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UNCLAS SECTION 01 OF 02 ISLAMABAD 000308 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON PGOV PREL
SUBJECT:  CODEL LYNCH'S JANUARY 29 MEETING WITH SBP GOVERNOR RAZA, 
PROGRESS ON AML BILL 
 
REF: 
 
A: 09 ISLAMABAD 2973 
B: 09 ISLAMABAD 1992 
 
(SBU)  Summary:  On January 29, a Congressional Delegation led by 
Representative Stephen Lynch met with State Bank of Pakistan 
Governor Salim Raza and Financial Monitoring Unit Director General 
Azhar Qureshi.  Qureshi detailed the progress that Pakistan made in 
reforming its Anti-Money Laundering and Countering the Financing of 
Terrorism regime in the past couple years.  Most notably, Qureshi 
explained that Pakistan's Parliament is close to passing Pakistan's 
first anti-money laundering law, which will provide a permanent 
legal framework that no longer relies on executive ordinances. 
Separately, Governor Raza provided insight on the global economic 
crisis from his days as a commercial banker.  Raza believed that as 
financial sector develops new regulations, it find the proper 
balance in protecting depositor assets and ensuring there is enough 
liquidity for investment in developing economies.  End Summary. 
 
Pakistan Makes Strides on AMF/CTF legislation 
--------------------------------------------- 
 
¶2. (SBU) Representative Lynch congratulated Raza and Qureshi for the 
recent passage of the 2009 AML bill in the National Assembly, and 
hoped that final approval in the Senate would be quickly 
forthcoming.  Lynch said that establishing a permanent AML Law was a 
great step forward for economies wishing to protect their financial 
sector from criminal malfeasance.  He noted that the U.S. Treasury 
Department has excellent programs to help countries improve their 
anti-money laundering and countering the financing of terrorism 
(AML/CFT) regimes and Financial Intelligence Units (FIU).  (Note: 
The FMU is Pakistan's FIU.  End note.).  Treasury Attache elaborated 
on Treasury's efforts in AML/CFT technical assistance, which has 
included the provision of tailored AML/CFT training courses to the 
staff of the FMU, in addition to several other Pakistani agencies 
responsible for investigating financial crimes.  Treasury also plans 
to provide a resident advisor to the FMU to assist in the training 
of thirty new FMU staff to be hired by June. 
 
¶3. (SBU) Qureshi welcomed Lynch's remarks, and noted that, while 
Pakistan criminalized the financing of terrorism under the 
Anti-Terrorism Act of 1997, it was not until late-2007 that money 
laundering was criminalized under the first Anti-Money Laundering 
Ordinance (AMLO).  Despite this achievement, Qureshi provided a 
frank assessment of the 2007 AMLO and the 2009 AMLO deficiencies in 
meeting Financial Action Task Force (FATF), Asia Pacific Group 
(APG), and Egmont International Standards (ref A).  Among the most 
salient problems with the current AMLO, Pakistan still required a 
mutual legal assistance treaty (MLA), or some other bilateral 
agreement, with a country in order for the FMU to exchange 
information.   Qureshi commented that the Finance Ministry was 
cooperating with the Ministry of Law to immediately draft an 
amendment to the future AML Law to address the information exchange 
issue.  Overall, Qureshi felt that Pakistan lacked a comprehensive 
framework for international cooperation and information sharing, but 
hoped the Government would correct the issue before Pakistan sought 
Egmont membership in May 2011. 
 
¶4. (SBU) Congressman Lynch asked Qureshi what challenges he 
encountered combating money laundering and terrorist financing in a 
largely cash based economy.  Qureshi quickly acknowledged that the 
1992 Protection of Economic Reform Act did not put restrictions on 
the amount of cash one could courier into the country, and made 
enforcement of bulk cash smuggling problematic.  The Federal 
Investigation Agency (FIA) and Customs officials still had 
discretion to stop someone at the border or the airport if they had 
suspicion of a crime, but this happened infrequently and was legally 
problematic for the FMU.  (Note:  Customs officials are legally 
prohibited from sharing information with the FMU.)  Qureshi 
explained that due to strict foreign exchange controls at the time, 
the Government in 1992 created lax courier laws to encourage other 
ways of bringing money into the country.  However, the recent 
reforms of the Pakistan Remittance Initiative corrected most of the 
tough foreign exchange rules, and made remitting money through banks 
and legitimate foreign exchange companies easier for expatriates 
(ref B).  Lynch commented that Pakistan should try using currency 
 
ISLAMABAD 00000308  002 OF 002 
 
 
transaction reports, which do not lead to arrest or detention.  That 
information could possibly then be shared with neighboring countries 
and FIUs to determine patterns of abuse. 
 
Governor Raza on the Global Economy and Bank Regulation 
--------------------------------------------- ---------- 
 
¶5. (SBU) Governor Raza provided his insight on the affects of 
banking deregulation on the global economic crisis.  Representative 
Bob Inglis asked Governor Raza what advice he would give FED 
Chairman Bernanke, as one central banker to the other, if given the 
opportunity.  Raza answered that no commercial banker over the age 
of 40 understood the mathematical models and derivatives used by 
younger investors in banks and hedge funds.  Raza further recalled 
his colleagues were prevented from using their depositors' assets 
and engaging in risky trading, and instead used only the partners' 
assets. However, Raza said that despite all of the bad press 
associated with investment banking in the past decade, it did 
provide much needed liquidity for some emerging economies.  Raza 
felt that, as new regulations are developed in the banking sector, 
it was important to find a balance for protecting depositors and 
ensuring there is enough liquidity for worthwhile investments. 
 
¶6. (U) Participants: 
 
U.S. 
Representative Stephen Lynch 
Representative Bob Inglis 
Representative Bob Platts 
Representative Betty Sutton 
Representative Joe Donnelly 
Deputy Chief of Mission Gerald Feierstien 
Scott Lindsay, Majority PSM for House Oversight and Government 
Reform 
Erin English, U.S. Treasury Attache 
Alamanda Gribbin, Embassy Control Officer 
 
Pakistan 
Governor State Bank of Pakistan Salim Raza 
Director General Financial Monitoring Unit Azhar Qureshi