad. Some of these entities also have frontal organizations or NPOs which pose the same
level of TF threat as of the entities themselves. For instance, the TF threat of the eleven NPOs affiliated with JuD,
FIF and JeM and recently proscribed under ATA may be seen in the same context, with regard to both domestic
and transnational TF threat. These affiliated NPOs include Al-Rehmat Trust, Al-Furqan Trust, Al-Anfaal Trust,
Idara-i-Khidmat-i-Khalq, Al-Hamad Trust, Mosques and Welfare Trust, Al-Madina Foundation, Al-Fazal
Foundation and, Al-Easar Foundation.
142. The TF threat emanating from fund raising for terrorist organizations is significant in Pakistan.
Notwithstanding the aforementioned entities, a number of other domestically proscribed or UN listed
organizations such as TTP, Daesh, Al-Qaeda, etc. have been found to be engaged in this practice where TF cases
have been investigated. A number of such cases investigated reflect that the funds thus collected are moved
outside to Afghanistan as well, where such organizations have their strongholds.
143. Some NPOs also receive donations from other countries and this makes these NPOs more vulnerable to
TF. The funding originated from a number of NPOs in foreign jurisdictions (Kuwait, Egypt, Qatar, KSA, etc.) are
being investigated and MLAs sent to respective countries for collecting evidence. For instance, a Kuwait based
UN listed NPO has been found to be sending funds to a number of NPOs in Pakistan, where FIA has registered
the case and also initiated a MLA request. The CTD KP is also investigating certain cases of similar nature.
144. The significant threat posed by donations is evident when comparing the data on donations related to
TF abuse since June 2018 with more recent data. The following table provides TF cases registered against the
entities of concern, with respect to donations/chanda collection, comparing data from June 2018, April 2019 and
August 2019.
TF Cases of Donations/Chanda Collection

Organization
Up to Jun-18 Up to Apr-19 Up to Aug-19
Daesh 3 12 17
TTP 6 14 21
AQ 5 7 10
JeM 23 58 82
JuD / FiF 1 14 41
LeT 1 2 2
Total 39 107 173
% Increase from Jun-18 274% 443%
40
5.3 Sectoral Analysis of TF Threat
Financial Sector
145. The analysis of data from the relevant period, as well as the modalities of TF identified in the case studies
and the proscribed TO’s assets frozen confirms that the banking sector continues to face a significant TF threat,
as shown by the table below. The threat of TF abuse to which the banking sector is exposed, is confirmed by a
number of case studies, by the occurrence of funds frozen by banks, related to designated persons and entities,
as well as by the number of cases in which banks were sanctioned for non-compliance with TFS requirements
(particularly instances in which financial services were provided or bank accounts were opened for the benefit
of designated persons and entities, which have been identified and sanctioned). The table below shows freezing
actions in the financial sector:
Freezing actions by
FIs to apply TFS Value of Asset
Before April Freeze/ (Loan
Sector Status
April through Extended)
2019 August (Equivalent PKR)
2019
Bank Accounts 223 21 1,549,108,012 Accounts frozen
Securities Brokers 6 Nil 119,929 Funds frozen.
NBFCs and 33 Nil Small Loans of Called back 29 Loans.
Modarabas Rs.389,606 extended
to 29 ATA Proscribed Two accounts reflected nil balances
individuals while funds of other two have been
Rs.509,000 to 3 ATA frozen
Proscribed The amount also includes one
individuals affiliate/associate (wife of a
Proscribed person).
Insurance 251 120 Rs.18.648 million 140 policies are lapsed/surrendered or
(est.) paid-up. Funds of 231 policies frozen.
Policies already Lapsed/surrendered
54.
Break-down of 371 policies:

Life Insurance 335
Health Insurance 14
General 22
146. TOs over time have switched to more complex and sophisticated channels including banking which is
used in many ways directly or indirectly, e.g. settlement of Hawala transactions, trade-based money laundering,
layering in money laundering, transnational donations to NPOs etc. Banks are highly vulnerable to TF including
41
from an international perspective. Since May-2019, the FIA and CTDs Joint Task Forces investigating cases
regarding individuals and NPOs connected with proscribed/UN listed organizations, have identified and
registered a number of TF cases whereby it has been found that the banking channel in Pakistan was used for
moving funds including to support TOs.
147. Recent investigations have unearthed a number of bank accounts with TF suspicion; in Balochistan,
based on information received from an intelligence agency, it appears that a number of individuals are dispensing
funds to the members of proscribed organizations Baloch Republican Army (BRA)/ Balochistan Liberation Front
(BLF)/ Lashkar-e-Balochistan (LeB)/ Baloch Sub-Nationalists (BSNs) by using a number of bank accounts. The cases
have been registered under the relevant provisions of terrorist financing in the ATA, 1997 and banking details of
the accused persons have been sought from the SBP to ascertain the money trail. JITs in these cases have also
been constituted and services of SBP, SECP, FIA and FMU co-opted.
148. Similarly, a number of cases have recently been registered by CTD Sindh, based on information received
from FIA and other sources where bank accounts have been unearthed and further investigations are in progress.
These cases relate to persons associated with a number of organizations. In KP, investigations are underway with
regards to bank accounts of a number of persons for misuse of NPOs leading to registration of a number of TF
cases by the CTD. One such account also involves transnational transactions from abroad.
149. Branchless banking allows person-to-person payments usually known as over the counter (OTC)
transactions. The person to person payments allow individuals to deposit and withdraw cash using the CNIC
(biometric verification from NADRA has been made mandatory with effect from July 01, 2017) thus decreasing
the vulnerability to TF. Branchless banking also offers mobile wallet accounts, which are digitally maintained.
Level 0 Branchless banking accounts are low threshold accounts and due to low KYC requirements are inherently
vulnerable to TF. Branchless Banking allows banking services through a large number of agents working in urban,
rural and remote geographic locations providing ease, mobility for cash deposits, withdrawals and fund transfers
thus making this channel vulnerable for terrorist financing. Moreover, the retail agents are mainly grocery shops,
general stores and mobile top up outlets, they are not as qualified as the bank staff in terms of complete
compliance with regulatory requirements.
150. While the data analyzed confirms the lower threat to TF abuse posed by the securities sector, the
identified cases of insurance policies in the name of proscribed persons or entities shows an increase of the
threat of TF abuse of the insurance sector. Considering that all the transactions coming to the securities markets
is through banking channel and the primary focus of investors in these markets is investment in securities of the
companies, the securities markets are exposed to a lower TF threat abuse. Further, LEAs and FMU have so far
not found any incident of TF having a link with the securities or commodities markets.
151. As regards the insurance sector, out of 50 insurers registered with SECP, 41 are non-life insurers insuring
various asset classes. The insurance products offered by life insurers have largely regular premium attribute and
payouts are made once policies mature. Therefore, these products would not typically provide the sufficient
functionality and flexibility to be likely used as vehicles for the movement of terrorist related funds. However,
the unit linked policies in life insurance, which are primarily the investment-linked products and forms not more
than 20% of market share, are considered to be amenable to the TF threat. While LEAs and FMU have so far not
found any incident of TF related to the use of the policy proceeds, the updated analysis of data and screening
42
against policy holder shows that in a number of instances there were links with designated persons or entities
that led to the freezing of the policy and of the proceeds of the policy.
NBFCs and Modaraba
152. NBFCs and Modarabas offer loans/ leases and deposit products. There is a risk that lending products of
these institutions may be used for ML purposes. Microfinance institutions provide microloans to low income
individuals with the aim of poverty reduction and promoting the betterment of the social wellbeing of individuals.
However, there is a risk that persons involved in TF activities may obtain microloans from these institutions and
use these funds for illicit purposes, including TF. AMCs offer investment products to both individuals and
institutions. The investment products offered by AMCs may be used for layering of suspicious funds through
frequent/ unusual transactions.
Exchange Companies
153. These companies deal with walk-in customers for inward/outward remittances apart from currency
exchange services. The walk-in- customers, cash transactions, cross border funds transfer and availability of
branch network across the country makes them vulnerable to TF risks. The product/services offered by them for
cross border funds transfer increase their vulnerability and threat of misuse. Outward remittance transactions
have the risk of funds transfer to other countries for illicit purpose. Specifically, in the case of no apparent
relationship between the sender and beneficiary or lack of legitimate linkage, there is risk of TF abroad. Further,
due to the long and porous border of Pakistan with countries highly affected by terrorism, there is a risk of
remittance by affiliates/supporters of TOs for the purpose of terrorism. However, there does not seem to be any
cases in Pakistan.
Other Financial Channels
154. Owing to the attractive features of Hawala/ Hundi for illicit financiers i.e. speed, convenience, low cost
and anonymity, it is highly vulnerable to exploitation for transfer of terrorism funds domestically and across the
border. Enforcement data shows the volume of this channel being used for movement of funds i.e. from 2015 to
June 2019, 1520 cases registered, Rs. 4.45 billion seized, 2165 persons arrested and 500 Hawala operators
convicted. Four cases have been registered by FIA whereby individuals (two UNSC 1267 designated, one OFAC-
SDN listed and one having links with Taliban) affiliated with designated organizations were found involved in
Hawala business as well. These cases are under investigation.
155. Some international reports and cases reported by CTDs in Balochistan and KPK allude to the use of this
channel by Daesh, Al Qaeda, TTA and TTP. Intelligence reports substantiate that this channel is also used by HIAs
for transfer of funds for movement of money towards and within Pakistan. Registration of more than 1500 cases
including 43 cases against Afghan nationals under FERA-1947 from 2015 to November 2018 corroborates this
vulnerability. It is believed that HIAs and other anti-State elements are also using this channel for TF activities in
Pakistan.
43
156. By screening the list of around 22000 users of illegal MVTS against the data-base of domestically
proscribed and internationally designated individuals, LEAs found in early 2019, five positive name matches.
Enquiries are still on-going and include one Afghan national.
157. Furthermore, there are a number of recent cases investigated by provincial CTDs and FIA where
Hawala/Hundi has been used for transfer of funds by various TOs (the cases at serial number 1, 4, 8 and 9
indicates transnational TF element) the details of which are tabulated below:
S. No Competent Associated Brief Facts of Case

Authority Organization
1 CTD Balochistan TTP Hawala/Hundi used for transfer of funds from Afghanistan.
2 CTD Balochistan TTP The accused was running a shoe store and behind the
curtains running the business of hawala/hundi.
3 CTD Sindh Daesh The ransom money in kidnapping case by Daesh associate at
Karachi was sent to Quetta through Hawala/Hundi.
4 CTD Punjab BRA Hawala/ Hundi used for transfer of funds from Dubai to
Karachi.
5 CTD Punjab Daesh The arrested was raising funds and sending to Daesh
leadership through Hawala/Hundi.
6 CTD Punjab Daesh The accused was sending funds to Daesh leadership through
Hawala/Hundi.
7 CTD Punjab Daesh The arrested was transferring funds to Daesh through
Hawala/Hundi.
8 CTD KP TTP TTP is reportedly sending funds in US to their cohorts in
Pakistan / Afghanistan using various channels, including
Hawala/Hundi.
9 FIA Taliban/AQ A UN listed person was found engaged in illegal Hawala
business, his manager was arrested by a raiding team; case
was registered against the two persons of which one is
Afghan national.
10 FIA LeT and FiF An OFAC designated person, having links with LeT and FiF,
owner of an exchange company, involved in illegal MVTS
business and managing/ processing funds for proscribed
entities.
11 FIA Taliban The case has been registered against the beneficial owner of
a number of accounts; he was using them for his Hawala
business through his managers for TF purposes
12 FIA Taliban The accused were conducting high value transactions in their
respective bank accounts associated with TF and using
Hawala channel.
158. Virtual Currencies (VCs) by their nature are either anonymous or pseudonymous and highly complex;
they are known to be exploited for illegal activities including ML and TF, including cross border movement of
funds. Virtual Currency Exchanges and Market Places operating in Pakistan like Remitano
44
(https://remitano.com/btc/pk), local bitcoins (https://localbitcoins.com/) and PAXFUL (www.paxful.com) offer
their users to buy VCs like Bitcoin and Ethereum etc. Users are offered to buy or sell VCs against a variety of
payment methods like bank transfers and cash payments (physically meet the seller). These exchanges are
offering wallet services to individuals for storage of their VCs as well as providing a market place to users in
Pakistan to connect to each other and buy or sell VCs against cash or bank transfers. Further, users can also use
the services of international exchanges to buy or sell the VCs (CEX.IO, COINMAMA, CRYPTOPAY, CHANGELLY etc.)
using payment cards (credit, debit or prepaid). Another variant which provides more anonymity than the
abovementioned types of exchanges is BINANCE (https://www.binance.com/en) that deals only in crypto
exchange without using the fiat and can be used to buy VCs in Pakistan. BINANCE does not offer a market place
to users and buying or selling in Pakistan at this exchange is through “invite-only” social media (Facebook,
WhatsApp) communities and exclusivity is highly maintained in these communities. VCs can also be bought and
sold using the electronic banking channels as the payment method and the domestic exchanges offer escrow
services i.e. holding or blocking VCs until the payment is made by the buyer and the seller confirms the receipt
of funds into his bank account (given in exchanges websites).
159. While no law currently governs the trade of virtual/ crypto currencies in Pakistan, SBP, in 2018, under
its regulatory ambit has prohibited all Banks / DFIs / Microfinance Banks and Payment System Operators
(PSOs)/Payment Service Providers (PSPs) from processing, using, trading, holding, transferring value, promoting
and investing in VCs25. Further, banks/DFIs/Microfinance Banks and PSOs/PSPs have also been advised not to
facilitate their customers/account holders to conduct financial transactions in VCs. They have also been directed
to immediately report any transaction in VCs to Financial Monitoring Unit (FMU) as a suspicious transaction. So
far 17 cases have been registered by FIA against individuals dealing in VC being an activity legally not allowed. In
one case, for instance, the use of VCs by Daesh associates for TF in relation to Pakistan has been reported in the
United States26 and US assistance for information has been sought to investigate the matter in Pakistan. Due to
its cryptic nature and easy convertibility to cash with anonymity it poses highly significant risk to be used for
transnational movement of TF.
Designated Non-Financial Businesses and Professions (DNFBPs)
160. Although the DNFBP sector is largely unregulated and without any formal supervision, the TF threat
of the sector appears to be, overall, relatively low. Among DNFBPs the major sector in terms of materiality is
the Real Estate Sector which involves sale / purchase of properties. Since properties involve a lot of
documentation besides being less-liquid, the use of the Real Estate Sector for TF is less likely, although cases of
real estate in the name of designated persons and entities were identified and real estate frozen.
NPOs
161. The abuse of NPOs for TF purposes continue to pose a significant threat, both domestically and
externally. Domestically, front NPOs of designated persons and entities were identified and subsequently
proscribed under ATA-1997. As mentioned earlier, these associated NPOs include Al-Rehmat Trust, Al-Furqan
Trust, Al-Anfaal Trust, Idara-i-Khidmat-i-Khalq, Al-Hamad Trust, Mosques and Welfare Trust, Al-Madina
25
http://www.sbp.org.pk/bprd/2018/C3.htm
26
www.justice.gov.usa
45
Foundation, Al-Fazal Foundation, Al-Easar Foundation. Further investigations revealed that these front NPOs, in
addition to domestic funding, were also receiving funds from foreign jurisdictions specifically from Middle
Eastern countries. From the transnational perspective, the investigation of some cases and corresponding MLA
requests sent to other countries reveal that some foreign entities including international NPOs (based in Kuwait,
Egypt, Qatar, KSA, Germany, Switzerland etc.) were sending funds to local Medressas/ NPOs and foreign NPOs
based in Pakistan which might have been used for TF.
162. Several cases analyzed, confirmed that the sector poses a significant threat of TF abuse. In KP, for
instance, based on the information received from FIA, five TF cases pertaining to NPOs have been registered
which involves a number of NPOs such as Welfare Development Organization Human Concern International
(HCI), Aware Girls, Seed of Peace, Rise, Al-Furqan Trust, Social Development Foundation, Organization for Peace
and Development, Charitable Organization for Humanity.
163. In Punjab, like the other provinces, a review of NPOs with an annual budget amounting to Rs. 5 million
and above was conducted and 331 NPOs were examined to assess potential links to TF. The NPOs thus identified
were referred to CTD for investigations. The CTD Punjab in consultation with Social Welfare and Industries
Department carried out detailed checks of all the individuals, verified audit reports and identified loopholes in
the NPOs’ internal controls. In one case, it was revealed from the financial details of the NPO that its Chairman
& Board of Directors are involved in providing funds to members of certain TOs upon which a TF case was
registered and an investigation is underway. As a result of proactive investigations, eleven NPOs affiliated with
UN listed entities were identified and proscribed under ATA, 1997.
164. In general, NPOs remain under scrutiny across the provinces, based on the respective TF risks profiles.
Investigations have been initiated against trustees, etc. of various trusts affiliated with the UN designated entities
and persons on offences of TF; cases have been registered and a number of persons have been arrested.
165. At this point of time, a total 36 TF cases have been registered against trustees, etc. in such taken over
properties of the UN listed entities and their affiliates, involving 150 properties as illustrated in the table below:
S. No. No. of TF Cases as Number of

Entity / Affiliates
of August 2019 Properties
1. JuD / FiF 06 15
2. Al-Anfaal Trust, Lahore 15 72
3. Al Dawat-ul-Irshad, Pakistan, Lahore 05 10
4. Al-Hamad Trust, Lahore/Faisalabad 02 04
5. Mosques & Welfare Trust, Lahore 02 02
6. Al Madina Foundation, Lahore 02 02
7. Maaz Bin Jabal Educational Trust,
01 01
Lahore
8. Idara-i-Khidmat-i-Khalq 01 42
9. JeM 02 02
Total 36 150
46
166. The above TF cases include cases against the top leadership of these organisations, including UN
designated persons and some leaders have been arrested in these investigations.
Other Sectoral TF threats
167. The Internet and social media has changed the modes of communication due to anonymity, access to
wider range, remote management and relative ease of electronic payments. FIA has registered numerous cases
and enquiries against banned individuals and entities that were using cyber space for the purpose of propagation
of their extremist ideology and crowd funding which reveals that this channel is vulnerable to be used for TF. The
data of users and service providers are situated outside Pakistan. Twenty one MLA requests to foreign
jurisdictions have been sent. From the transnational perspective, the investigation of some cases and
corresponding MLA requests sent to other countries reveal that some Balochistan Sub Nationalists (BSNs)
elements (based in Afghanistan) were using Facebook profiles and pages for enhancing/ promoting and TF of
TOs. Some other TOs have also been using social media for social welfare activities in Pakistan or abroad like
JuD/FiF which claim to do so in Somalia, Yemen, Myanmar and Syria. Such entities may pose outgoing
transnational TF threat under the garb of social/ welfare activities abroad. This channel poses incoming as well
as outgoing transnational TF threat.
168. Crowdfunding is another tool of funding a project or venture via Internet (e.g. social media) by raising
monetary contributions from a large number of people. It is a form of finance, which has emerged outside the
traditional financial systems. The crowdfunding may be an emergent risk due to anonymity created by the online
aspect of the crowdfunding platforms and the relative ease to facilitate cross-border participation. The
individuals or organizations that are looking for channels to fund terrorist activities may exploit such unregulated
channels27. There could be unregulated online crowdfunding platforms to receive public funds. However, the
SECP, on March 27, 2017, issued a public warning about crowd funding and clarified that crowd funding is not
allowed in Pakistan. The public has been warned not to be misled by fraudulent activities, investments/deposit
schemes launched by certain non-corporate entities or individuals through advertising in the electronic and print
media, websites, emails, mobile text messages etc. 28 In regards to bank accounts crowd funding, in case of
charities/donations, is permitted for donating to non-proscribed entities e.g. Shaukat Khanum Hospital,
Government sponsored funds e.g. dam fund with undernoted applicable controls for NPOs/NGOs as per SBP’s
AML/CFT regulations. As a result of these measures, crowd funding to proscribed/designated entities has not
been observed in the banking sector. Further, there is prohibition of using personal accounts for charity
purposes/collection of donations.
5.4 Analysis of TF threat of specific TOs
169. There are more than 70 TOs that are domestically designated under the Anti-Terrorism Act 1997. Of
these 41 TOs posing threats to Pakistan and were assessed from the perspective of TF threats. TOs pose a threat
domestically, but also (owing to their ideology & transnational motives) pose a threat to other jurisdictions
resulting in stringent bilateral relations, and earning bad image for the country of origin. Based on the updated
27 http://files.acams.org/pdfs/2016/Financial_Institutions_and_Crowdfunding_K_Veldhuizen.pdf
28hhttps://www.secp.gov.pk/wp-content/uploads/2017/03/Press-Release-March-27-SECP-warns-public-about-
crowd-funding.pdf
47
information gathered and the expert opinions of the different LEAs and Working Group members, a description
of TOs posing significant TF threats is as follows:
Organizations assessed as High threat
i. Daesh/ISIS
170. The main threat of Daesh to Pakistan emanates from Afghanistan. Since its retreat from Iraq and Syria,
Daesh has been establishing its footprint in the northern and eastern parts of Afghanistan including areas
bordering Pakistan with a very real potential of spillover into parts of Pakistan. The situation has been
compounded by the return of battle-hardened militants from Syria and Iraq. This organization came to surface
for the first time in Pakistan in 2014 in refugee camps of Peshawar where pamphlets encouraging people to join
the organization were discovered. Daesh is well organized across the border with bases in various provinces and
also provide assistance to its affiliates inside Pakistan by all possible means, including funding for terrorism.
171. In reason of listing of ISIL-K by UNSC, certain terrorism incidents in Afghanistan and Pakistan are
reported that are claimed by it. Thus, there is possibility that this entity has its span of activities across the Durand
Line hence having relevancy in transnational context.
172. The Pakistan and Afghanistan chapter of Daesh, also known as Daesh Khurasaan Province or Islamic
State in the Khurasan Province (ISKP), is funding its activities through different means. Since its leadership in the
region consists primarily of those disgruntled elements amongst the Taliban who were not happy with the
policies of their former organization, hence it will be safe to say that they will be using almost the same tactics
which Taliban used, including extortion, donations and kidnapping for ransom. This has been endorsed during
interrogation of arrested terrorists affiliated with Daesh by provincial CTDs. Balochistan has recently witnessed
terrorist activities carried out by Daesh, where it was involved in kidnapping for ransom as the primary source of
financing. It is noteworthy that these revenue streams are inconsistent and keep shifting based on the availability
of the economic resources. Its other sources of income include foreign funding and HIAs. The technical and
human intelligence suggests involvement of RAW and NDS in the provision of funds, through informal means and
via third countries, for terrorist activities in Pakistan. Daesh threat to Pakistan mainly emanates from their strong
holds in Afghanistan namely Nangarhar, Badakhshan and Kandhar. The funds are transferred mainly through
informal means to Balochistan, Karachi and tribal districts of KP.
173. The provincial CTDs data for terrorism investigations in Pakistan pertaining to the entity reveals that the
total number of cases reported are 209 whereas 63 persons affiliated with the organization have been convicted.
Daesh is also attributed to a large number of casualties for the period 2015 onwards, both dead and injured. The
number of dead and injured caused by Daesh in Pakistan is reported as 579 and 1201 respectively. Moreover,
there are currently 38 TF cases registered in various CTDs indicating chanda collection/ donation, kidnaping for
ransom, extortion, bank dacoity and target killing as the source of income and Hawala/ Hundi and cash courier
for transfer of funds. A total number of 12 persons have been convicted in these TF cases. The financial
institutions have also frozen nine bank accounts of the persons proscribed under ATA, 1997 associated with the
Daesh/ ISIS.
48
174. The domestic trend of sources include kidnapping for ransom, drug smuggling, online publishing houses
and social media operations (including dark web communication & information sharing), donations, self-finances
through fraud/ financial crimes. The channels used for transfer of funds include Hawala/ Hundi, (mostly from
Afghanistan/ Middle East), Cash Couriers and VCs, etc. Money Gram and Western Union have also been found
being used through social media campaigns for fund raising and transfers thereof. In a kidnapping for ransom
case in Sindh, for instance, the provincial CTD has unearthed Hawala/Hundi as the mode for transfer of funds. In
another case, the use of VCs by Daesh associates for TF in relation to Pakistan has been reported in the United
States29. US assistance for information has been sought in this case to investigate the matter in Pakistan. Another
recent case, reported in the United Kingdom, where a man has been sentenced to imprisonment for his
association with Daesh and sending money to a bank in Peshawar, indicates that the organization may also be
using formal channels for the transfer of funds.30 In this case, the FIU of the United Kingdom has been requested
for information, including banking information, to investigate the matter in Pakistan.
175. The open source information also suggests that Daesh has an international trend of collecting revenues
through various sources including bank looting, human trafficking, Illicit proceeds from occupation of territory
(for instance, Achin district, Nangarhar province, Afghanistan), extorting agriculture, fund raising through
modern tools like crypto-currency, extorting goods and other products that pass-through controlled areas.
176. The intelligence with regards to Daesh provides that Lashkar-e-Jhanvi (LeJ) and Jamat-ul-Ahrar (JuA)
activists are becoming part of the Daesh set-up and operate under its umbrella in Balochistan. This indicates that
certain local organizations may be merging into Daesh to carry out terrorist attacks in Pakistan. Although Daesh
does not have organized infrastructure in Pakistan, the threat posed to Pakistan emanates from Afghanistan.
Daesh is well organized across the border with bases in various provinces and also provides assistance to its
affiliates inside Pakistan by all possible means, including funding for terrorism.
177. The intelligence reports suggest that NDS on behalf of RAW is supporting Daesh for acts of terrorism in
Pakistan and a number of master minds of various high-profile terrorist acts in Pakistan are residing in
Afghanistan. The support of HIAs and the aforementioned sources of revenue enable the organization to raise
and accumulate funds for sustenance and terrorist acts in Pakistan.
178. The phenomenon of foreign terrorist fighters (FTFs) has also come to light mainly after the emergence
of ISIS whereby people from different regions joined the Islamic State. According to Hague’s Policy Brief
published by International Centre for Counter Terrorism (ICCT) by October 2015, nearly up to 300 FTFs from
Pakistan might have joined ISIS 31. In pursuance of UNSC Resolutions 2178 (2014) and 2396 (2017), Pakistan
constituted a National Task Force to deal with the issue of FTFs in the country. To further streamline the functions
of the task force, two working groups on legal and operational aspects were also constituted. The LEAs including
immigration authorities and border security forces, should therefore remain vigilant about the phenomena of
FTFs, including returning FTFs and the consequent required actions.
29
www.justice.gov.usa
30
www.cps.gov.uk
31
https://icct.nl/wp-content/uploads/2015/10/ICCT-Schmid-Foreign-Terrorist-Fighter-Estimates-Conceptual-
and-Data-Issues-October20152.pdf
49
179. Given the above analysis, criminal proceeds of the organization and revenue sources, exploitation of
channels for movement of funds, its expanded network across various jurisdictions, level of sophistication of the
organization and its operations particularly from across the border and the support of HIAs and foreign funding
to carry out terrorist attacks in Pakistan, the terrorism threat and its impact on TF, including incoming TF threat,
posed by Daesh/ISIS is very significant and is therefore assessed as High.
ii. Tehreek-e-Taliban Pakistan (TTP)
180. The roots of the TTP as an organization began in 2002 when the Pakistani Army conducted operations
in the tribal areas to combat foreign militants fleeing from the war in Afghanistan into the neighboring tribal
areas of Pakistan. Since then, TTP has carried out terrorist attacks in the country resulting in considerable
casualties.
181. TTP was listed by UNSC on 29 July 2011 as being associated with Al-Qaida for supporting activities of Al-
Qaida. TTP, also known as the Pakistani Taliban, is an alliance of formerly disparate militant groups that came
together in 2007 following Pakistani military operations against Al-Qaida-related militants in the Federally
Administered Tribal Areas.32 TTP also morphs into a number of small terrorist groups for terrorist activities inside
Pakistan. In reason of listing of TTP by UNSC, it is mentioned that this entity has objectives regarding
destabilization of Pakistan. Most of the terrorism incidents reportedly conducted by it are within Pakistan.
182. TTP has been a permanent threat to Pakistan since 2002. The organization has carried out some of the
most lethal terrorist attacks in the country. TTP, Daesh and JUA are the major actors of terrorism in Pakistan
contributing to the maximum number of terrorist incidents and consequent fatalities in the country. The number
of dead and injured persons attributed to TTP in Pakistan during the period 2015 onwards is 609 and 1077,
respectively. This indicates the level of sophistication of the organization and its operations, the support of HIAs
and the corresponding human and capital loss caused to the country. As discussed above, TTP also morphs into
a number of small terrorist groups which also pose the same level of threat with regards to TF in the country.
183. CTDs have reported 904 terrorism cases pertaining to TTP for the period 2015 onwards of which 179
persons have been convicted. Moreover, there are 188 TF cases registered against persons associated with TTP
indicating donations, extortion, kidnaping for ransom and target killing as the sources of income and Hawala/
Hundi and the banking channel for transfer of funds. A total number of 33 persons have been convicted in these
TF cases. The financial institutions have also frozen 45 bank accounts of the persons proscribed under ATA, 1997
associated with the TTP and its possible other associates.
184. The sources of TTP financing are funds collected from criminal activities including extortion of money
for providing safe passage, kidnappings for ransom, drugs trafficking, human trafficking, bank dacoities,
robberies, looting of goods and trucks etc. The open sources information suggests that TTP also collects funds
from selling of animal hides, sympathizers’ donations and zakat/ fitrana/ ushr, levy on drugs trafficking in
Afghanistan and considerable funding from HIAs, mainly RAW of India and NDS of Afghanistan. There are
intelligence reports that NDS on behalf of RAW is supporting Daesh, TTP and other organizations for acts of
32
https://www.un.org/securitycouncil/sanctions/1267/aq_sanctions_list/summaries/entity/tehrik-e-taliban-
pakistan-%28ttp%29
50
terrorism in Pakistan, particularly in the erstwhile FATA, KP, Balochistan and Karachi being the financial hub of
the country. A number of master minds of various high-profile terrorist acts in Pakistan are residing in
Afghanistan. These HIAs extend financial, technical, operational and logistical support to various TOs in the
country. The support of HIAs and other sources enable the organization to raise and accumulate reasonable
funds for sustenance and operational purposes.
185. TTP used to manage sophisticated extortion rackets by robbing, looting and demanding a portion of the
economic resources in areas where it operated until its safe havens in Pakistan’s Tribal Areas were destroyed/
dismantled by the Pakistan Army. The majority of operational expenses of TTP are being met through resources
provided by HIAs. TTP operates from Afghanistan and uses the porous border as an escape route into
Afghanistan. TTP also remained engaged in sale and purchase of weapons as well as hostages from moderate
rebels at border exchanges.
186. The channels used for movement of funds are primarily Hawala/ Hundi, cash and banking. However, the
possible use of other formal and informal channels for transfer of funds cannot be ruled out which requires
enhanced due diligence on the part of relevant authorities. The US National Terrorist Financing Risk Assessment
2018 also highlights that physical U.S. currency is used globally as either the primary or de facto secondary
functional currency or store of value.
187. No evidence is reported that there is any TF threat from TTP to any foreign jurisdiction but it is posing a
significant incoming TF threat.
Given the above analysis, criminal proceeds of the organization, exploitation of channels for movement of funds,
incoming TF threat, the support of HIAs and foreign funding to carry out terrorist attacks across the country, the
terrorism threat and its impact on TF posed by TTP is assessed as High.
Organizations assessed as Medium High threat
i. Al-Qaeda (AQ)
188. Al-Qaeda, is an international terrorist network founded by Osama bin Laden in the late 1980s. As per its
ideology, it seeks to rid Muslim countries of what it sees as the profane influence of the West and replace their
governments with fundamentalist Islamic regimes.
189. The entities and individuals affiliated with AQ were designated pursuant to UNSC Resolution 1333
(2000) adopted on 19 December 2000. Subsequently, on 17 June 2011, the UNSC adopted resolutions 1988
(2011) and 1989 (2011) splitting the sanctions regime into Taliban and AQ respectively. The UNSC has designated
individuals and entities on the 1989 Sanctions List as individuals, groups, undertakings and entities associated
with the AQ.33 In reason of listing of Al-Qaeda, span of its operations is mentioned as in Asia, Europe, Africa and
North America. Many domestic entities are also reported to have affiliation with it and, vis-à-vis some terrorism
33
hhttps://scsanctions.un.org/fop/fop?xml=htdocs/resources/xml/en/consolidated.xml&xslt=htdocs/resources/xsl/
en/consolidated-r.xsl
51
incidents, joint responsibility is also mentioned. Thus, there is possibility that this entity has an extensive
transnational impact.
190. The elements of LeJ and JuA/ Hizb-ul-Ahrar (HuA) are ideologically inclined towards AQ and work as
sleeper cells or conduits of AQ for terrorism acts and fund raising in Pakistan. In one particular case, a terrorist
affiliated with AQ has been arrested/ being investigated by provincial CTD on the charges of keeping explosives
and Jihadi literature. The association of these groups also tend to exploit the sectarian fault lines in Pakistan.
191. The CTDs data for terrorism in Pakistan for cases related to AQ reveals that a total of 50 cases related
to the organization have been reported of which 20 persons have been convicted. 4 persons were killed and 10
were injured as reported by LEAs. There are also 12 TF cases reported by LEAs, primarily emanating from
donations and chanda collection of which five persons were convicted. AQ is now a dormant entity in the terrorist
landscape of Pakistan. However, there are still a few sleeper cells in Pakistan and a limited number of hardcore
AQ operators in neighboring Afghanistan.
192. AQ had reportedly set up fundraising networks through donations and charities from their supporters
and sympathizers with names of otherwise unknown entities, once it came under severe scrutiny by law
enforcement agencies in the wake of the 9/11 terrorism incident. The intelligence and open source information
suggests that Al-Qaida derives its funding through drug/ human trafficking and goods in lieu of cash, business
ventures, health cares, charitable organizations, etc. However, effective crack down on these organizations and
their donation boxes has largely deprived the AQ of its funding sources. Financial support from the Afghan
diaspora also played a significant role in strengthening the operational and organizational structure of the TO.
Donations were once the largest source of its funding, mostly from charities and wealthy individuals. For
years, individuals and charities based in Saudi Arabia were the most important source of funds for AQ.
Other sources of income included extortion, selling of animal hides, foreign funding, publishing houses, target
killing, fraud, financial scams and bank robbery.
193. The channels used for movement of funds include invisible channels i.e. Hawala/ Hundi and cash
couriers; the cash may also be used for the store of funds. However, the organization may resort to other formal
and informal channels as well for transfer of funds.
194. There are number of instances where financial institutions have reported STRs with regards to
individuals associated with AQ and its associates. In the latter case, 6 STRs have been generated which are
under investigation by FIA. There are 33 more STRs on individuals with suspicion of association with
multiple associated entities, including AQ which are also being investigated by FIA.
195. In view of the above analysis, criminal proceeds of the organization and revenue sources,
exploitation of channels for movement of funds, incoming TF threat, foreign funding to carry out terrorist
attacks, the terrorism threat and its impact on TF posed by AQ is assessed as Medium-High.
ii. Jaish-e-Muhammad (JeM)

196. Jaish-e-Muhammad was founded in 2000 by Maulana Masood Azhar who was an operative of
Harkat-ul-Mujahdeen. He was detained in India in 1994 and after his release in 1999, he founded the
organization.
52
197. JeM was designated by the UNSC in October, 2001 and was also proscribed by Pakistan under ATA,
1997 in January, 2002. JeM also operated under the name of Khuddam-ul-Islam which was proscribed by
Pakistan under ATA, 1997 in 2003. A number of individuals associated with the group have been proscribed under
ATA 1997. In reason of listing of JeM by UNSC, it is mentioned that this entity mostly has conducted terrorism
attacks in Indian-held Kashmir and India.
198. The organization is accordingly subject to targeted financial sanctions, both under the UNSC 1267 and
1373 sanctions regimes. Over the years a number of assets and facilities owned directly or indirectly by the
organization have been seized by the government as a result of effective crackdown against JeM throughout the
country. These assets are Madaris and dispensaries. This demonstrates the organization and funding capacity of
JeM.
199. The CTDs data for terrorism and TF investigations relating to persons associated with JeM reveals that
the organization was more active in Punjab with 87 TF cases registered on account of collecting donations, of
which 153 persons have been arrested and 38 persons convicted. Apart from the above, 23 terrorism related
cases have also been registered in Punjab and KP against persons affiliated with JeM of which convictions have
been attained in 07 cases.
200. Moreover, there are accusations against the group for its involvement in the attack on the Indian
Parliament in 2002 and the Pathankot attack of 2016. The case against the entity and some of its affiliates remain
under investigation. The group has also been accused of carrying out the attack in Pulwama in Indian Occupied
Jammu and Kashmir.
201. In pursuance of UNSC sanctions regime, the financial institutions are obliged to implement targeted
financial sanctions against the organization and generate reports on suspicious transactions. The financial
institutions have reported 9 STRs on bank accounts related to the individuals associated with JeM for the period
2016 onwards. The FMU has analyzed these STRs and disseminated 4 financial intelligence to FIA (containing
multiple STRs) for investigation. Moreover, the financial institutions have also frozen 134 bank accounts of the
persons proscribed under ATA, 1997 associated with the JeM. The considerable number of frozen bank accounts
and STRs related to individuals associated with JeM warrants strict implementation of TFS regime and requisite
controls by the financial sector.
202. With regards to sources of funding, the statistical data, intelligence and other reports reveal that the
group primarily collects funds through donations, hides collection, ushr, sadqa and Zakat. The channels used for
movement or transfer of funds include Hawala/Hundi and cash. The possibility that the splinter members of the
organization may join other organizations like TTP and AQ nevertheless poses significant threat with respect to
TF.
203. Given the above data and analysis, the collection of funds through donations and other means, the
number of assets taken over and the potential TF risk associated with such assets, the terrorism threat and its
impact on TF posed by JeM is assessed as Medium-High.
53
iii. Jamaat ud Dawa (JuD) / FIF
204. JuD and FIF were established by those associates of LeT who had renounced affiliation with LeT. Soon
after its inception, JuD started operating as a large charitable network providing relief work in areas hit by natural
disasters. Reportedly the group assisted victims of the 2005 Kashmir earthquake in the areas of medical aid, food,
shelter, clothing, etc. The FIF undertook relief work during the 2010 floods in Pakistan. The organizations also
claim to conduct welfare activities in a number of foreign territories including Somalia, Yemen, Myanmar, Syria.
The JuD and FIF gained popularity and earned social capital because of their welfare activities in natural disasters,
educational and medical aid related facilities. JuD was listed by the United Nations Security Council 1267
Sanctions Committee in 2008 as an alias of LeT. In 2012, FIF was also listed by the UNSC 1267 Sanctions
Committee, as an alias of LeT and JuD. In reason of listing of LeT/JuD/FiF, it is mentioned that these three entities
are operating with different names under same leadership and organogram. This entity was accused of
conducting terrorism related activities in Indian-held Kashmir and India; and providing training, infrastructural
and logistic support to Al-Qaeda, however, 22nd Report of the 1267 Sanctions Committee Monitoring Team issued
on July 27, 2018 clearly mentions that, “No reference found to LeT, JeM, HQN networks ties with Al-Qaeda.”
205. Consequent to UN designation of JUD and FIF, the Government of Pakistan has implemented targeted
financial sanctions against both of these entities. The Government seized properties and institutions of JuD and
FIF, which continue to remain under government custody and control. These assets include madrassahs, schools,
colleges, dispensaries, hospitals, buildings, shops, agriculture land, open plot and ambulances. The large number
of such seized assets across the country reflect upon the level of sophistication of the entities, the vast extent of
their operations and consequently, the potential TF threat posed both by JuD and FiF. This also indicates the
vulnerability of DNFBPs with regards to the risk.
206. CTDs’ data reveal that there are 71 TF cases reported against the persons associated with the entities
on account of donations/Chanda collection and misuse of NPOs of which 11 persons have been convicted.
Consequent to the SOPs on skins and hides collection issued by NACTA, a number of cases have been registered
in various police stations across the country on account of skins and hides collection by persons believed to be
affiliated with these entities. There are 34 cases registered against JUD and 45 against FIF on this account which
have resulted in conviction of 24 and 17 persons respectively. In pursuance of UNSC sanctions regimes, the
financial institutions have also frozen 30 bank accounts of the persons proscribed under ATA, 1997 associated
with the entities.
207. Both JuD and FIF have been working primarily as Charities, the FIF was registered as an NPO under the
Societies Registration Act, 1860, JuD however, was never registered under any law. The registration of FIF has
been cancelled/revoked. Nevertheless, any NPO associated with the two entities or engaged in fund raising by
any means pose the same threat as the two organizations. The 2018 National TF Risk Assessment of United States
also lays emphasis on charitable organizations operating in, sending funds to, or with affiliated organizations in
areas, including Pakistan34. This warrants reporting entities and competent authorities monitoring, enforcement
and due diligence with regards to the two entities and any associated NPOs therewith.
34
https://home.treasury.gov/system/files/136/2018ntfra_12182018.pdf
54
208. With regards to sources of funding, the statistical data, intelligence and other reports suggest that both
JuD and FIF derive their revenue primarily from donations, skin/hides collection during Eid-ul-Azha, zakat and
any revenue from the facilities owned or controlled by these entities. Besides, the organizations also raise funds
through donation boxes in the markets, specific calls during Juma prayers for Chanda collection and financial
assistance from sympathizers in the Middle East and other countries. The funds are raised, moved or stored,
mostly through cash due to implementation of AML/CFT regulatory controls by financial institutions following
the application of the UNSC 1267 Sanctions regime against these organizations.
209. While there is currently no evidence available on criminal funding sources of JuD and FIF in the country
(such as kidnapping for ransom, extortion, dacoity etc.), in view of the seizure of their assets and actions to
prevent fund raising through donations/skin hides etc., a risk- based approach by LEAs is imperative in case these
entities resort to any criminal activities to raise funds. LEAs should also continue to monitor the affiliated
individuals to prevent any fund-raising activity, directly or indirectly.
210. In terms of transnational movement or transfer of funds, cash courier and Hawala/Hundi, in view of
their vulnerability, may be more attractive channels for funding (Terrorist Financing Assessment 2018 of
Canada35, for instance). The possibility of transnational movement of funds by these organizations for any
charitable work in foreign countries also requires strict due diligence by financial institutions and LEAs. Therefore,
all sources of income and channels for movement or transfer thereof, both formal and informal, must be
incorporated in the risk-based strategies of LEAs, financial regulators, reporting entities and other authorities
with regards to the two entities. This includes DNFBPs for undertaking necessary due diligence and measures to
mitigate the risk.
211. There may be a few disgruntled elements of the organization involved in criminal activities. Given the
domestic and UN proscription/ designation of the entities, the collection of funds through large charitable
facilities, fund raising through sympathizers and the large number of assets taken over across the country and
risk associated with such assets, the terrorism threat and its impact on TF posed by JuD and FIF is assessed as
Medium-High.
iv. Taliban/ Tehreek-e-Taliban Afghanistan (TTA)
212. The Taliban emerged in Afghanistan in 1994 as a group that combined both Afghan Mujahedeen having
previously fought against the 1979 Soviet invasion and groups of Pashtun tribesmen. Taliban took control of
Afghanistan in 1996 and declared it an Islamic emirate. Following the 2001 NATO invasion of Afghanistan, Taliban
were ousted from power but has since been attempting to reclaim control of its lost territory. The control of a
considerable part of Afghanistan still rests with Taliban, particularly in the southern provinces of Helmand,
Nimroz, Uruzgan, Zabul and Ghazni.
213. The entities and individuals affiliated with Taliban (and AQ) were designated pursuant to UNSC
Resolution 1267 (1999) adopted on 15 October 1999. Subsequently, on 17 June 2011, the UNSC
adopted resolutions 1988 (2011) and 1989 (2011) splitting the sanctions regime into Taliban and AQ respectively.
35
http://www.fintrac-canafe.gc.ca/intel/assess/tfa-2018-eng.asp
55
The UNSC has designated individuals and entities on the 1988 Sanctions List as individuals, groups, undertakings
and entities associated with the Taliban in constituting a threat to the peace, stability and security of Afghanistan.
214. The persistence of Taliban presence in Afghanistan derives its strength from its ability to exploit the
weakly regulated economy of the country. The Global Terrorism Index 2018 provides that Taliban increasingly
leverage criminal networks to raise funds and levy taxes on narco- production, its sale and smuggling.36 The group
also profits in large part from the unofficial economy, imports, exports, besides exploitation of natural resources,
taxes on opium farmers, etc. The revenue generation of Taliban is partially being financed by excavation of
various minerals and precious elements. For example, Afghan Talc, which is in high demand in American and
European markets and generates revenue for the Taliban. The largest single market for them is the United States,
with European countries not far behind37. Similarly, lapis mines are also leading to conflict between armed groups
in Afghanistan. These armed groups may be earning up to 20 million dollars per year from Afghanistan’s lapis
mines, the world’s main source of the brilliant blue lapis lazuli stone.
215. CTDs’ recent information provides that TTA is only active in KP where its 4 TF cases have also been
reported. Another 13 cases reported or investigated relating to TTA of which 04 persons have been convicted.
Moreover, there is one STR generated by financial institutions with suspicion of an individual associated with
Taliban which is under investigation by FIA.
216. For transfer of funds inside and outside Afghanistan, Taliban relies mostly on smuggling of goods outside
the state’s financial cash couriers and informal money transfer systems, such as Hawala/Hundi. Although, Afghan
Transit Trade is conducted under Afghan Pakistan Transit Trade Agreement and the relevant rules, there is a
likelihood that a small portion of this Afghan Transit cargo is transported back into Pakistan through irregular/
unfrequented routes, but the same has also significantly diminished because of fencing on most of the border
and strict enforcement by Customs and border security agencies. These circumstances and Pakistan’s long
porous border with Afghanistan pose a considerable TF threat with regards to Taliban.
217. Since the Afghan war period, several million Afghan refugees have been living in various camps and
other areas of Pakistan. These camps provide an opportunity for members affiliated with the Taliban to take
shelter. The porous border with Afghanistan and the frequent cross-border movement of persons creates
vulnerability for illegal activities for the organization, including TF. In order to mitigate this threat and formalize
undocumented transactions by Afghan refugees, the State Bank of Pakistan on instructions from the Federal
Government has recently instructed all banks and DFIs that they could open accounts of Afghan refugees and
use the Proof of Registration (POR) cards issued by the National Database and Registration Authority (NADRA)
for the purpose. Despite, this recent step by the Government to monitor financial activities of the refugees, the
threat posed by undocumented Afghan refugees (without POR cards) would continue to pose threats and
challenges.
218. Given the above analysis, criminal and other sources of its revenue, the channels used for transfer or
movement of funds and Pakistan’s long porous border with Afghanistan, incoming TF threat, the terrorism threat
and its impact on TF posed by the Taliban is assessed as Medium High.
36
http://visionofhumanity.org/app/uploads/2018/12/Global-Terrorism-Index-2018-1.pdf
37
https://www.globalwitness.org/en/campaigns/afghanistan/talc-everyday-mineral-funding-afghan-insurgents/
56
v. LeT
219. LeT was founded to launch a struggle against Soviet occupation of Afghanistan in the 1980s. The US
State Department in 2001 designated LeT as a foreign TO. In the wake of serious allegations against the group
for involvement in terrorism incidents, LeT was also proscribed by the Government of Pakistan in 2002 under the
Anti-Terrorism Act,1997. A large number of individuals affiliated with LeT have also been proscribed.
Subsequently, in 2005, the group was listed by the United Nations Security Council 1267 Sanctions Committee
and targeted financial sanctions against the entity remains in place. The UN 1267 Sanction Committee has also
listed JuD and FIF as aliases of LeT.
220. There are three terrorism related cases registered by CTD Punjab of which two persons have been
convicted. Moreover, there are 12 TF cases reported by the CTDs against persons associated with the
organization of which one person has been convicted. These TF cases reflect Chanda collection and misuse of
NPOs as the primary source of income. There are also accusations against the group for its involvement in the
Mumbai attack of 2008. The case against the entity and some of its affiliates remain under trial.
221. With regards to sources of funding, the statistical data, intelligence and other reports reveal that until
2002 the group primarily collected funds through public fundraising events, usually through charity boxes in
shops and mosques, or through donations at its offices. The organization also used to collect funds through crop
cultivation and skin hides collection at the event Eid-ul-Azha. It further received funds from certain Islamic non-
governmental organizations and charitable donations from the Gulf States and United Kingdom. The group may
also have diverted revenues and tuition fees raised from its institutions, madrassas, medical clinics and services.
222. As a result of LeT’s proscription and implementation of targeted financial sanctions, LeT’s ability to raise
funds and operate as an organized group has been largely curtailed, however, it is possible that some members
of LeT may still exploit the vulnerability of the charitable sector for raising funds. The TF Risk Assessment Report
issued by Canada in 201838 also suggest that LeT is unique in its operations and has taken advantage of the social
capital it gains through its activities.
223. Before proscription of the entity in 2002, LeT may have exploited the traditional banking channels by
seeking funds through its website for charitable purposes, through which expatriates legally move money into
Pakistan. However, after its proscription, the funds were raised, moved or stored, mostly through cash or
Hawala/Hundi since implementation of UNSC 1267 Sanction Regime against the entity and the consequent
AML/CFT enforcement in financial institutions has made it difficult for it to use financial sector for storing and
moving funds.
224. The financial institutions have reported nine STRs on bank accounts related to the individuals associated
with LeT for the period 2016 onwards. The FMU has analyzed these STRs and disseminated five financial
intelligence to FIA (containing multiple STRs) for investigation. Moreover, the financial institutions have also
frozen three bank accounts of the persons proscribed under ATA, 1997 associated with the LeT.
38
http://www.fintrac-canafe.gc.ca/intel/assess/tfa-2018-eng.asp
57
225. Since JUD and FIF are designated by the UNSC as aliases of LeT, the possibility of abuse of JuD/FIF
financial resources by LeT cannot be ruled out. Moreover, it has been observed that LeT tried to resurface
numerous times by changing its name for the purpose of avoiding the ban imposed by the Government of
Pakistan. Its modus operandi had been to raise crowd funding for legitimate global Islamic causes including
Kashmir and Palestine, and in the process seek legitimacy for its actions. One such attempt was thwarted by the
Government of Pakistan when LeT tried to resurface under the banner of “Tehreek-e-Azadi Jammu and Kashmir”
(TAJK). Once it was established that TAJK was acting on behalf of LeT, the Government of Pakistan proscribed the
group under Anti-Terrorism Act 1997 in June 2017.
226. Moreover, according to the Monitoring Team of UNSC 1267 Sanctions Committee, LeT is reported to
have close connections and cordial relations with the Taliban, AQ, HQN and the Daesh-KP inside Afghanistan. It
was also reported to the Monitoring Team that many Daesh fighters in Kunar and Nangarhar had originally been
affiliated with LeT, while another group of LeT fighters located in the Dangam district of Kunar were under Taliban
control, but also had cordial relations with ISIL forces in the area.39 In view of the above analysis, funding sources
and channels for movement of funds, foreign funding through sympathizers, the terrorism threat and its impact
on TF posed by LeT is assessed as Medium-High.
vi. Haqqani Network (HQN)
227. The Haqqani Network rose to prominence in the 1990s, fighting in the Soviet-Afghan War alongside the
Taliban in Afghanistan. The HQN is part of the Tehreek-e-Taliban Afghanistan (TTA) and primarily operates from
eastern Afghanistan.
228. Since the Afghan war period, several million Afghan refugees have been living in various camps and
other areas of Pakistan. These camps provide an opportunity for members affiliated with HQN or TTA to take
shelter. Previously, some affiliates of HQN operated from North Waziristan in Pakistan. However, the
comprehensive military operation Zarb-e-Azb and follow-up operation Radd-ul-Fasaad have dealt a serious blow
to the group. These operations have disrupted organized presence of HQN in Pakistan. A large number of its
members have relocated to Afghanistan. However, in view of porous border with Afghanistan and the frequent
cross border movement of persons, their presence in refugee camps and other areas of Pakistan cannot be
completely ruled out. This also creates vulnerability for illegal activities including TF.
229. The international reports suggest that the organization derives its funding from both licit and illicit
activities which include donations through fund-raising in the Middle East and other jurisdictions, drugs
trafficking, etc. The group may also have benefitted from the drug trade in Afghanistan as well. The group further
resorts to kidnapping for ransom and levying of taxes on businesses and citizens in its area of control. The US
Department of State also reports on the criminal funding activities of HQN such as kidnaping, extortion,
smuggling and other licit and illicit business ventures.40 The primary modes for domestic and transnational
movement of funds includes cash couriers and Hawala/ Hundi. In reason of listing of HQN by UNSC, it is
mentioned that many terrorism incidents in Afghanistan are associated with this entity.
39
Para 58-59 of the Ninth Report of the Monitoring Team for UNSC 1988 Taliban Sanctions Committee.
Available at: https://www.undocs.org/S/2018/466
40
www.refworld.org
58
230. Fundraising activities mainly take place in the United Arab Emirates, Qatar, Kuwait and Saudi Arabia.
Magazines produced by Jalaluddin identified the group as having established local representatives and/or
fundraising offices in Abu Dhabi, Al-Aiyn, Al- Sharqa, Dubai and Bada Zayed in the UAE and Riyadh in Saudi Arabia.
Given the group’s historical presence in these areas, it is not unlikely that they remain the central areas of focus
of the Haqqanis’ Gulf-based fundraising operations today. 41
231. Reportedly, HQN collects regular security payments from local, regional and international businesses
that operate in its zone of influence, effectively selling insurance against itself. The group has specifically
captured or participated in the kidnapping of a number of high-profile individuals, which remains one of the key
sources of its funding, including New York Times journalist David Rohde, the Afghan diplomat Haji Khaliq Farahi
and U.S. soldier Bowe Bergdahl.42
232. The group is also believed to own real estate from Kabul to Dubai, and to run transport and trucking
firms, construction companies and import-export operations. Some of these activities likely emerged organically
out of the network’s need to supply itself with commodities for the war effort, and to build roads and buildings
that support network operations. However, one of the great challenges in identifying the Haqqanis’ licit business
interests is proving that network leaders are owners or part owners of the businesses. 43
233. There are 10 cases reported by KP CTD against persons associated with HQN. In the regional context, a
number of terrorism attacks in Afghanistan are attributed to HQN. According to some of the international
reports44, including risk assessments, the group may have some funding sources in Pakistan but most of such
sources may emanate from Afghanistan. However, it is problematic to assume that everyone providing funds to
the HQN either knows they are doing so, or is doing so because they support the network’s ostensive ideology.
Across Pakistan and Afghanistan, where openly raising money for the Haqqanis has become a more risky concern,
reportedly the network representatives simply claim they are collecting Islamic taxes, or raising money to support
Islamic causes through network of various Madrasahs in the Afghanistan and Pakistan border region. This
necessitates that the law enforcement agencies, reporting entities and other authorities adopt a proactive risk-
based approach with regards to HQN and persons affiliated therewith, particularly in the context of cash
smuggling, donations given to madrassahs and Hawala/ Hundi with neighboring Afghanistan.
234. In view of the above analysis, the collection of funds through licit and illicit sources, fund raising activities
in various countries, incoming TF threat, the terrorism threat and its impact on TF posed by HQN is assessed as
Medium-High.
vii. Jamat-ul-Ahrar (JuA)
41
For historical reference regarding Jalaluddin’s fundraising activity during Hajj trips see “Interview with Steve
Coll,” PBS Frontline, (no date), www.pbs.org/wgbh/pages/frontline/taliban/interviews/coll.html
42
See, Haqqani Network Financing – Report published by Combating Terrorism Center at West Point by Gretchen
Peters, available at: https://ctc.usma.edu/app/uploads/2012/07/CTC_Haqqani_Network_Financing-
Report__Final.pdf
43
as above ref. 42
44
as above ref. 42
59
235. Jamaat-ul-Ahrar (JuA) was formed in Afghanistan in 2014 by Umer Khalid Khurasani. JuA is a
militant group that split away from the TTP. In September 2014, TTP chief Mullah Fazlullah ousted Mohmand
Agency chief Omar Khalid Khorasani. Omar Khalid Khorasani and his associates in Mohmand Agency had accused
the TTP leadership of deviating from the TTP ideology which led to the formation of splinter group TTP - Jamaat-
ul-Ahrar. The TTP was effectively divided into two factions. In February 2014, Ahrar-ul-Hind, headed by Maulana
Umar Qasmi (former leader in the Lashkar-e-Jhangvi) was formed. It later merged into Jamat-ul-Ahrar, a second
splinter group that broke away from TTP in Pakistan in 2014, and Omar Khalid Khorasani was selected as its
commander. It was reported in October 2017 that he had died in a drone strike carried out by United States
in the Paktia Province of Afghanistan. However, reports later emerged disputing his death. In February 2017, JUA
launched Operation “Ghazi” in reaction to Operation “Radd-ul-Fasaad”.
236. JuA has been proscribed by the Government of Paksitan on November 11, 2016 and a number of
associated persons have also been proscribed. As per CTDs information, the total number of terrorism cases
reported against JuA are 53 of which 28 persons have been convicted. Total casualties all over the country by JuA
include 95 dead and 484 injured. Moreover, there are 14 TF cases reported against the organization reflecting
extortion and foreign funding as the primary source of income.
movement of funds, the terrorism threat and its impact on TF posed by JuA is assessed as Medium High.
viii. Balochistan Liberation Army (BLA)
238. Balochistan Liberation Army (BLA) was formed in Balochistan by Harbiyar Marri. It is a militant
organization carrying out violent activities in the Balochistan province. Reportedly, it is headed by Nawabzada
Harbiyar Marri who is residing in the UK for a long time. Since 2004, the BLA has waged an armed struggle against
the state of Pakistan. The BLA is operating mainly in Balochistan, the largest province of Pakistan where it carries
out attacks against the Security Forces. The BLA became publicly known during the summer of 2000, after it
claimed credit for a series of bombing attacks on Pakistani authorities.
239. BLA has been proscribed by the Government of Pakistan on April 7, 2006. The UK also designated the
organization in July 2006. US State Department has also designated BLA on 02 July 201945. As per data from
provincial CTDs, 29 cases have been registered against BLA (mostly in Balochistan province) in which 37 persons
were killed and 30 injured. However, no convictions were reported against BLA. Moreover, there are three TF
cases reported against the organization.
240. According to Intelligence Reports, Indian elements in Afghanistan, are providing covert arms, financial
support, and training to the BLA in an attempt to destabilize Balochistan. After the death of Aslam Baloch alias
Achu in Kandahar, Afghan officials claimed that the Afghan police Chief Abdul Raziq Achakzai has housed Aslam
Baloch and other separatist in Kandahar for years. Similarly, Afghan media outlet, Tolo News also claimed that
Aslam Baloch has been residing in Afghanistan since 2005. Previously the BLA leader, Balach Marri, was also killed
in Afghanistan. Moreover, experts presume that smuggling could also be a large source of income for the BLA.
45
https://www.state.gov/terrorist-designations-of-balochistan-liberation-army-and-husain-ali-hazzima-and-
amendments-to-the-terrorist-designations-of-jundallah/
60
241. The major sources of BLA funding are criminal activities and HIAs’ funding, especially RAW and NDS. The
presence of some leaders of the organization are also reported in Iran. Reportedly, the organization also derives
funding from extortion from mine owners and kidnapping for ransom. The preferable channels for transfer of
funds are reported as cash transfer through borders, banking and Hawala/ Hundi. Recently, an Intelligence
Agency shared TF related intelligence with CTD Balochistan, based on which a few TF cases with alleged use of
banking channels have been initiated.
movement of funds, the terrorism threat and its impact on TF posed by BLA is assessed as Medium-High.
ix. Balochistan Liberation Front (BLF)
243. Balochistan Liberation Front (BLF) was formed in Damascus in 1964 by Jumma Khan Marri. It is a militant
group which played an important role in the 1968-1980 insurgency in Balochistan and border areas in Iran. The
BLF had support from Arab nationalist leaders i.e. Mir Hazar Ramkhani, the father of Jumma Khan Marri. From
1968 to 1973, the BLF was supported by Iraq in the Iranian Baloch revolt.
244. As per data from provincial CTDs, 40 cases of BLF were reported (mostly in Balochistan province) in
which 45 persons were killed and 76 injured. Conviction of one person has been reported. Moreover, there are
six TF cases reported against the organization.
245. The main sources of BLF finances are foreign funding and HIAs, especially RAW and NDS. The
organization also derives funding from collection of extortion money from businessmen/contractors/landlords
and kidnapping for ransom. The channels used or transfer of funds include cash couriers and hawala/hundi. Given
the above analysis, criminal and other sources of its revenue, the channels used for transfer or movement of
funds, the terrorism threat and its impact on TF posed by BLF is assessed as Medium High.
x. Lashkar-e-Jhangvi
246. LeJ was Formed in Lahore in 1995 by Akram Lahori, Riaz Basra and Malik Ishaqas a breakaway group of
Sipah-e-Sahaba Pakistan (SSP). LeJ has been led by Riaz Basra (1995 to 2001), Akram Lahori (2001 to 2002),
Rizwan @ Asif Chotu (2002 to 2003), Nadir Khan (2003 to 2004), Malik Ishaq (2011 to 2015), Rizwan @ Asif Chotu
(2015 to 2017). After the killing of Aisf Chotu on 17.01.2017 no new leader has been appointed as yet. LeJ
remained silent from 2004 to 2010 due to non-availability of proper leadership.
247. LeJ has existed over the years as one of the most secretive organizations mostly involved in attacks on
Shiite Muslims whom they claim are Kafirs (Infidels). In 1997, the greatest number of sectarian activities, around
97, were observed in Punjab. Afterwards, it extended its sectarian activities to all over Pakistan. It set up its base-
camp in Kabul, Afghanistan and trained its members in training centers established there who carried out bomb
blasts, killings, bank dacoities and other heinous crimes. Since its creation, LeJ has often been responsible for
fueling sectarian violence. Its version of the Deobandi movement considers Shias infidels and aims to drive them
out of the region. Beginning in 1996, the group promoted its sectarian agenda through violent means including
61
suicide bombings, assassination attempts, armed assaults, and kidnappings. The aims and objectives of the
organization are to enforce Khilafat in Pakistan, oppose Shia Sect and implement Shariah in the country.
248. As per data from provincial CTDs, 137 cases were reported in which 80 persons were killed and 54 were
injured. Conviction of 42 person have been reported. Moreover, there are 43 terrorist financing cases reported
against the organization primarily emanating from donations/chanda collection and target killing as sources of
income.
249. Given the above analysis and other sources of its revenue, the channels used for transfer or movement
of funds, the terrorism threat and its impact on terrorist financing posed by LeJ is assessed as Medium High.
250. Sources and channels assessed for the eight entities of concern (rated either High or Medium High) are
summarized below:
S. No. Organization Sources Channels

1 Daesh  Foreign funding  Illegal MVTS
 HIAs  Cash Couriers
 Donations  Western Union
 Fund raising  Money Gram
 KFR  Banking
 Extortion  Paypal
 Bank heist  Crypto Currencies
 Human trafficking
2 TTP  HIAs  Paypal
 Extortion  Illegal MVTS
 KFR  Cash Couriers
 Donations / Zakat  NPOs
 Levy of Narco Trafficking in  Western Union/Money Gram
Afghanistan  Branchless banking
 Drugs smuggling  Crypto Currencies
 Robberies
 Sale purchase of hostages across
Durand line
 Skin hides
 Fraud and financial scams
 Tax on trafficking of contraband
items
3 TTA  Extortion  Illegal MVTS
 KFR  Cash smuggling
 Narco trafficking
 Goods smuggling
4 Al Qaeda  Foreign funding  Illegal MVTS
 HIAs  Cash carriers
62
 Donations / Zakat  Paypal
 Fund raising  Business ventures
 KFR  Health care
 Extortion  NPOs
 Skin hides  Western Union/Money Gram
 Publishing houses  Branchless banking
 Target killing  Crypto currencies
 Fraud and financial scams
 Bank robberies
 Drug trafficking
5 JuD/FiF  Donations  NPOs
 Skin hides  Cash
 Madaris
 Hospitals
 Dispensaries
 Educational institutes
6 LeT  Fund raising  NPOs
 Donations  Cash
7 JeM  Fund raising  NPOs
 Donations  Cash
8 HQN  Fund raising  Illegal MVTS
 Drug trade  Cash smuggling
 Extortion
 KFR
 Smuggling
Organizations assessed as Medium Threat
251. There are 08 organizations assessed as Medium which are SSP, LeJ-Al-Almi, UBA, BRA, BLT, BRAS, HuA
and Unknown. As per data from provincial CTDs, there are varying numbers of cases reported on these
organizations. The number of cases and level of impact from the threat posed by these organizations are lower
than that of the organizations placed in Medium High category. The main sources of financing of these
organizations vary from each other in some cases but broadly includes foreign funding/HIAs, extortion,
kidnapping for ransom and donation/chanda collection. The channels used for transfer of funds by these
organizations include Hawala/Hundi, cash and the banking channel.
Organizations assessed as Medium Low/ Low Threat
252. The remaining 21 TOs are assessed as Medium Low/Low which include Jesh-ul-Islam, Lashkar-i-Islam,
SMP, Lashkar-e-Balochistan, Balochistan Republican Guards, Self-radicalized (lone wolf) terrorists, Hazb-ul–
Tehrir, Ahl-e-Sunnat Wal Jamat, Tehreek-e-Jafaria Pakistan, Jeay Sindh Mottahida Mahaz, Harkat-ul-Mujahideen,
63
Tehreek - e- Taliban Swat, Al-Badar Mujahideen, Ansar-ul-Shariya, Balochistan Waja Liberation Army, Baloch
Republican Party Azad, Balochistan United Army, Balochistan National Liberation Army, Balochistan Liberation
United Front, Baloch Student Organization Azad, Balochistan Muslla Defa Tanzeem.
253. The assessment of organizations falling in Medium-low category depends on their respective
circumstances. The TF threat of these organizations is on the lower side because a) the terrorism or TF cases
investigated or reported are significantly low and/or; b) the threat is decreasing over a period of time. The main
sources of finances of these organizations vary from each other in some cases but broadly include foreign
funding/ HIAs, extortion, kidnapping for ransom and donation/Chanda collection. Mostly cash is used by these
organizations for transfer of funds. The organizations falling in the Low category, however, have been mostly
dormant for quite some time, or do not have any reported cases or activities during the assessment period.
Overall assessment
254. The overall TF threat was originally assessed as Medium when the TF Risk Assessment was
completed in December 2018. However, after taking into account additional information with regards to entities
of concern, the TF threat elevated to Medium-High in April, 2019. Now, this updated NRA has taken into account
additional factors such as transnational TF risk analysis, a steep increase in TF investigations and prosecutions
since April 2019, cases in respect of certain sources and channels and updated data concerning the eight entities
of concern (EoC) and other TOs, the overall TF threat of country is assessed as High.
64
Chapter 6: Assessment of the Inherent ML/TF Vulnerabilities by Sector
6.1 Overview
255. The financial sector of Pakistan consists of banks, non-bank finance companies (NBFC) & modarbas,
asset management companies & collective investment schemes (AMC & CISs), and other financial institutions
including exchange companies (ECs), development finance institutions (DFIs), the Central Directorate of National
Savings (CDNS), and the Pakistan Post Office, brokers and investment advisors, and insurance companies.
256. The DNFBP sector comprises real estate dealers, dealers in precious metals and stones (mostly jewelers),
auditors and accountants, lawyers and notaries. Lawyers engage in company service providers (CSP) activities
but there is no separate category of CSPs in Pakistan. Trust services are not offered by any specialized service
providers in Pakistan; however, for the purpose of establishment of trusts, services of lawyers may be obtained.
257. The inherent vulnerabilities of the financial and DNFBP sectors were assessed by considering the sector’s
economic significance, the products and services offered, the customers, the geographic reach, and delivery
channels available. The ratings of the sectoral inherent vulnerabilities considered both ML/TF elements together.
Information on how products or sectors are being exploited for ML and/or TF was also provided when available
in Chapters 4 and 5.
Table: T-6.1: Sectoral Assessment of Inherent ML/TF Vulnerabilities
Inherent ML/TF Vulnerability of Sector

Sector Breakdown (and Number of Entities)
2019 2017
Banking (34) High Medium
MFBs ( 11) High NA
Exchange Companies (27) High Medium Low
Exchange Companies –B (25 High Medium
Real Estate Dealers (n.a.) High Medium High
Hawala/Hundi/Other Illegal MVTS High High
CDNS (1) High Medium Low
Pakistan Post (1) High Low
Lawyers & Notaries (n.a.) Medium High Medium Low
Securities (536) Medium High Medium
AMCs (19) & CISs (314) Medium High Medium
Dealers in precious metals and stones (n.a) Medium High Medium High
NBFCs (38) & Modarbas (28) Medium High Low
Auditors and accountants (591) Medium Low
Life Insurance (9) Medium Medium
65
Non-Life Insurance (40) Low Medium
DFIs (9) Low Low
6.2 Banking (High Vulnerability)
258. Banks hold more than 75% of the financial-sector assets. The majority of banks are owned by the private
sector. As of March 2019, aggregate assets held by the banks were Rs. 18.585 trillion. As of March 2019, the
banking sector consisted of 25 conventional commercial banks with 89.98% of banking system assets, 4
specialized banks with 1.2% of assets, and 5 Islamic banks with 8.82% of assets. The banking sector comprised of
14,380 branches. In order to provide financial services to the remote and underdeveloped areas, banks are
required to open at least 23% of their branches in rural and underserved areas.
6.2.1 Products
259. The major products offered by the banking industry include current accounts, saving accounts, term
deposits, foreign currency accounts, and various types of loans including trade finance, consumer loans, working
capital finance, term/demand finance and project/syndicate financing. Current accounts, being non-
remunerative and hence comparatively more attractive to banks, may result in onboarding undesirable clients
in pursuit of meeting deposit targets. Credit cards are accepted as a means of payment worldwide and are the
easiest way to effect cross border movement of funds. Further, certain other features, such as usage of assigned
credit limits multiple times within one billing period by paying off the balance, sharing the card with third parties
who remain unknown to the card issuing institution make it more susceptible to the ML/FT risk. Trade financing
products involve cross border movement of fund and bear the risk of trade-based ML by under/over invoicing,
short/over shipment, obfuscation types of goods/ services, and multiple invoicing and phantom shipments. In
Pakistan, foreign currency accounts can be fed with remittances received from abroad, other than commercial
remittances, while individuals, other than resident non-filers, can also deposit cash in their foreign currency
accounts. The foreign exchange so available in these accounts can be transferred outside Pakistan or utilized
within Pakistan after converting them into Pak Rupees. These features make foreign currency accounts
vulnerable for ML.
Current Accounts
260. Current accounts comprised of 34.02% of total banking deposit as of December 31, 2018. Current
deposit accounts are the entry to the formal financial system and mainly used for business purposes by both
natural and legal persons.46 Because current accounts are the most common way to make payments and transfer
funds, the accounts may be used for settlement of international (Hawala) transactions, in addition to settlement
through cash, therefore the high risk rating was assigned to current account. The following case study is a
representative case of settlement through current account:
46
Current accounts are typically do not pay interest. Therefore, banks seek to increase the proportion of current
deposits to other forms of debt so as to lower their average cost. To do so banks provide different incentives to
such account holders including cost-free banking services on transfer of funds.
66
Case Study
SBP received information through media that an account belonging to an individual Mr. ZTK has been used
for carrying out transactions up to Rs. 8 Billion. Considering the media news, SBP obtained data/information
from different banks on accounts belonging to the individual Mr. ZTK. It was found that Mr. ZTK, had opened
eight current accounts in four different banks. Five current accounts were maintained in Bank 1, and one
current account each in Bank 2, Bank 3 and Bank 4. All these accounts were opened in the name of a
proprietorship concern (M/S XYZ Enterprises).
Review of accounts highlighted that approximately Rs. 4.769 billion (mostly open/bearer cheques) were
deposited in one of the accounts in Karachi, from unrelated counterparties maintaining current accounts in
Karachi and other cities of Pakistan. Approximately Rs. 3.853 billion from this amount was further transferred
to M/S XYZ enterprise’s current account in high-risk area (Buner), from where it was distributed to other
unrelated counter parties in other high-risk areas. These counterparties withdrew the amounts in the form of
cash.
It was further observed that Rs. 188.18 million was directly credited to Mr. ZTK’s current account in Buner,
which was withdrawn in cash. It is suspected that cash transactions in high-risk geographies (border area with
Afghanistan) are likely used to:
 Settle inward home remittances, which were to be received from abroad through Hawala/Hundi,
 Make payment for smuggled/under invoiced goods,
 Purchase foreign currency to smuggle out of country, and
 Settle trade transactions with trade partners in Afghanistan.
Upon inquiry by the banks, Mr. ZTK accepted that he had opened most of these current accounts to facilitate
his close friend who deals in Hawala/Hundi business.
The use of current accounts for routing suspicious funds has commonly been noticed.
Credit Cards
261. As of 30th June, 2019, there were 1.6 million credit cards in circulation in Pakistan. These cards processed
39.2 million transactions with a value Rs. 217.13 billion during FY 2019. The total volume of credit card
transactions has 85.6% share of point of sale transactions and 13.9% share in e-Commerce transactions.
262. Credit limits are assigned to each customer, who can charge up to the limit on a revolving basis. In
addition, the customer can withdraw cash, but this is generally fixed at a certain percentage of his/her assigned
limit. By having such limits, credit cards are not as vulnerable to ML/TF as demand deposits, which have none.
However, most banks allow customers to increase the amount of credit available over time without close
monitoring of the number of top ups per month, and some of the reported STRs indicated involvement of credit
cards for layering of suspicious funds through unusual transactions to top up credit cards by abnormally large
amounts. Also, cards can easily be shared/transferred among persons without notice. While such ability to
engage in cross border transactions, transferability/sharing of credit cards to/with third parties without notice,
and top-ups increase the vulnerability of credit cards for ML/FT activities, they are still materially less vulnerable
than demand deposits.
67
Trade Finance
263. Trade finance constituted 14.08% of overall banking sector loans as of September 30,- 2018. Trade
related transactions, due to their very nature, may be used for the purpose of disguising the proceeds and moving
value in an attempt to legitimize the illicit origin of proceeds and have an inherent vulnerability for ML/TF. The
heterogeneous nature of a commodities also leaves room for under/over invoicing and false
description/incorrect information of goods thus making trade transactions as a conduit for hiding the origin and
source of illicit money and channelizing the same into the formal financial system.
264. In cash-based trade with Afghanistan, the exporters are allowed to deposit foreign currency in cash as
export proceeds. Further, foreign currency deposited in the bank by the exporters are received from the agents
of Afghan importers in Pakistan. However, the banks may not ascertain if the foreign currency deposited on their
counters on account of payment against exports were truly provided by the importers in Afghanistan. The
practice has enhanced potential risk of being exploited for settlement of Hawala/Hundi transactions.
Case Study
SBP received a communication from Federal Board of Revenue reporting the suspected over-invoicing in
import of Solar PV Panels under the tariff free HS Code 8541.4000. SBP carried out a detailed review of the
data of import of Solar Panels carried out through banks during past two years. Subsequently, an on-site
inspection of three banks was carried out covering 73.35% of the total volume of import of solar panels. The
data analysis and on-site inspection report highlighted the following observations.
As per the data, unit price (per watt) of solar panels ranged from 20 cents up to USD 2.88 whereas the normal
price range mentioned in the communication from Model Customs Collectorate, GoP was up to 40 cents per
watt. Out of total import under subject HS code, 94.60% trade was done with the suppliers from one country.
Considering the 40 cents per watt as the benchmark price (as quoted by Model Customs Collectorate), it was
estimated that an amount of USD 259.100 million was over invoiced in imports under HS Code 8541.4000 at
the selected banks during the period.
The transactions were highly concentrated in few branches and were being carried out largely by the same
parties at the reviewed banks. The aforementioned entities were involved in import of various commodities
such as footwear, apparel & accessories, electronic items, electrical parts, solar panels etc. These customers
were operating through more than one accounts depicting high turnover and featuring frequent high value
cash transactions.
An appropriate mechanism to address the risk of ML/TF through over-invoicing did not exist in the banks. The
trade processing functions were not reviewing the import transactions for price verification.
A meeting was conducted with the Pakistan Solar Panel Association (PSA), which is constituted by the
importers of solar panels in the country, to discuss the matter and seek their views. It was revealed by the PSA
representatives that none of the entities identified by SBP inspection were in the mainstream business of Solar
Panel, nor were they members of the PSA.
68
Foreign Currency Accounts47
265. Opening and free operation of foreign currency deposit accounts by residents as well as non-residents
is permitted in Pakistan. Residents may purchase foreign currency with PKR from exchange companies and the
filer can deposit these in their foreign currency accounts. They are allowed under the law to remit any amount
to foreign jurisdictions for the licit purposes as prescribed in the regulations. The following is a representative
case study where these accounts have been used for remitting significant sums without any apparent purpose,
thus posing inherently high ML/TF risk.
Case Study
During regular onsite inspection of a bank in 2018, the data pertaining to foreign currency accounts and foreign
remittances of the bank for the period from July 1, 2016 to June 30, 2018 was examined by the inspection team.
The inspection team noted 43 foreign currency accounts which had a high volume of transactions of foreign
outward remittances. Out of them, eight accounts pertained to the same family. The total volume of transactions
of foreign remittances from these eight accounts during the period of two years in USD & GBP was equivalent to
Rs. 1.396 billion.
The SBP inspection team observed that the customer and his family were running a school in Pakistan. The
remittances sent from a personal foreign currency account, which as per existing rules, can only be used for
personal needs and not for commercial/business purposes.
Foregoing in view, the huge volume of transactions of foreign remittances outside Pakistan from these accounts,
without clear purpose and rational, pose inherently high ML risk.
6.2.2 Types of Customers
The section below analyzes the risk deriving from the client base of banks, looking at high-risk typologies of
clients.
266. Politically Exposed Persons (PEPs)

As per information provided by the banks, PEPs maintained 21,306 accounts out of the total deposit base of Rs.
118.097 billion as of September 30, 2018. PEPs hold positions of power and influence, thus potentially making
them and their close associates more susceptible to corruption. The proceeds of corruption (or other crime)
could be consolidated or routed through the banking channels for the purpose of ML. Recently, cases of identity
theft have been uncovered where PEPs used front men operating benami accounts. The National Accountability
Bureau (NAB) is presently investigating such types of cases involving PEPs.
47
These accounts are not permitted to be used for trade purposes and subject to adherence of rules and
regulations as prescribed in the Foreign Exchange Regulation Act 1947, Protection of Economic Reforms Act, 1992
and Foreign Currency Accounts (Protection) Ordinance, 2001.
69
267. General Traders

General traders carry out their businesses in the form of sole proprietorships, partnerships and, on occasion,
private limited companies. General traders tend to deal with large numbers of different items and maintain a
diverse set of counter parties/suppliers. Moreover, the types of items being traded tend to change with the
change of seasons and business cycles. These traits make it difficult for the banks to conduct the risk profiling of
such business relationships and monitoring of their accounts. Such types of customers receive and remit funds
to unrelated businesses/professions without creating any suspicion to be noted by banks. In various cases,
Hawala/Hundi operators have been found using such accounts. Banks have been filing STRs wherever such
activities have been uncovered.
268. DNFBP Accounts

In the DNFBP sector, real estate dealers and jewelers pose high inherent vulnerability due to their limited
regulatory regime. Bank accounts of these DNFBPs may also serve as an avenue to hide funds of money
launderers. The funds in their accounts may possibly come from some of their customers involved in criminal
activities, therefore, the threat of such banking relationships is considered to be high. NAB is presently
investigating several cases in which the real estate sector was reportedly used to launder the proceeds of crime.
The inherent vulnerability of DNFBPs accounts to the banking sector ranges between medium to High
(Real Estate High; Jewellers Medium High; Accountants and Lawyers medium48).
269. Exchange Companies and their employees

There have been instances where employees’ accounts of exchange companies were used as a conduit for third
party transactions, apparently for parallel hawala transactions. This raises the vulnerability rating to a medium
high for ML/TF.
270. Unlisted Legal Entities

Some of the legal entities which are not listed on recognized stock exchanges, may have complex ownership
structures for disguising the ultimate beneficial control and especially ownership. Often the overseas associated
and controlling companies of such entities are used in movement of funds in the name of profit repatriation or
capital increase. Complex legal structures may be used to hide the ultimate beneficial owner, resulting in high
inherent vulnerability for ML/TF. Banks are required to conduct due diligence of natural persons holding 20% of
shares in an entity and in case an entity is High Risk this threshold reduced to 10%. Usually the main focus of the
banks is the shareholding pattern, as is required under regulations, rather than actual control of the business.
To circumvent the CDD requirement shareholdings can be split so that they fall beneath the 20% or 10% levels.
In the recent history, bank accounts of unlisted legal entities have allegedly been used for ML purposes and hence
the inherent vulnerability of the accounts of unlisted legal entities is high.
48
Generally lawyers’ personal accounts are used for depositing their professional fees. They do not maintain
omnibus accounts. Therefore, the SBP has concluded that they are medium risk.
70
6.2.3 Geography
271. Customers from high risk areas in Pakistan (e.g. border areas, areas where there is significant ethnic or
sectarian conflict49); overseas branches/subsidiaries/correspondent banks in High Risk Jurisdictions,
imports/exports to/from High Risk Jurisdictions, remittances received from High Risk Jurisdictions are all at high
risk of ML and TF. Additionally, the Government has granted tax exemptions to individuals, companies and
association of persons (AOPs) of former federally and Provincially Administered Tribal Areas. Accounts opened
in these areas are sometimes accessed through online banking services by customers resident in other areas of
Pakistan. In addition, the majority of these areas, being on the bordering areas with Afghanistan, have historically
been used for heavy cash withdrawals, which may potentially be used for payments for the smuggled goods
and/or other illegal activities. The inherent vulnerability for banking sector has been assessed as high in the given
context.
272. It was noted during the inherent risk assessment of banks that the total international transactions
associated with trade carried out with High Risk Jurisdictions in the third quarter of 2018 was Rs. 27.516 billion.
Similarly, home remittances amounting to Rs. 2.489 billion were received from such jurisdictions in the
aforementioned period. Most of the banks have presence in high risk areas of Pakistan, such as the western
borders and the former FATA.
6.2.4 Delivery channels
273. Branchless Banking

This includes mobile wallet accounts, wallet to wallet transfers, account to person transfers, person-to-person
transfers, merchant and bill payments and home remittances. Person-to-person transactions (such as Easy Paisa)
are although small in size yet such transactions are prone to TF risk as these transactions are usually conducted
by the walk-in customers using the branchless banking agents to send and receive money. SBP requires FIs to
prescreen their customers however, branchless banking transactions are conducted in such a huge number (over
40 million transactions annually) that pre-screening the sender or the receiver’s name is difficult. During focused
inspections on implementation of UNSC Sanctions Regime in financial institutions, examiners observed that
certain proscribed persons were able to conduct transactions through branchless banking services.
274. Wire Transfers

In Pakistan, domestic interbank transfers are known as domestic wire transfers that include RTGS, internet
banking, mobile banking, ATM, and payment instruments, while cross border wire transfers are carried out
through SWIFT. In order to complicate the money trail, the criminals usually tend to route their funds through
various financial institutions to layer the transactions. In this process, cross-border transactions are made by
them to hide the suspected funds from the LEAs of the jurisdiction where the predicate offence has been
committed. Similarly, the remitting and recipient financial institutions sometimes do not have complete
information of remitters and/or beneficiaries to intercept the proceeds of crime. As ML and TF are also
transnational phenomena; transnational wire transfers are rated as inherently High risk transactions.
49
See the discussion in Chapter 3.
71
6.3 Microfinance Banks (High )
275. The Microfinance Banks (MFBs) can mobilize local currency deposits from legal and natural persons
belonging to all economic segments, however, their borrowers can only be individuals belonging to low income
segments. As an intermediary, MFBs facilitate channeling of funds between lenders and borrowers. Accordingly,
MFBs deal with a variety of customers belonging to different demographic, economic and geographic segments
over both their retail outlets and the digital channels. Since the MFBs domestically extend deposit services in
local currency they too are faced with threats of ML while dealing with customers with diverse backgrounds
especially PEPs, general traders, DNFBPs, employees of Exchange Companies and unlisted legal entities. The
majority of MFB’s account holders have a lower level of understanding with regards to their roles and
responsibility as an accountholder and are usually less vigilant in monitoring their account activity. Therefore,
accounts of such individuals are more susceptible to misuse. Although the value of loans is low, the risk of TF
cannot be ruled out as a number of locally proscribed persons was recently identified as having received micro-
credit from Microfinance NBFCs. Therefore, the overall vulnerability is rated as High.
6.4 Non-Banking Financial Companies & Modarabas (Medium High Vulnerability)
276. Non-banking finance companies include companies licensed by the SECP to provide investment, leasing,
finance services, and microfinance. There are seven investment banks with Rs. 59.773 billion, six leasing
companies with Rs. 9.989 billion in total assets and 25 non-bank microfinance companies with Rs. 112.740 billion
in total assets as of 31 May 2019.
6.4.1 Products of NBFCs
277. A major risk component of vulnerability to ML and TF is product and services risk, where the main
product/service may be identified based on its general characteristics and the degree of ML/TF risk. However,
due to the fact that some players in the industry offer deposit products, the risk controls generally in use by the
industry need further improvement to mitigate such risks to a considerable extent. The products offered by
NBFCs may be divided into two broad categories:
Investment in Deposit products: These are investment products and both legal and physical persons and legal
arrangements may invest in these products. These have a medium high level of ML vulnerability.
Leasing/ Financing: These have a moderate level of TF risk. Leasing is mostly granted to finance purchase of
plant, machinery and vehicles. However, some NBFCs do offer credit to meet working capital requirements,
where, there is some risk of funds being used for TF. Microfinance NBFCs offer microcredit to individuals with an
aim of poverty reduction. However, there is a risk that proscribed persons/ persons involved in TF activities may
obtain microcredit from these entities and use it for illicit/ TF purposes.
6.5 Modarabas
277. The total number of Modarabas consist of 28 entities with Rs. 53.388 billion in total assets. Modarabas
are institutions formed to comply with the Koranic injunction against the charging of interest. With a Modaraba,
one party (the Modarib or manager) contributes management skills and efforts, while the other party (Rabb-ul-
72
Mal) provides the capital. Most of the Modarabas provide financial services similar to NBFCs, such as Ijarah
(Islamic leasing), Musharika and Morabaha (Islamic financing). The principal line of business for some Modarabas
is renting, manufacturing, and trading (these are classified as non-financial Modarabas). Since the nature of
business, risk profile and the products/services offered by NBFCs and financial Modarabas are similar in nature,
therefore, a collective analysis is provided for these sectors.
278. Alongside customers, the major risk component is products and services risks, where the main
product/service may be identified based on its general characteristics and the degree of ML/TF risk. The products
offered by Modarabas may be divided into two broad categories:
279. Products
These are investment products and both individuals and institutions (including trusts, NGOs) are allowed to
invest in these products. These have a relatively high level of ML risk.
Ijarah (Islamic Leasing)/ Musharika/ Morabaha (Islamic Financing): These have a moderate level of TF risk.
Leasing is mostly granted to finance purchase of plant, machinery and vehicles. However, some Modarabas do
offer credit to meet working capital requirements, where, the risk of funds being used for TF may not be ruled
out.
280. Customers
In terms of number of customers, individuals form the largest group of customers as over 99% of the active
customer accounts in NBFI sector belong to individuals/natural persons (mostly microfinance borrowers). Some
of the categories of customer posing ML/TF vulnerabilities are discussed below.
281. PEPs and High Net Worth Individuals

By definition, PEPs hold positions of power and influence, thus potentially making them and their close associates
more susceptible to corruption, thus posing an ML threat to deposit products.50 Also, information available to
NBFCs and Modarabas on the source of funds invested by high net worth individuals is often unreliable or
unavailable. For these reasons, these customers are rated high risk for ML.
282. Foreign and Non-resident clients

The Customer Identification and CDD information, especially information pertaining to the source of funds, is not
easily verifiable and therefore it is difficult to ascertain if the funds being invested constitute criminal proceeds.
Foreign and non-resident clients may also place funds, the source of which is not verifiable, in the deposit
products offered by NBFCs and Modarabas. Therefore, these customers are rated high risk for ML.
283. Geography
Some NBFCs, especially Microfinance entities have outlets across Pakistan, especially in rural/remote areas.
Branches alongside porous borders/in different provinces are inherently more vulnerable for ML/TF. Pakistan
has porous borders with Afghanistan and areas along KP and Balochistan are therefore critical geographical
50
Recently, cases of identity theft have also been identified where PEPs used front men operating benami
accounts. National anti-corruption agencies are presently investigating such types of cases involving PEPs.
73
vulnerability. Customers from high risk countries for ML/TF may seek a business relationship with a
NBFCs/Modarabas in Pakistan to conduct/facilitate criminal activities in Pakistan. Such customers from high risk
jurisdictions present a higher risk to ascertain the validity and adequacy of the documents presented and to be
familiar with the laws and requirements of foreign jurisdictions.
Delivery channels
284. Cash Transactions

NBFCs and Modarabas are not permitted to deal in cash exceeding Rs 50,000/. Payments and receipts are mostly
made through banking channels. However, customers do not need to have a bank account. Furthermore, most
of the recovery of micro-credit is in the form of cash. This presents a challenge that the movement of funds may
not be easily traceable. However, even though customer transactions with the microfinance sector are
predominantly in cash, this does not pose a serious ML threat due to the small amounts involved.
285. Online transactions

Anonymity, high negotiability and utility of funds as well as global access to cash through ATMs are some of the
major factors that can add to the attractiveness of online transactions for money launders. Anonymity can be
reached either “directly” by making use of truly anonymous products (i.e., without any customer identification)
or “indirectly” by abusing personalized products (i.e., circumvention of verification measures by using fake or
stolen identities, or using strawmen or nominees etc.). Obviously, anonymity as a risk factor could be mitigated
by implementing robust identification and verification procedures. The risk posed by an anonymous product can
also be effectively mitigated by other measures such as imposing value limits (i.e., limits on transaction amounts
or frequency) or implementing strict monitoring systems.
6.6 Asset Management Companies & Collective Investment Schemes (AMCs & CISs) (Medium
High Vulnerability)
286. Asset management companies and mutual funds have grown considerably during last decade. As of May
31, 2019, there are 19 asset management companies managing 202 collective investment schemes, 93
investment plans, and 19 pension schemes with assets under management of Rs. 840 billion. 98% of the active
customer accounts in the asset management sector belong to individuals/natural persons. PEPs and their close
associates, high net worth individuals, foreign and non-resident customers, NPOs/ charitable organizations pose
a higher degree of vulnerability if they are not identified through the KYC/CDD process. Since all the
payments/receipts in this sector are routed through the banking channels, the proceeds of crime could be routed
through the banking channels for investment/placement in the fund/wealth management sector for the purpose
of ML.
287. Complex legal structures may be used to hide the ultimate beneficial ownership by splitting
shareholdings below the prescribed control level thresholds (10%). The products and services offered by the
fund/wealth management sector includes the feature of investment/deposit as well the feature of easy entry
and exit at any time. This makes the sector attractive for ML/TF and therefore is assessed as a level of medium-
high vulnerability.
74
An on-site inspection of one of the largest AMCs (ABC Funds) was conducted March-May, 2019, where its
scope also included review of AML/ CFT related compliance. In reviewing AML/ CFT related compliance, the
inspection team reviewed data maintained by AMC in respective unit holder files and their transactions during
a nine-month period (July 01, 2018 to March 31, 2019). A sample of 70 unit holders was identified for said
purpose.
In case of one of unit holder (Ms. XYZ), a unique pattern of transactions was identified, which raised suspicions
regarding the transactions made by Ms. XYZ. It was noted that during the period, Ms. XYZ had made heavy
redemption and subsequent investment by almost the same amount three times, details of which are
provided below:
Date of Application Transaction ID Transaction Fund

19-Dec-18 1206580 Redemption ABC MONEY MARKET FUND
19-Dec-18 1206581 Investment ABC MONEY MARKET FUND
26-Feb-19 1282271 Redemption ABC MONEY MARKET FUND

26-Feb-19 1282272 Investment ABC MONEY MARKET FUND
28-Mar-19 1313708 Redemption ABC MONEY MARKET FUND

28-Mar-19 1313709 Investment ABC MONEY MARKET FUND
The above pattern of redemption and subsequent re-investment with the same amount in the middle of the
financial year was not justified apparently. Further, documentary evidence pertaining to source of
income/funds was also not obtained/provided, except for visiting card of unit holder/investor of a private
company. ABC Funds, in response to the above finding, stated that the highlighted transactions are of normal
routine nature where the investor carried out redemption as well as investment transactions at the same time
to realize the capital gains available. The inspection team was of a view, that the pattern did not corroborate
with the justification related to capital gains. Instead, the investor did not pay any attention to the capital
gains tax being charged on these transactions (as evidenced from the different amounts of investment and
redemption).
The matter reflects potential ML activity in the product
75
6.7 Other Financial Institutions
6.7.1 Exchange Companies (High Vulnerability)
288. There are two types of exchange companies in Pakistan: exchange companies and exchange companies
of ‘B’ Category. Each differs from the other based on different licensing and capital requirements and the scope
of business activities they are permitted to conduct.
289. Exchange companies can: (a) buy and sell foreign currency notes and coins; (b) facilitate inward home
remittances through two international MVTS operating in Paksitan e.g. Western Union (WU) and Money Gram
(MG) etc.; (c) conduct limited outward remittances to cater to individual needs through MVTS (i.e. WU, MG) and
via their foreign currency accounts maintained with domestic banks; and (d) export foreign currency other than
USD, and import the equivalent value in USD. Exchange companies (B) can only buy and sell foreign currency
notes and coins.
290. In Pakistan, a foreign exchange business can be undertaken only by individuals and entities authorized
by SBP. However, a number of informal or unauthorized foreign exchange operators are also engaged in
unauthorized MVTS, called Hawala or illegal MVTS. See Chapter 3 for the assessment of the ML threat in relation
to these illegal activities.
291. The inherent ML/TF vulnerability for exchange companies of either type is high. In particular, walk-in
customers use cash thereby creating vulnerabilities for ML/TF. The use of this sector by PEPs and their associates
to purchase foreign currencies also creates a major risk of ML. Moreover, there are often traditional links
between domestic exchange companies with specific overseas MVTS providers, where third-party payments and
net settlement are undertaken. These also increase vulnerabilities as there may be either reduced recordkeeping
or collusion between them.
6.7.2 Developmental Financial Institutions (DFIs) (Low Vulnerability)
292. DFIs issue Certificate of Investments (COIs) against payment made through cheques by the customers
from their own accounts maintained in commercial banks. DFIs are involved in granting financing facilities, mostly
in the form of consortium financing, generally led by commercial banks. There are no deposits and no
remittances. Therefore, the ML/TF inherent vulnerability is low.
6.7.3 Central Directorate of National Saving (CDNS) (High Vulnerability)
293. CDNS offer three types of products: savings accounts; saving certificates; and prize bonds. The share of
two specialized schemes for retired people, senior citizen & widows (Behbood welfare Saving Certificate and
Pensioners Benefit Account) constitutes 33% of the total deposits of National Savings Schemes (NSS). Further,
Special Savings Certificates/Accounts have a dominating share of 30% in the NSS, followed by Defence Savings
Certificates (10%), National Prize Bonds (14%) and Regular Income Certificates (13%). The credibility of CDNS as
a government entity makes the avenue of the National Savings Schemes more attractive for the general public.
The overall inherent ML/TF vulnerability of this sector has been assessed as high as there is no supervisor of this
sector, however Government Audit has been carried out.
76
6.7.4 Pakistan Post (High Vulnerability)

294.
294. Pakistan Post provides postal services in all of Pakistan through a network of around 13,000 post offices.
Pakistan Post also performs agency functions on behalf of Federal and provincial governments, which inter-alia,
include savings bank, postal life insurance, collection of taxes, and payment of electricity, water, gas and
telephone bills. In addition, Pakistan Post provides inward remittance through an international remittance
company. Despite the small ticket size financial products and services offered by Pakistan Post, the inherent
ML/TF vulnerability is assessed as High The overall inherent ML/TF vulnerability of this sector has been assessed
as high as there is no supervisor of this sector, however Government Audit has been carried out.
6.8 Securities Market (Medium High Vulnerability)
295. As of May 31, 2019, the securities sector had a total of 217 active Pakistan Stock Exchange brokers
with Rs. 273.198 billion of assets and a total of 66 Active PMEX Pakistan Mercantile Exchange brokers with Rs.
2.243 billion of assets under their custody, as of May 31, 2019. There were 202 CIS with assets under
management of Rs. 621.396 billion, 19 Pension Schemes with assets under management of Rs. 26.059 billion,
three Private Equity Funds with assets under management of Rs. 6.568 billion and 25 AMCs, investment
advisors & private equity companies with assets under management of Rs. 37.166 billion. Thus, the securities
market sector holds about 1.48% of the total assets held by financial market sector in Pakistan.
Category No.
Independent securities broker-dealer (independent brokerage firms) – large 4
Independent securities broker-dealer (independent brokerage firms) – medium/small 192
Securities brokerage subsidiary of large commercial banks 4
Securities brokerage subsidiary of medium/small commercial banks 4
Securities brokerage subsidiary of subsidiary of medium/small Financial Groups other than Banks 13
Large registered investment companies (mutual funds, closed-end funds, unit investment trusts, 313
and private investment funds)
(Mutual Funds, Plans and VPS of value Rs. 50 million and above)
Medium/small registered investment companies (mutual funds, closed-end funds, unit 20

investment, trusts, and private investment funds)
(Mutual Funds, Plans and VPS of value Below 50 million)
Large investment/financial advisors 19

(Investment Advisors managing portfolios above Rs. 50 million)
77
Medium/small investment/financial advisors 1
(Investment Advisors managing portfolios below Rs. 50 million)
Commodities futures and option broker – dealers, commodity trading advisors, futures 12
commission merchant, futures pool operator – large
Commodities futures and option broker – dealers, commodity trading advisors, futures 54
commission merchant, futures pool operator – medium/small
6.8.1 Products and Services
296. There are only four active products currently offered in the Securities Market sector, such as Ready
Market, Deliverable Futures Contract, Margin Trading System and Margin Financing. However, that does not
prevent it from being used for potential ML/TF purposes. Equity market products could be used to layer or
integrate the proceeds of crime, or to transfer value to terrorists, and are therefore vulnerable for ML/TF
activities. Currently, there are 558 companies listed on the Pakistan Stock Exchange with a Market Capitalization
of Rs. 9,386 billion. Products and services may be categorized based on general characteristics and the degree of
ML/TF risk associated with utilization of new payment methods, delivery channels and jurisdiction/geographic
locations of customers.
Case studies of product of Securities Market Sector- Ready Market Trade

Individuals, both local and foreign investors, corporate and other entities, including government-owned
entities generally trade in the ready market of securities market. For this purpose investors/clients placed
their funds with the brokers. The investors can transfer their funds by using online banking and transfer of
funds through ATMs. The brokers generate their commission income based on the number of trades executed
by them and commission is one source of income of the brokerage house. High net worth individuals (HNWI)
and corporate entities normally trade in large volume in bulk quantity and most frequent trading. Major trades
are executed through online trading. 72% of total market trades (ready and future) consist of ready market
out of which about 53% pertains to online trading. It has been observed that investors specially HNWI are
reluctant in providing evidence regarding source of their income relating to funds deposited by them with the
brokers. Most of the corporate entities. including private limited companies, partnership companies and sole
proprietorship entities, normally do not prepare accounts and financial statements.
Large amounts of money collected from investors in the securities market cannot be completely verified due
to constraints in the system.
6.8.2 Customers
PEPs
297. The securities sector is inherently vulnerable to ML/TF from the 1,562 identified PEPs. Since almost all
the payments/receipts in this sector are routed through the banking channels, the proceeds of corruption can
be routed through banking channels for investment/placement in the securities sector. Securities brokers are
78
not allowed to accept cash of more than Rs 25,000 from any customer, and cash accepted by the securities
brokers constitutes less than 0.05% of total market settlement.
79
High Net worth Individuals
298. There are 5134 High Net Worth customers investing in the securities sector out of around 154,000
customers. These customers may have generated their wealth from multiple sources and regulated persons may
not have enough information to identify and verify all sources of funds. The possibility of source of fund resulting
from any predicate offence of ML is very likely making the securities sector inherently vulnerable for ML/TF.
Foreign Clients
299. There are 7,320 non-resident individual customers in Securities out of around 154,000 customers. It is
unknown how much money is invested in Pakistani capital markets by these non-residents. However, due to the
significant possibility that large amounts of Pakistani criminal proceeds are laundered abroad, it also seems likely
that final integration could occur by bringing back such proceeds and investing them in Pakistani assets, including
through capital markets. The capital market has a significant portion of foreign investments also due to its high
volatility and large returns. The regulator as well as brokers have a difficult task to ensure legitimacy of the
sources. In view of this, the inherent vulnerability to ML/TF in the securities sector from the foreign clients is
assessed as Medium-High.
6.8.3 Geography
300. 99% of branches of securities brokers are centered in Karachi, Islamabad and Lahore. Further, no broker
has any branch out of Pakistan. Out of total active and inactive customers following is the region wise distribution
of customers i.e. 7199 in KPK, 209 in FATA, 75,649 in Punjab, 109,320 in Sindh, 1454 in Balochistan, 7554 in
Islamabad, 112 in Gilgit/Baltistan and 823 in Azad Jammu & Kashmir. Branches alongside porous borders/in
different provinces or business through agents/distributors belonging to porous borders pose high vulnerability
for ML/TF. The border of Balochistan and KPK has porous borders with Afghanistan and Iran, therefore are highly
exposed to geographical vulnerability. These borders are used for smuggling, cash movement, illegal business
and border crossing. Customers from high-risk jurisdictions may seek a business relationship with any security
broker to potentially use the sector for facilitation in their motives of ML/TF. Customers from jurisdictions
identified as high risk by FATF or securities brokers pose higher ML/TF risk for the sector.
6.8.4 Delivery channels
301. As in any country, delivery channels can increase ML risk in the securities market based on the use of
wire transfers, online payment transaction, payment through debit/credit cards, and Internet-based payment
systems. There were 432,531 wire transfers amounting to Rs. 356 billion, equal to 9% of the total market
settlement, from June 01, 2018 to May 31, 2019, whereas, cash accepted by the securities brokers are less than
0.05% of the total market settlement. The remaining settlement was performed through other banking channels.
6.9 Insurance Industry
302. As of December 31, 2018 the Insurance Sector consisted of nine life Insurers with total assets of Rs.
1,267.759 billion and 40 Non-life Insurers with Rs. 241.714 billion of total assets. The insurance sector captures
5% of the overall assets of the financial sector in Pakistan. Based on the FATF Recommendations on AML/CFT,
80
international experience and typologies, life insurance is the primary focus. However, to consider all potential
sources of threat and risk for ML/TF, non-life insurance is also included in this sectoral risk assessment.
6.9.1 Life Insurance Sector (Medium Vulnerability)
Products
303. There are 859 products in the life insurance market, out of which a little over half (61 are single premium
plans and 450 other life plans) having an investment/savings component in addition to term. Products are
assessed based on their general characteristics and the degree of ML/TF risk associated with utilization of
payment methods, delivery channel, and jurisdiction/geographic location of the policyholders. Single premium
products that allow early surrender of up to 12 months are the most important vulnerabilities for ML.
304. In the life sector, most policies are issued via a direct sale force and bancassurance. Life plans with
cash value and investment/savings components purchased by PEPs, High Net Worth Individuals and foreign/non-
resident policyholders are assigned a high rating.
Case Study
During an onsite inspection of a life insurer in 2018, the data pertaining to single-premium policies of the
insurer for the period from June 15, 2018 to November 30, 2018 was requisitioned. The inspection team
analyzed the data of single-premium policies.
The inspection team reviewed 48 single-premium policies as a sample. Out of the sample, in the case of three
policyholders the purposes of taking policies in multiple way had not been made clear where the same
policyholder has also ended/abandoned his previous policies prematurely. In the case of one individual,
Mr Ikram-ul-Haq Qureshi, five policies were surrendered within a span of five years. The total amount paid
amounts upon surrenders stood Rs. 92.425 million.
It was observed that on average, the policies were cancelled/surrendered within 1.5 years of the dates of
issuance. Hence, no policy stayed for a considerable period as originally intended to retain the said policies
for 10/20 years. The clarification offered by the company that the policyholder had a running business, seems
unreasonable that he would place his money repeatedly in the insurance policies instead of investing it in his
own business or in certain avenues primarily meant for returns. Besides, the policyholder was unwilling to
share his bank statement.
One may therefore conclude that that the huge amount of surrenders within a short span of a few years
against the five policies, without clear purpose and rational, pose inherently high ML risk.
Customers
PEP
305. The proceeds of crime could be consolidated or routed through the life insurance channels for the
purpose of ML. PEPs and their close associates possess threat to the life insurance sector due to their exposure
to public funds and the level of authority.
81
High Net worth Individuals

306. High net worth individuals with multiple sources of income make it difficult for insurance companies
with minimal source of information available with them to identify their complete sources of income with a
broader picture. The possibility that the source of funds is from a predicate offence is unknown. Therefore,
HNWIs pose a significant degree of vulnerability for the non-term life insurance sector as they can use this sector
for potential ML.
Foreign and Non-resident clients

307. Foreign and non-resident clients with their source of income/funds not easily traceable or verifiable
pose a higher degree of vulnerability. The funds invested may have arisen from the proceeds of predicate
offences in the respective jurisdiction of foreign and non-resident policyholders in the insurance sector.
Geography
308. Geographic location of the customers from high-risk jurisdictions or payments originated from high-risk
jurisdictions and routed through low risk jurisdiction pose higher degree of vulnerability for the life insurance
sector. Locally, the life insurance business written alongside porous borders/in different provinces or business
through agents/Banca belonging to porous borders; Border area of Balochistan and KPK are porous borders with
Afghanistan and Iran, therefore are highly exposed to geographical vulnerability. These borders are exposed for
smuggling, cash movement, ill-legal business and border crossing. Therefore, the non-term life insurance sector
with reference to these areas has a high vulnerability to ML.
Delivery channels
309. Delivery channels in life insurance sector include Bancassurance, corporate insurance agents/ Banca and
Direct Sales Force. Delivery channels are assessed based on their ML risk associated with their use for vulnerable
products and payment systems, such as online payments transaction, payment through debit/credit cards,
Internet based payment systems.
6.9.2 Non-life Insurance Sector (Low Vulnerability)
310. The term life and casualty insurance business by default is not susceptible to ML because they have no
investment component, and therefore they cannot be used to store or transfer value. While fraud in the term
life and casualty insurance sector may occur, this represents criminal proceeds and not a ML or TF vulnerability.
Therefore, the risk is low.
6.10 Designated Non-Financial Businesses and Professions (DNFBPs)
311. No statistics are available about the DNFBPs except in relation to accountants. The accountancy, audit
and tax advisory professions comprise both regulated and unregulated professionals. There are several
institutions offering accounting qualifications in addition to professional bodies such as, the Institute of
Chartered Accountants of Pakistan (ICAP), Institute of Cost and Management Accountants of Pakistan (ICMAP),
Pakistan Institute of Public Finance Accountants (PIPFA), Chartered Institute of Management Accountants of the
United Kingdom (CIMA), Association of Chartered Certified Accountants (ACCA) and the Institute of Chartered
82
Accountants in England and Wales (ICAEW). As of July 2019, there were 8,439 professional accountants of ICAP
and 591 audit firms registered with ICAP (442 sole proprietorships and 149 partnerships). Out of these 591 audit
firms, 121 audit firms have a satisfactory Quality Control Review (QCR) rating under the QCR Program of ICAP.
ICMAP is a statutory body established under the Chartered Accountants Ordinance 1961. As of July 2019, there
were a total of 5,498 professional accountants qualified from ICMAP. Out of 48 audit firms registered with
ICMAP, five audit firms have a satisfactory QCR rating under the QCR Program of ICMAP as at June 30, 2017.
6.10.1 Real Estate Dealers (High Vulnerability)
312. Buying property is considered the safest form of investment in Pakistan, and the real estate sector
remains one of the most attractive investment hotspots for both resident and non-resident Pakistanis. Most of
the real estate transactions occur through dealers. The general experience is that they act as simple
intermediaries most of the time. In the past, the real estate sector has served as a safe way to launder untaxed
wealth, and as a major vehicle for laundering criminal proceeds. However, since 2014, considerable efforts have
been made to determine fair market valuations for properties located in major cities across Pakistan, and the
Finance Act of 2019 requires marking real estate to market for tax purposes. These actions may make the real
estate sector a less attractive way to integrate untaxed wealth. The Finance Act of 2019 also prohibits cash
transactions of Rupees five million or above, which may make it harder to disguise the amount of funds invested
in real estate, or to disguise its origins. Also, the Benami Transactions (prohibition) Act was passed also by
Parliament in 2017 to take action against the assets/properties acquired in the name of benamidars (third
parties).
313. Realtors still remain outside the effective oversight of the governmental authorities, whether federal,
provincial or local. Even though the attractiveness of using real estate for ML purposes may have declined due
to the aforementioned changes, the lack of any regulation of real estate agents provides space for the inherent
risks in that sector. Accordingly, the inherent ML/TF vulnerability has been assessed as high.
6.10.2 Dealers in Precious Metals And Stones (Medium High Vulnerability)
314. Gold and precious stones constitute integral parts of jewelry used for marriage ceremonies in the
country. In particular, gold is a used as investment product for long-term savings. At the same time, gold and
jewelry may be used to convert, store and transfer tainted funds. In particular, high monetary value helps move
large value with significantly smaller quantity of precious metals and stones compared with cash. Most of the
trade of gold, precious stones and other jewelry is conducted on cash basis, which makes this sector more
vulnerable to ML/TF. Large transactions are carried out on a cash basis mostly with walk-in customers. Overall,
the inherent ML/TF vulnerability has been assessed as medium high.
6.10.3 Accountants, Auditors and Tax Advisors (Medium Vulnerability)
315. Auditors in Pakistan do not generally provide these services, which are most relevant as DNFBP:
 manage client money, securities or other assets;

 manage bank, savings or securities accounts;
 organize contributions for the creation, operation, or management of companies;
83
 create, operate, or manage of legal persons or arrangements, and buying and selling of business
entities
316. There are several bodies such as the ICAP, ICMAP, Pakistan Institute of Public Finance Accountants
(PIPFA), Chartered Institute of Management Accountants of the United Kingdom (CIMA), Association of
Chartered Certified Accountants (ACCA) and the Institute of Chartered Accountants in England and Wales
(ICAEW) offering professional accounting qualifications. ICAP is a statutory body for the regulation of the
profession of accountancy in Pakistan and is primarily responsible for maintaining professional standards of
excellence amongst chartered accountants. The inherent ML/TF vulnerability for this sector is medium as the
members of ICAP, ICMAP, CIMA, ACCA and ICAEW are required to comply with the code of ethics.
6.10.4 Lawyers (Medium High Vulnerability)
317. The Pakistan Bar Council (PBC) is the entity responsible for regulating the conduct and licensing of
lawyers in Pakistan. The Council is the highest elected body of lawyers. The main functions of the Bar Council are
to admit persons, fulfilling the requirements of law, as Advocates entitled to practice before the Supreme Court
of Pakistan and to maintain a registrar of such Advocates and to remove advocates from the registrar. It also
enjoys powers to entertain and determine cases of professional and other misconduct against Advocates of the
Supreme Court and to award punishment in such cases. The Council also enjoys appellate jurisdiction against
decisions of the Provincial and Islamabad Bar Councils in respect of enrolment of Advocates of High Courts and
Courts subordinates thereto and disciplinary matters of Advocates.
318. The involvement of lawyers in the incidences of ML/TF in Pakistan have remained insignificant. Based
on the contextual factors, significance of their role in providing advice to the other sectors and issuances of
Government stamp papers the inherent ML/TF vulnerability of lawyers and notaries is medium High.
84
Chapter 7: Assessment of the Inherent Vulnerabilities of Legal Persons and Arrangements
7.1 Introduction
319. A variety of legal persons may be formed in Pakistan, including private and public companies, foreign
companies and companies without share capital. These must all be incorporated under Companies Act, 2017 and
registered with the SECP. Moreover, Limited Liability partnerships (LLPs) are registered under the Limited Liability
Partnership Act, 2017 and registered with the SECP.
320. In addition, cooperatives may be formed under the Cooperative Societies Act 1925, with registration
under provincial registrars appointed by the provinces under section 4 of that Act.
321. Pakistan has a trust law governed primarily by the Trust Act 1882 but also by case law. Generally, there
are two types of express trusts: moveable property trusts and immoveable property trusts. The Trust Act 1882
requires that the deeds of the latter be registered with provincial authorities within the district where the
immoveable property is located. There is no registration requirement for moveable property trusts.
322. Furthermore, Waqfs, which are a form of Islamic charitable trust, also operate in Pakistan.
Legal Persons
323. The different types of legal persons that can be formed in Pakistan are as follows:
i. Companies formed under the Companies Act, namely:
a. Private companies.
b. Public companies (also referred to as listed companies).
c. Public interest companies.
d. Public sector companies.
e. Companies limited by guarantee (s 2 (19)).
f. Foreign companies (registered under Part 12 of the Companies Act).
g. Associations (formed as charities and not for profit companies) under s 42.
ii. Limited liability partnerships (LLPs) formed under the Limited Liability Partnership Act 2017 and defined
under that Act as having separate legal personality, namely:
a. Domestic limited liability partnerships.
b. Foreign limited liability partnerships.
iii. Cooperatives formed under the Cooperative Societies 1925. These entities have independent legal
status as legal persons upon registration.
7.2 Companies Registered with SECP
324. Pakistan has a framework that requires limited liability companies and limited liability partnerships to
be registered in the company registry maintained by the SECP and provide detailed ownership and control
information. This control mechanism has allowed for a focus on the quality of information of the legal persons
being registered under the relevant laws.
85
325. Pakistan has 102,862 companies in 2019 registered under the Companies Act, 2017 including 659
licensed NPOs. The province wise composition is Punjab 49,042; Sindh 25,286; Islamabad Capital Territory
19,552; KPK 5,947; Balochistan 1,667; and Gilgit Baltistan 1,368.
326. There are an additional 346 limited liability partnerships (LLPs) in 2019 formed under the Limited
Liability Partnership Act 2017 and defined under that Act as having separate legal personality, namely:
i. Domestic limited liability partnerships.

ii. Foreign limited liability partnerships.
327. More than 96,000 registered companies (95%) are private limited companies of which more than 80%
have a paid-up capital (taken as a barometer of size) of not more than Rs. 10 million (as one of the criteria for a
small sized company in the Third Schedule to the Companies Act, 2017). Note that Pakistan also has a very large
number of unincorporated businesses, including as part of its informal economy. Similarly, around 659 corporate
NPOs registered with the SECP represent a small fraction of the whole NPO sector (see chapter 8).
328. Pakistan’s total portfolio of approximately over 100,000 registered legal entities (based on voting shares
or voting rights) highlights the ongoing commitment that has been made to attracting quality over quantity and
this, coupled with the demonstrated commitment to transparency, reinforces the objective that Pakistan will
continually strive to be a good place to do good business, but not a place to hide “bad” business. 51
7.3 Cooperatives formed under the Cooperative Societies Act 1925
329. Cooperatives are a provincial subject, and therefore their scope of co-operatives vary widely from
province to province. Each province and territory has a co-operative department with the responsibility to
promote, as well as to monitor, any type of co-operative development. Various ordinances were promulgated in
the 1980s to facilitate and ensure the proper functioning of co-operatives as well. The legal instruments
regulating the co-operative sector are, however, applicable to all provinces of Pakistan. They include the Co-
operative Societies Act 1925 (which is the extension of the Sindh Co-operative Societies Act of 1925 to the
country from the end of April 1965) and Co-operative Societies Rules 1927.
330. Cooperatives are involved in very diverse fields, the most important of which are housing, agriculture,
banking, industrial development, and women’s development. The largest category of cooperate societies involve
housing. Cooperative housing societies to provide residential facilities with fully developed infrastructure to its
members without seeking any financial support from the Government.
331. Provincial statistics for co-operatives registered with Federal Board of revenue are as follows:
51
So far there have been no investigations into legal persons for laundering or providing funds or otherwise
facilitating the movements of funds to terrorist organizations. Therefore, there have been no convictions and
therefore no sanctions imposed on legal persons in Pakistan for either ML or TF.
86
Table 7.1: Provincial statistics for co-operatives in 2019
Summary
Province No. of Cooperatives
Islamabad 58
Sindh 203
Punjab 168
KPK 4
Balochistan 3
Total 436
Assessment of inherent vulnerabilities
332. Legal persons may carry inherent ML/TF vulnerabilities. In addition to the legitimate role of legal
persons and arrangements in a free market economy, the separation of ownership and control of assets from
the ownership and control of the legal person/arrangement allows beneficial owners/ and controllers of the
assets to hide their identity, as well as to transfer ownership and control with relative ease.
333. The risk assessment was based on both international experience 52 and officials’ expert knowledge,
taking into account the characteristics of the different types of legal persons that could be exploited to facilitate
ML/TF and conceal beneficial ownership. The vulnerability rating scale used is Low, Medium and High and the
results are as follows:
Table 7.2: ML/TF inherent vulnerability characteristics and assessed inherent vulnerability levels by type of
legal persons
Type of Legal Persons Number of Legal Vulnerability Characteristics from UBO Assessed
Persons concealment Ratings
Private companies 97,100 More vulnerability when: 1) complex structure High
(88,075 with chains of ownership including trusts across
Private multiple countries; 2) use formal (contractual) or
Companies + informal nominee shareholders or directors
9,025 Single where nominator identity undisclosed; 3) use of
Member intermediaries (also vulnerable) in company
Companies) formation; 4) shelf (dormant), shell (no activity)
or front companies (often in customer service
sector)
52
Including http://www.fatf-gafi.org/media/fatf/documents/reports/FATF-Egmont-Concealment-beneficial-
ownership.pdf
87
Public companies 5,416 Stock exchange rules require high degree of Low
(including listed and transparency
unlisted Companies)
Public interest Clubbed in Public Interest companies have the following sub Low
companies respective place categories;
Listed Company
Non-listed Company which is:
(i) a public sector company as defined in the Act;
or
(ii) a public utility or similar company carrying on
the business of essential public service; or
(iii) holding assets in a fiduciary capacity for a
broad group of outsiders, such as a bank,
insurance company, securities broker/dealer,
pension fund, mutual fund or investment banking
entity.
(iv) having such number of members holding
ordinary shares as may be notified; or
(v) holding assets exceeding such value as may be
notified
Public sector Clubbed in Ownership and control exercised by government. Low
companies respective place This can be in either the form of Private, Public
Listed, and Unlisted company. The numbers are
clubbed at the respective type of company.
Companies limited by 73 Trade organizations licensed by Commerce Medium
guarantee (s 2 (19)) Ministry, Director General of Trade
Organizations. Also registered by SECP.
Ownership is umbrella corporation with trade
orgs under. Funds from govt. (not a norm) and
members which may be orgs.
Foreign companies 1,037 More vulnerability when: 1) complex structure High
with chains of ownership including trusts across
multiple countries; 2) use formal (contractual) or
informal nominee shareholders or directors
where nominator identity undisclosed; 3) use of
intermediaries (also vulnerable) in company
formation; 4) could be shelf (dormant), shell (no
activity) or front companies (often in customer
service sector)
Domestic limited 346 Hybrid construct. Governing rules determined by High
liability partnerships contract with high degree of freedom in
88
determining ownership and control among
members, and exploiting nominees
Foreign limited liability None Hybrid construct. Governing rules determined by High
partnerships contract with high degree of freedom in
determining ownership and control among
members including foreigners, and exploiting
nominees
Cooperatives 436 No UBO. Owned by ‘members’ Low
334. The total number of legal persons registered in Pakistan stand at 103,298. Overall, the corporate sector
primarily comprises small size, domestic, private limited companies as far as the numbers are concerned. Most
of the corporate sector is therefore seen as having in practice a relatively low level of inherent vulnerability –
given its small size and a large domestic focus. The ML/TF threats however are very significant in Pakistan overall
and there are cases when legal persons have been used for ML/TF.
7.4 Legal arrangements
335. It is internationally recognized that legal arrangements are inherently vulnerable to ML/TF. Pakistan
has a system of trust law and also Waqf both of which can be abused for ML/TF. The principles of trust law are
based on British common law but modified and sourced primarily in the Trust Act 1882. Trusts are defined in the
Trust Act 1882 as ‘…an obligation annexed to the ownership of property, and rising out of a confidence reposed
in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and
the owner…”. The Act also states that the person who reposes or declares the confidence is called the “author
of the trust”; the person who accepts the confidence is called the “trustee”; the person whose benefit the
confidence is accepted is called the “beneficiary”; the subject-matter of the trust is called “trust-property” or
“trust-money”; the “beneficial interest” or “interest” of the beneficiary is his right against the trustee as owner
of the trust-property; and the instrument, if any, by which the trust is declared is called the “instrument of the
trust”.
336. The system of trust law is statutory as opposed to common law, however, cases decided under the Act
are relevant. Registration of immovable property trust deeds under section 5 of the Trust Act 1882 trusts may
involve either movable or immovable property. No trust in relation to immovable property is valid unless
declared by a non-testamentary instrument in writing signed by the author of the trust (settlor) or the trustee,
and registered, or by the will of the author of the trust or of the trustee. Registration is effected under the
Registration Act 1908 section 17(2)(iii). Non-registration of moveable property trust deed results into invalid legal
arrangement. Trusts relating to movable property are not valid unless declared in the same manner as an
immoveable property trust, or unless the ownership of the property is transferred to the trustee.
89
337. The Provincial breakdown of Trusts registered with Federal Board of Revenue are as under;
Table 7.3: Provincial breakdown of Trusts in 2019

Summary
Province No. of Trusts
Islamabad 343
Sindh 1268
Punjab 964
KPK 43
Balochistan 9
AJK-Others 17
Total 2644
338. Waqfs, which are a form of Islamic charitable trusts also operate in Pakistan. The objective of a waqf is
to provide benefits to the society at large, including the provision of religious services, socio-economic relief to
the needy segment, the poor, education, environmental, scientific, and other purposes. The founder (waqf)
determines the objectives for which the property made into waqf can be used and the way its fruits, services and
revenues can be distributed. The founder also determines the waqf management and process of succession of
managers. The founder can impose any restrictions or qualifications he/she likes on his/her waqf, etc. Most
Waqfs are perpetual and very often this is emphasized in the waqf deeds. Registration of a Waqf is a provincial
subject and every province of Pakistan has legislation for registration of waqf deeds. There are 28 Wqfs
registered with Federal Board of Revenue.
339. Finally, there have been no investigations cases reported where legal arrangements provided funds or
otherwise facilitated the movements of funds to terrorist organizations or being used as a vehicle for ML.
90
Chapter 8: Assessment of Non-Profit Organizations (NPOs) at Risk of TF Abuse
340. The NPO sector is a key mechanism for redistribution of economic resources on a voluntary basis and
for provision of assistance to those most in need, besides fulfilling a range of positive cultural, religious,
educational and other social purposes. Whilst acknowledging the vital importance of the NPO community in
providing charitable services around the world, as well as the difficulty of providing assistance to those in need,
often in remote regions, NPOs can also be misused by TOs: (i) to pose as legitimate entities; (ii) to exploit
legitimate entities as conduits for TF, including for the purpose of evading asset freezing measures; or (iii) to
conceal or obscure the clandestine diversion of funds intended for legitimate purposes, but diverted for
terrorist purposes. See Chapter 5 for comprehensive information on how the NPO sector can be abused for TF
purposes.
341. Since it is recognized that not all NPOs are inherently high risk of TF (and some may represent little or
no risk at all), FATF Recommendation 8 first expects countries to identify which subset of organizations fall within
the FATF ‘definition’ of NPO, and to use all relevant sources of information, in order to identify the features and
types of NPOs which by virtue of their activities or characteristics, are likely to be at risk of terrorist financing
abuse (or in other words, are likely to be inherently vulnerable to TF).
342. FATF Recommendation 8 defines NPO as a legal person or arrangement or organisation that primarily
engages in raising or disbursing funds for purposes such as charitable, religious, cultural, educational, social or
fraternal purposes, or for the carrying out of other types of “good works”. This recommendation only applies to
those NPOs which fall within this definition of an NPO. It does not apply to the entire universe of NPOs.
Pakistan’s NPO sector
343. The NPO sector in Pakistan is vibrant and plays a major role in delivering essential social services and
disaster relief. Besides other factors, the increasing trend of charitable giving is also based on the religious beliefs
of the masses. This is primarily witnessed during religious festivals including Eid-ul-Azha when millions of Muslims
donate hides and skins of sacrificial animals to charitable organizations, including madressahs and religious
seminaries. According to one estimate, skins and hides donations during Eid-ul-Azha amounts to approximately
Rs. five billion53.
344. The NPO sector in Pakistan comprises of NPOs under federal law, provincial laws, and International
NGOs operating in Pakistan called INGOs. Their internal governance is controlled by their respective
constitutions, memorandums, rules or by-laws required to be filed with the concerned registration authorities.
345. In order to undertake the assessment of NPOs at risk of TF abuse, it was imperative to obtain
comprehensive NPO data at the national level. For this purpose, details of NPOs registered with various
authorities at the federal level and in each province were collected.
346. In view of the large number of provincially registered NPOs, a bifurcation of functional vs. non-functional
NPOs was made through district intelligence committees formed for the purpose. This exercise revealed that a
53
https://nacta.gov.pk/public-message/
91
large number of registered NPOs was not operationally active, which were deregistered by the provincial
authorities, as shown below:
Paper- Additional
Sr.# Province Based Inactive Active Deregistered Deregistration
Total in process
(a) (b) (c)=(a)-(b) (d) (e)
1 Punjab 28,568 20,893 7,675 17,233 3,660
2 Sindh 25,426 17,888 7,538 4,693 13,195
3 KPK 4,936 3,792 1,144 1,124 2,668
4 Balochistan 5,185 3,636 1,549 0 3,636
5 ICT 904 843 61 0 843
Total: 65,019 47,052 17,967 24,002 23,050
347. Overall, active NPOs in Pakistan under federal law, provincial laws, and INGOs as of July 31, 2019 is as
follows:
Sr. # Class of NPO Law under which registered Number of active

organizations (as of
July 31, 2019)
1. Federal (Section 42) NPOs Companies Act, 2017 659
2. Provincial NPOs (i) Societies Registration Act, 1860 17,967

(ii) Voluntary Social Welfare Agencies
Ordinance, 1961
3. International NPOs/INGOs Policy for Regulation for INGOs 2015 76
(International Non-
Governmental Organizations)
348. In addition, there are unregistered charities operating without opting for registration or licensing under
any of the prevalent regulatory framework. However, no reliable estimates are available about the number of
such organizations. Accordingly, the scope of this assessment is limited to register NPOs operating in the country.
That being said, efforts will continue to also address the issue of unlicensed NPOs as part of Pakistan’s broader
mitigations for the NPO sector at large.
Pakistan’s FATF-Defined NPOs
349. More than half of the functionally active NPOs in Pakistan fall under the FATF defined NPOs as they
are involved in service-type activity, and are also involved in raising or disbursing charitable funds. Based on
the data collected through the mapping exercise of NPO sector of Pakistan 55% of NPOs operate in the services
sector. Overall, a large segment of the NPO sector in Pakistan is seen as having a significant inherent
vulnerability for TF. Given the significant TF threats in Pakistan, the overall TF risk is also very significant.
92
350. The abuse of NPOs for TF purposes continues to pose a significant risk, both domestic and external. A
number of investigations relate to registered NPOs affiliated with UN listed entities and various trusts affiliated
with the UN designated entities and persons on offences of terrorism financing; cases have been registered and
a number of persons have been arrested.
Cash Based Source of Funding
351. The NPOs rely on cash collections and street donations and solicit funds from overseas jurisdictions
and international development agencies. They often process large amounts of cash and some of them may
regularly transmit funds between different regions and countries.
Social Media Funding
352. Pakistan-based proscribed and UN-designated organizations (JuD/FiF, LeT and JeM, for instance) have
also been deriving their funding from charities and fund-raising domestically and from abroad including through
social media for social welfare activities in Pakistan or abroad (for example JuD/FiF claims doing so in Somalia,
Yemen, Myanmar and Syria). Such entities may pose outgoing transnational TF threat under the garb of social/
welfare activities abroad.
Unregistered charities
353. The unregistered charities include organizations soliciting charitable donations, in cash or kind, without
opting for registration or licensing under any of the prevalent regulatory framework. These may also include such
organizations who after being unregistered for failing to meet with regulatory requirements, continue to operate
as charities in violation of the relevant laws. These unregistered charities if soliciting charitable donations from
the public may be acted against by the concerned law enforcement authorities pursuant to the provisions of the
relevant laws.
354. However, owing to the absence of a regulatory regime, statistics as to number or particulars of such
organizations are not available. Notwithstanding the lack of data for such organizations, they are not likely to
cumulatively represent a large sub-set of the whole NPO sector in terms of funds generated or disbursed. Despite
less resource availability or access to funding from formal sources, they may pose greater risk if they have links
with international terrorist networks or UN listed entities, or their associated entities. Therefore, unregistered
NPO were assigned high risk.
355. According to a World Bank’s research study54, NPOs can be divided into “complicit” and “exploited” for
terrorist financing purposes. While the former willingly function as a front for terrorist organizations, the latter
are abused. Charities, through acts of omission or commission, may become a part of this funding effort, and
money may be transferred through international channels to terrorist groups. The ultimate objective of NPO
regulation is to enhance the transparency of the sector- the people in charge of NPOs, their sources of funds and
particularly the way those funds are spent.
54
Emile van\ der Does de Wallabies, “Non-profit Organizations and the Combatting of Terrorism Financing: A
Proportionate Response”, The World Bank, Washington D.C., 2010,
http://issuu.com/world.bank.publications/docs/9780821385470
93
Chapter 9: Financial Inclusion Overview, Products and Risk Analysis
9.1 Overview
357. Pakistan is agrarian country with a population of 212 million. The majority of its population resides in
rural areas where outreach of financial services has traditionally remained insufficient as a result owing to limited
livelihood opportunities for low income segments the incidence of poverty remained high.
358. In this backdrop, financial inclusion has been one of the primary objectives of the Government and the
State Bank of Pakistan. In 2001, microfinance was acknowledged to have the potential not only to improve the
livelihood for marginalized segments, women and microenterprises but also to eradicate poverty in the country.
Accordingly, the Government of Pakistan and SBP created a separate legal and regulatory framework for MFBs
in year 2001. The sector has been performing increasingly well due to private investment, supportive policy, use
of new technologies and operational performance as a result of which growth in outreach, loan portfolio,
deposits and profitability has been impressive over the years. The microfinance banks are serving over three
million active borrowers as of June 30. 2019.
359. Cognizant of peculiar dynamics and evolution of microfinance sector since year 2001, the SBP maintains
a ‘proportional’ regulatory approach to promote innovation and stability. The underlying principle has always
been to keep balance between financial inclusion and prudence. In view of business growth and technological
innovations in the sector, SBP continues to further strengthen the regulations in areas of governance, AML/CFT,
consumer protection, and operations to help MFBs to manage the expected higher level of growth in future. In
2018, AML/CFT regulations for MFB have been revisited for further alignment with FATF’s Recommendations.
360. As an intermediary, MFBs facilitate channeling of funds between lenders and borrowers. Here it is
important to understand that, although MFBs can mobilize local currency deposits from legal and natural persons
(customers) belonging to all economic segments, their borrowers can only be individuals belonging to low income
segments. Accordingly, Section 6 of Microfinance Institutions Ordinance, 2001 stipulates that MFB shall assist
micro-enterprises and extend services to poor persons, preferably poor women.
361. In this backdrop, it is clear that while carrying out their routine business operations MFBs deal with
variety of customers belonging to different demography, economic segment, geography over both their retail
outlets and the digital channels.
9.2 Financial Services and Financial Inclusion (FI) in Pakistan
362. Financial Inclusion is an important policy goal both from the perspective of growth as well as improved
living standard for the low-income strata of the society. Following FI products and services have been selected
for the assessment:
 Branchless Banking,
 Microfinance Banks’ Products, and
 Asaan Accounts
94
363. Branchless Banking
Branchless Banking (BB) provides a convenient and cost-effective alternative to conventional branch-based
banking. BB allows financial institutions to offer financial products and services outside the bank branches.
Considering the nature of these services following are the threats and inherent vulnerabilities of this platform.
ML Threats
Politically Exposed Persons
Employees of Exchange Companies
ML Vulnerabilities
Branchless Banking are low KYC account that can be opened through verification of CNIC from NADRA as per
simplified customer due diligence.
Accounts can be opened at agent location or through mobile app in a nonface to face environment
BB agent may not be skilled enough to identify a forged or fraudulent identity document/ CNIC.
Transaction limits reduce the inherent vulnerabilities of these. The limits are monitored and maintained through
automated transaction monitoring systems..
364. Asaan Account
Asaan Accounts are a category of low risk deposit accounts offered by both commercial banks and MFBs. They
carry simplified due diligence requirements to extend benefits of financial services to common people
especially unbanked and under banked segments of population.
These accounts can be opened through a convenient mechanism with minimum of Rs. 100 as initial deposit and
no minimum balance maintenance requirement. Only Individuals can open the Asaan Account in Pak Rupee with
basic customer information. These accounts can be opened by banks in branches and places of customers. A
total withdrawal limit of Rs. 500,000 per month and total credit balance limit of Rs. 500,000 has been set for
these accounts. To mitigate the AML/CFT risk, controls that are applied include (i) imposition of value limits (ii)
proper identification and verification of customers (iii) prohibiting non face-to-face opening of accounts and use
of agents (iv) restricting the product to be used by resident individuals only and (v) bar on cross border (outward)
transactions etc. Given the above facts, Asaan Account is a FI product carrying low risk from AML/CFT perspective
for which prescribed measures are reasonable.
9.3 Products of Micro Finance Banks (MFBs)
365. MFBs in Pakistan are allowed to accept deposits from general public for providing microfinance services
to low income segment. Pakistan has a well-recognized legal and regulatory framework for MFBs. These accounts
can be opened by the non-residents and foreign nationals after carrying out KYC/CDD and interacting with the
customer. Deposit products offered by MFBs include current accounts, fixed deposits, saving deposits, profit and
Loss (PLS) Saving Accounts besides Micro Saving Accounts.
95
366. Apart from conventional deposit services MFBs also open Micro Saving accounts that are privileged
savings account, with relaxed account opening conditions and a modest interest rate, for low income and poor
persons. These accounts can be opened after establishing identity of customer and upon approval of the branch
manager. Special attention has been given to encourage inclusion of women in the financial system by permitting
them to open accounts on the basis of Nikkah Nama (marriage certificate) or on the basis of identity document
of their father or husband with relaxation of six months to obtain CNIC.
367. Moreover, MFBs in Pakistan also offer microcredit (small loans) to borrowers belonging to marginalized
segments in order to support entrepreneurship and help them manage their needs. Major loan products offered
by MFBs include:
Loan Category Loan Limit (Rs) Annual Income (Rs)

Microenterprise Loans 1,000,000 NA
General Loans 150,000 500,000
Housing Loans 1,000,000 500,000
368. MFBs also extend loans to encourage livelihood opportunities by supporting borrowers from the
marginalized segments particularly women and microenterprises carrying out businesses in trading,
manufacturing, services, and agriculture up to Rs. 1,000,000/- to a single borrower. Microcredit loans are
extended in the name of micro entrepreneur (tagged with his CNIC No.) to ensure traceability and reduce the
incidence of multiple borrowing.
369. Inherent Vulnerabilities
Given the mandate of MFBs, the inherent vulnerabilities are quite similar to those of the commercial banks.
However, delegated with the responsibility to move ahead with financial inclusion agenda, MFBs may face
additional vulnerabilities.
To affectively address inherent ML/TF vulnerabilities relating to microfinance, following aspects require
consideration.
9.4 Customer Profile
370. Given their diversity, customers must be categorized based on their risk profile. Individuals and entities
that have verifiable identities and established sources of wealth may be categorized as low risk. Nevertheless,
customers that are likely to pose a higher than average risk must be categorized as medium or high risk
depending on their background, nature and location of activity, country of origin and sources of funds etc.
Whereas enhanced due diligence measures may be applied based on the risk assessment, thereby requiring
intensive due diligence for higher risk customers, especially for DNFBPs and where the source of funds is not
clear.
371. Collusion of MFB’s staff: It is possible that MFB staff members are compelled under PEP’s influence or
influence of organized criminals/proscribed individuals/entities to facilitate utilization of microfinance banking
96
channel. As a consequence of such collusions the AML/CFT control measures shall remain vulnerable of being
compromised.
372. Geography: MFBs extend services in rural areas besides urban centers. The risks of banking in urban
centers are similar to those faced by commercial banks. However, in rural and remote areas MFBs are at times
faced with limitations towards law enforcement, deficiencies in AML controls, corruption, undocumented
businesses, and incidence of illicit activities besides sympathizers of terrorist and proscribed entities/individuals.
Such threats make MFBs more vulnerable to having their financial systems used for ML and TF activities.
373. Moreover, customer segments in rural/remote/unbanked areas usually lack identifiable residential and
utility account information. As a result, implementation of effective KYC and CDD is difficult particularly while
on-boarding new customers, due to the lack of proper documentation and identification processes, and inability
to store and retrieve customer information. Furthermore, with limited individual capacities and knowledge of
rights, roles and responsibilities, these customers’ relationships are vulnerable of being mis-utilized by other
persons whom the bank may not necessarily know.
374. Delivery channels: MFBs usually expand their outreach particularly in the rural areas by acquiring agency
services under an outsourcing contract. The capacity of these inadequately trained agents to effectively
implement AML programs is difficult and may result in violations.
Anonymity
375. The likelihood of opening anonymous accounts is very low since MFBs allow accounts after identification
and verification of customers through the identity document i.e. Computerized National Identity Card (CNIC).
Hence, there are no concerns with opening and maintaining anonymous accounts. Moreover, SBP has also
advised all MFBs to install biometric machines at all their branches for instant verification of bank customers at
the time of account opening. The objective of using this technology is to further safeguard banks and general
public against the risk of opening fake accounts.
Non face-to-face conduct

376. MFBs require presence of customer at the time of opening a bank account as non-face-to-face account
opening is not permitted under regulations. Even in case of fund transfers by walk-in-customers, the regulations
require MFBs shall obtain copy of CNIC (regardless of threshold) for online deposits/fund transfers and
remittance through instruments such as Bank Draft, Pay Order, Mail Transfer etc. conducted by walk-in-
customers.
Suspicious Transactions
377. Although the volume and value of transaction per person is low due to limits on transactions and low
customers’ income level coupled with KYC requirements, yet anecdotal evidence is available indicating that
deposit services were used by criminals.
97
Cross-border context
378. In accordance with the stipulations of the Microfinance Institutions Ordinance, 2001 products and
services extended by MFBs remain restricted to Rupee based domestic transactions only. However, the deposit-
based products are not barred from receiving cross-border inward remittances.
98
Chapter 10: Consequences of Money Laundering (ML) and Terrorism Financing (TF)
379. The consequences of Money Laundering (ML) and Terrorism Financing (TF) in Pakistan are both evident
and serious. The High ML and TF risk in Pakistan can adversely affect the financial and non-financial sectors and
the society as a whole. This Chapter describes at the high level the various consequences of ML and TF for
Pakistan as a whole. Note that the materiality of various financial and non-financial sectors in Pakistan, and
hence the impact or consequences of ML/TF for each of these sectors, has already been implicitly assessed and
reflected in the vulnerability ratings by sectors, since one of the assessed factors for sectoral vulnerabilities was
actually the size and composition of the sectors.
10.1 Governance and Political Consequences for Pakistan
380. The effects of illicit proceeds, especially proceeds of corruption and other predicate crimes, have
contributed to undermining of effective and transparent governance and development in Pakistan over many
years. Pakistan’s ranking in international studies shows the overhang of years of rampant corruption and
deteriorating governance. The following may be considered the consequences of ML and TF:
i. Ineffectiveness of overall Governance Framework of Pakistan.

ii. Lower government revenues because of Tax evasion.
iii. Ineffective public institutions and delivery of public services.
iv. Inefficient resource allocation by Government and Public Institutions.
v. Reduced public confidence in Government and its institutions.
vi. Unfair competition to entrepreneurs and private sector.
vii. Legal and legitimate businesses become uncompetitive.
viii. Criminal organizations are strengthened, eventually leading to subversion of state power and rule of
law.
ix. Attract illegitimate businesses and proscribed individuals for conducting ML and TF activities.
x. Loss of credibility and influence in international community.
10.2 Financial Consequences for Pakistan
381. The impact of ML and TF will be highest if the banking channels are used for inflow or outflow of ML/
TF funds, given the large size of the banking sector. Detection of TF is of special concern as the amount involved
are very small and have legitimate sources. These can be easily intermingled in the formal economy through the
legal banking channels.
382. Pakistan has over 100,000 registered companies with the majority formed in Punjab province (the
largest province in the country). Utilization of shell or benami companies for committing frauds, ML and TF can
also lead to reputational loss to Pakistan. The following consequences to financial sector may be possible:
10.3 Integrity of the financial system is impaired
i. Listing by FATF. Potential Black Listing and categorization as High-Risk Jurisdiction.
99
ii. De-Risking of Pakistan. Reputational damage relating to the economy and the financial sector.
iii. Increased economic power with criminals and their businesses.
10.4 Social Consequences for Pakistan
383. In terms of population density of cities of Pakistan, Karachi is the most densely populated city in
Pakistan. Its density of population is more than 2,000 persons per square kilometer. Besides this in Punjab,
Lahore densely populated (984 persons per Kilometer) followed by Sialkot, Kasur, Sheikhupura, Faisalabad and
Sargodha. These cities are most material in terms of population affected by potential ML or TF incidence.
Following social consequences may be possible:
10.5 Increased social power of criminals.
i. Emotional trauma to victims and deaths

ii. Increased rates of incarceration.
iii. Reduced confidence in public sector institutions.
iv. Increased costs to legal businesses and activities.
v. Outflow human capital and capital flight.
10.6 Economic and Reputational Consequences for Pakistan
384. Any designation of Pakistan due to ML and TF instances can lead to breakdown of investment, trade and
remittance. In case of conflict or breakdown of relationship with neighboring countries or trading partners.
Following economic consequences are likely possible:
i. Impaired economic growth.

ii. Reduced domestic and foreign direct investment.
iii. Inflow of illegitimate wealth and terrorism funding.
iv. Distorted market prices of good, commodities and services.
10.7 Consequences for Non-Profit Organizations (NPOs) in Pakistan
385. NPOs often operate on limited budgets and rely on government funding, charitable donations or
international donors. Reputational loss can lead to revenue loss through either budget reductions or diversion
of funds. This can seriously compromise an NPO’s operations and ongoing viability. This has severe impacts for
intended beneficiaries when basic services and assistance is not delivered. TF consequences are higher than
those of ML because of the national and international security impacts, and the reputational risks to the sector
following a suspected or actual TF. The potential harm to the community from TF is also more significant than
the harm from criminal misuse. Tracing the ultimate use of NPO funds diverted for TF is also a challenge.
386. Consequences to the NPOs could include the following:

i. Reputational damage and loss of public trust, confidence and charitable donations, particularly where
TF is involved.
100
ii. Loss of international funding sources.
iii. Regulatory or law enforcement action.
iv. Breakdown in the relationship with financial institutions, including potential costs to repair or establish
new banking relationships.
v. Increased costs to combat and deter criminal attacks, particularly its security costs to build cyber
resilience.
vi. Increased administrative costs if more onerous requirements are needed to mitigate threats.
387. Consequences to the overall community could include diminished tax revenues when used to facilitate
tax evasion. The reputational damage and loss of public confidence in the businesses, including costs associated
with repairing image, particularly where TF is involved also exists.
101
Chapter 11: Conclusion, including institutionalizing the Country’s Risk-Based Approach (RBA)
388. Pakistan has experienced the wave of terrorism for around two decades for which the nation has borne
a huge cost in both human and economic terms. Pakistan has borne the brunt of terrorist attacks that have killed
more than 70,000 people and loss of approximate USD150 billion to its economy and due in part to ML Pakistan
is facing persistent trade deficit. The new Government has realized that in the absence of adequate
implementation measures, terrorists and terrorist organizations and criminals could muster funds from a variety
of sources. Pakistan has taken important steps in the past but desired result could not be achieved due to
absence of political commitment. The new Government is committed to combat the significant menace of ML/TF
in Pakistan.
389. The inherent risk assessment portrays the intrinsic threats and vulnerabilities of a particular sector and
nationally before the application of any AML/CFT mitigation measures or controls. The outcome of this exercise
suggests that a number of crimes are most prevalent in the context of ML, that a number of TOs present higher
TF threats and that some sectors have higher inherent ML/TF vulnerabilities.
390. A key finding of the updated NRA is that the ML/TF threats and vulnerabilities facing Pakistan, and
therefore the inherent ML/TF risks, are greater than previously identified in the NRA of 2017 and the 2018 TFRA,
and that they require increased mitigation efforts.
391. Pakistan is continuing to assess the quality and effectiveness of measures in place to mitigate the ML/TF
risks identified in the updated NRA and is taking into account the findings of the APG MER and the FATF Action
Plan. This updated NRA is key in supporting the implementation of the Government’s new roadmap to improve
its entire AML/CFT system on a risk basis.
392. This Report also provides the critical risk information to the stakeholders to give them a clear
understanding of inherent risks helping them in implementing the preventive measures and controls required to
effectively mitigate these risks. The stakeholders are encouraged to use the findings of this report in assessing
and mitigating the ML/TF risks.
393. Moving forward, Pakistan will regularly update its NRA every 2 years and continue to monitor emerging
threats and vulnerabilities in the interim period and adjust its policies and activities as needed to effectively
mitigate ML/TF risks. Typologies will also continue to be undertaken to support Pakistan’s ongoing understanding
of ML/TF methods.
102

Updated National Risk Assessment Report 2019

Enviado por

Dados do documento

Direitos autorais

Formatos disponíveis

Compartilhar este documento

Compartilhar ou incorporar documento

Opções de compartilhamento

Você considera este documento útil?

Este conteúdo é inapropriado?

Direitos autorais:

Formatos disponíveis

Updated National Risk Assessment Report 2019

Enviado por

Direitos autorais:

Formatos disponíveis

Annexure IO-3(1)-NRA Report

PAKISTAN NATIONAL RISK ASSESSMENT

MONEY LAUNDERING AND TERRORISM FINANCING

Federal Minister for Economic Affairs

MER Mutual Evaluation Report

Revenue Service) of FBR OECD Organization for Economic

No. of TOs Risk Names of Terrorist Organizations (TOs)

Conflict and Terror

Table 3.1: Ratings of ML threats by types of crimes.

Corruption and Bribery; H H Foreign

Smuggling; (Including in Relation to Customs and

Illegal MVTS/Hawala/Hundi H H Both

Cash Smuggling H -- Both

Terrorism, Including Terrorist Financing; H M Both

Participation in an Organized Criminal Group and

Fraud and forgery; MH ML Domestic

Kidnapping, Illegal Restraint and Hostage-Taking; MH M Foreign

Robbery or Theft; MH -- Domestic

Sexual Exploitation, Including Sexual Exploitation --

4.1 Crimes Identified as High ML Threat

Cases Investigated / Prosecuted No. of Cases where Conviction was Obtained

2015 2016 2017 2018 2019

Corruption and Bribery

SUMMARY CHART OF COMPLAINT, INQUIRIES &

2013 2014 2015 2016 2017 2018

Smuggling (including in relation to customs and excise duties and taxes)

Number of cases Registered Amount Involved (Rs in Million)

330 362 345 329

2015 2016 2017 2018 2019

Terrorism Including Terrorism Financing

4.2 Crimes identified as Medium High ML Threat

Participation in an Organized Criminal Group and Racketeering

Illicit Arms Trafficking

Kidnapping for Ransom

Extortion from business

Insider Trading and Market Manipulation

4.3 Crimes identified as Medium ML Threat

Sexual Exploitation, Including Sexual Exploitation of Children

Illicit Trafficking in Stolen and Other Goods

Counterfeiting and Piracy of Products

4.4 Crimes identified as Medium Low ML Threat

Murder, Grievous Bodily Injury

5.1 Assessment Methodology for TF Threats posed by Terrorist Organizations

Direction of financial flows

No. of TOs Risk Names of Terrorist Organizations (TOs)

5.2 General Terrorism and TF Threats

No. of Cases No. of Arrests No. of Persons

No. of Persons Convicted (EoC)

TF Cases of Donations/Chanda Collection

Break-down of 371 policies:

NBFCs and Modaraba

Other Financial Channels

S. No Competent Associated Brief Facts of Case

Designated Non-Financial Businesses and Professions (DNFBPs)

S. No. No. of TF Cases as Number of

Other Sectoral TF threats

Organizations assessed as High threat

ii. Tehreek-e-Taliban Pakistan (TTP)

Organizations assessed as Medium High threat

ii. Jaish-e-Muhammad (JeM)

iv. Taliban/ Tehreek-e-Taliban Afghanistan (TTA)

vi. Haqqani Network (HQN)

vii. Jamat-ul-Ahrar (JuA)

viii. Balochistan Liberation Army (BLA)