Anti Money laundering legislation by liaoqinmei


									                                                                                            QLCian 2009

Anti-Money laundering legislation

In 1988 the United Nations adopted a convention against illicit trafficking in narcotic
Drugs and Psychotropic substances. Pakistan is a signatory to this convention.

1.   Subsequent to the adoption of this convention the seven major industrialized
     countries and the European commission set up a Financial Action Task Force
     (FATF) which developed a set of forty recommendations for giving effect to the
     provisions of the 1988 convention.

2.   The FATA currently has more than 33 members including 31 national Governments
     and 2 International Organizations. It also has more than 20 observers, 5 FATA             Barrister
     style regional bodies 15 linked international organizations.                               Shahid
3.   The 40 recommendations were first developed in 1990. They were revised in 1996
     and endorsed by more than 130 countries as also by the International Monetary           The author is the
     Fund and the World Bank.                                                                former Governor
                                                                                             of Punjab. He is
4.   On the 10th of June 1998 the Twentieth Special Session of the United Nations              prodigy in the
     General Assembly adopted a resolution to counter the problem of money laundering.          ranks of legal
     At that time the International community was mainly concerned with the laundering       fraternity. He is
     of money derived from illicit trafficking in Narcotic Drugs and Psychotropic              the prominent
     substances. The resolution also refers, in passing, to money laundering linked             lawyer of the
     with other 'serious crimes' but does not specifically mention terrorism. The                country and
     operative part of the resolution is reproduced below:                                   Chairman board
                                                                                               of Governor’s
     a)   Strongly condemns the laundering of money derived from illicit drug trafficking      QLC, Lahore.
          and other serious crimes, as well as the use of the financial systems of States
          for that purpose.

     b)   Urges all the States to implement the provisions against money laundering
          that are contained in the United Nations Convention against illicit Trafficking
          in Narcotic Drugs and Psychotropic substances of 1988 and the other relevant
          International instruments on money laundering in accordance with fundamental
          constitutional principles by applying the following principles:

     I.   Establishment of a legislative framework to criminalize the laundering of
          money derived from serious crimes in order to provide for the prevention,
          detection, investigation and prosecution of the crime of money laundering
          though, inter-alia:-

          (i) Identification, freezing, seizure and confiscation of the proceeds of

          (ii) International cooperation; and mutual legal assistance in cases involving
               money laundering.

          (iii) Inclusion of the crime of money laundering in mutual legal assistance

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                              agreements for the purpose of ensuring judicial assistance in investigation,
                              court cases or judicial proceedings relating to the crime.

                        II.   Establishment of an effective financial and regulatory regime to deny
                              criminals and their illicit funds access to national and international
                              financial systems, thus preserving the integrity of financial systems
                              worldwide and ensuring compliance with laws other regulations against
                              money laundering through:-

                        (i) Customer identification and verification requirements applying the
                            principal of “Know your customer”, in order to have available for
                            competent authorities the necessary information on the identity of client
                            and the financial movements that they carry out.

                        (ii) Financial record keeping.

                        (iii) Money reporting of suspicious activity.

                        (iv) Removal of bank secrecy impediments to efforts directed at preventing,
                             investigating and punishing money laundering.

                        (v) Other relevant measure.

                        III. Implementation of law enforcement measures to provide tools for, inter-

                        (i) Effective deduction, investigation, prosecution and conviction of criminals
                            engaging in money laundering activity.

                        (ii) Extradition procedures.

                        (iii) Information sharing mechanisms.

                   c)   Calls upon the United Nations Office for Drug Control and Crime Prevention
                        to continue to work, within the framework of its global program against
                        money laundering with relevant multilateral and regional institutions,
                        organizations or bodies engaged in activities against money laundering and
                        drug trafficking and with international financial institutions to give effect
                        to the above principles by providing training, advice and technical assistance
                        to States upon request and where appropriate.”

              5.   In October 2001 the FATF extended its mandate to include the issue of the
                   financing of terrorism and developed eight (8) special recommendations on
                   terrorist funding. The eight (8) special recommended are aimed specifically at
                   combating funding of terrorist acts and terrorist organizations, and are
                   complementary to the 40 (revised) recommendations. Most of the member States
                   of the United Nations have since taken steps to give effect to the provisions of
                   the 1988 UN Convention and the June 1998 General Assembly Resolution in
                   accordance with the recommendations made by the FATA. India, for example,
                   passed its Prevention of Money Laundering Act in 2002.

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6.   In Pakistan, an Anti Money-Laundering bill was introduced in the National Assembly
     in September 2005. It was referred to the Standing Committee on Finance but
     no worthwhile progress appears to have been made to convert it into an Act of
     Parliament. On 7th September, 2007 the president promulgated the Anti Money-
      Laundering Ordinance, 2007 (AMLO). In the normal course this Ordinance would
     have expired four months after its promulgation. However, its life has been
     extended indefinitely by virtue of Article 5 of the Provisional Constitutional Order
     (PCO) of 2007 promulgated by the President on 3rd November 2007 which reads
     as under:-
     “(1) An Ordinance promulgated by the President or by the Governor of a Province
     shall not be subject to any limitations as to duration prescribed in the Constitution.
     (2) The provision of clause (1) shall also apply to an Ordinance issued by the
     President or by a Governor which was in force immediately before the
     commencement of the Proclamation of Emergence of the 3rd day of November
     2007.” If, in the coming days, the PCO 2007 is declared unconstitutional and the
     Ordinance whose life has been extended by virtue of Article 5 ibid are not
     protected by some other constitutional instrument the AMLO will cease to be law
     and will have to be enacted afresh.

7.   The AMLO comprises 45 sections. Its section I provide that it shall come into force
     at once but that its remaining provisions shall come into force on such date as
     the Federal government may appoint through notification in the official Gazette.
     The required notification issued on 4th October 2007.

8.   In the paragraphs that follow an attempt is made to examine the extent to which
     the provisions of the AMLO fulfill Pakistan's obligations under the 1988 UN
     Convention and the 1998 General Assembly resolution as spelt out in the
     recommendations of the FATA.

9.    The first FATA recommendation requires all countries to criminalize money
     laundering on the basis of, inter-alia, the `998 UN Convention. This has been
     done through the AMLO.

10. The second FATA recommendation is that the intent and knowledge required to
    prove the offence of money laundering may be inferred from objective factual
    circumstances and that criminal liability should apply not only to individuals but
    also to legal person e.g. companies. The AMLO provides accordingly through the
    definition of person contained in its section 2(p) and its section 3 which defines
    the offence of money laundering. Section 2(p) and3 are reproduced below:-
    “Section 2(p) “person” means an individual, a firm, an entity, an association or
    a body of individuals, whether incorporate or not, a company and every other
    juridical person. Section 3. Offence of money laundering:- A person shall be guilty
    of offence of money laundering, if the person:

     (a) Acquires, convert, possesses or transfers property, knowing or having reason
         to believe that such property is proceeds of crime; or

     (b) Renders assistance to another person for the acquisition, conversion, possession
         or transfer of, or for concealing or disguising the true nature, origin, location,
         disposition, movement or ownership of property, knowing or having reason
         to believe that such property is proceeds of crime.”

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              11. The third FATA recommendation is that the anti-money laundering law should
                  provide for confiscation of laundered property as also the proceeds from money
                  laundering and predicate offences and the instruments used in the commission
                  of these offence. Section 2(t) of the AMLO contains a definition of predicate
                  offences. Predicate offences are as listed in the Schedule to the AMLO. The
                  Schedule includes the waging of war against Pakistan, various offences relating
                  to illegal gratification especially by public servants, murder, kidnapping, theft,
                  extortion, rubbery, dacoity, criminal breach of trust, cheating, fraud and forgery,
                  falsification of accounts, counterfeiting, corruption and corrupt practices, various
                  offences relating to narcotic drugs and all offences under the Anti-Terrorism Act.
                  The Schedule is in line with FATA recommendations. The AMLO also contains
                  various provisions including its section 8,9,10 and 11 for attachment of property
                  involved in money laundering, investigation in request of attached properties,
                  vesting of forfeited properties in Federal Governments and management of
                  forfeited properties.

              12.    The fourth recommendation is that the secrecy laws pertaining to financial
                    institutions should not inhibit implementation of the FATA recommendations.
                    Section 12 of the ALMO provides that the officers of the financial institutions and
                    non-financial businesses and professions shall not be liable for providing information
                    required to be furnished under the Ordinance or the rules made there under while
                    section 25 requires the officers of financial institutions to assist the investigating
                    officers/agencies in enforcement of the AMLO.

              13. The fifth, sixth, seventh, ninth, tenth and eleventh recommendations relate to
                  the measures to be taken by the financial institution and non-financial businesses
                  and professions to prevent money laundering and terrorist financing. These
                  recommendations are that financial institution should not keep anonymous
                  accounts or accounts in obviously fictitious names, that they should ensure that
                  they know their customers, that a degree of extra care should be taken when
                  dealing with politically exposed persons, that they should take the prescribed
                  due diligence and other measures before dealing with correspondent banks in
                  other countries, that they should maintains their transaction records for at least
                  five years and that they should pay special attention to all complex and unusually
                  large transactions especially those which have no apparent economic or visible
                  lawful purpose. The State Bank of Pakistan, which has actively participated in
                  formulation of the AMLO, has issued and enforced Provisions Regulations for
                  Corporate and Commercial Banking. These Regulations contain detailed provision
                  with regard to Know Your Customer (KYC) requirements, anti-money laundering
                  measures, dealing with correspondent banks abroad and suspicious transaction.
                  These Regulations are binding on all financial institutions throughout Pakistan.

              14. The twelfth, thirteenth, fourteenth, fifteenth and sixteenth recommendations
                  relate to reporting of suspicious transaction by financial institutions and designated
                  non-financial businesses and professions e.g. real estate agents, jewelers, lawyers,
                  and accountants. Section 2(f), 2(j), 2(n) of the AMLO contain detailed definitions
                  of financial institutions, intermediaries such as stock brokers, merchants, bankers
                  & investments advisers, and non-financial business and professions such as real
                  estate agents, dealers, in precious metals, lawyers and accountants. Section 6
                  of the AMLO provides for establishment of a Financial Monitoring Unit (FMU)

                                                                                                 QLCian 2009

      housed in the State Bank of Pakistan to receive suspicious transaction reports
      and reports on currency transactions exceeding such amounts as may be prescribed.
      Section 6 ibid also provides for the creation and maintenance of a data base and
      for cooperation with financial intelligence units and law enforcement authorities
      of other countries. Section 7 requires every financial institution to furnish suspicious
      transaction reports and currency transaction reports to the FMU within seven
      working days and to maintain their records in connection therewith for a minimum
      period of five years.

15. The seventeenth, eighteenth, nineteenth, and twentieth recommendations are
    that person who fail to comply with the provisions of the anti-money laundering
    laws and rules should be suitably punished, that 'shell' banks should be closed
    down and that other measures be taken to deter money laundering and terrorist
    financing by non-financial business and professions. Section 4 of the AMLO provides
    that the offence of money laundering shall be punishable with rigorous imprisonment
    for a term between one to ten years and that the persons committing such offence
    shall also be liable to fine upto one million rupees and to forfeiture of property
    involved in money laundering. Section 33 of the AMLO provides for punishment
    of persons who willfully fail to comply with the requirements relating to suspicious
    transaction reports. In case of conviction of a financial institution of such offence
    the State Bank or the Securities and Exchange Commission of Pakistan, whosever
    is the regulator may also revoke the license of such institution or take other
    administration action. Section 34 provides for punishment of persons who forewarn
    or notify a person against whom a suspicious transaction report or currency
    transaction report is being made. Section 37 provides for punishment of all
    involved directors and officers in case where the main offender is a company,
    firm or association of individuals.

16. The twenty-first and twenty-second recommendation are that appropriate
    action/measures should be taken against countries inclusive of their financial
    institution who do not apply or insufficiently apply the FATA recommendations.
    As noted earlier the AMLO has come into force with effect from 4th October 2007.
    It is too early to assess/review its implementation.

17. The twenty-third, twenty-fourth and twenty-fifth recommendations are that all
    countries should ensure that their financial institutions are subject to adequate
    regulation and supervision and that they are effectively implementation the FATA
    recommendations, and also that the non-financial business and professions should
    be subject to similar regulatory and supervisory measures. This is a question of
    law enforcement. The State Bank of Pakistan is enforcing its prudential regulations
    for Corporate and Commercial Banking. Any assessment/review of AMLO
    implementation would be premature.

18.     the twenty-six, twenty-seventh, twenty-eight, twenty-ninth, thirtieth, thirty-
      first and thirty-second recommendations are that all countries should establish
      financial intelligence units that serve as a national centre for receiving and
      analysis of suspicious transaction reports and other similar information, that
      designated law enforcement authorities should have responsibility for investigation
      into money laundering and terrorist financing, that such designated agencies
      should have adequate legal powers for terrorist financing , that such designated
      agencies should have adequate legal powers for investigation and prosecution,

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                  that there should be effective supervisory control for compliance of the legal
                  provisions, that the staff for enforcement of the law should be adequately trained
                  and comprise persons of high integrity, that there should be effective coordination
                  between the concerned agencies within each country as also with agencies of
                  other countries and that there should be a periodic review of the efficacy and
                  effectiveness of the measures taken for enforcement of the law and rules. Section
                  5 of the AMLO provides for establishment of a National Executive Committee
                  chaired by the Federal Finance Minister for developing, coordinating and
                  implementing the national strategy to fight money laundering. The executive arm
                  of the National Executive Committee is to be a Director General. Section 5 ibid
                  sets up a General Committee chaired by the Federal Finance Secretary to review
                  the performance of investigation agencies, the Financial Monitoring Unit, the
                  financial institution and non-financial business and professions. As noted earlier
                  section 6 provides for establishment of the Financial Monitoring Unit. Sections
                  9, 13, 14, 15, 16, 17 and 18 provide for investigation of the offences of money
                  laundering and predicate offences listed in the schedule, power of surveys, power
                  of search and seizure, powers to search persons, power to arrest, and powers
                  relating to retention of property and retention of records and also presumption
                  as to record and properties in certain cases. Section 21 provides that all offences
                  under the AMLO shall be non-cognizable and non-bail able. Section 20 provides
                  that all offences shall be tried by the Sessions Court. Section 23 provides for right
                  of appeal to the High Court. Section 24 read with section 2(K) prescribes that the
                  investigating agencies shall include NAB, FIA, ANF and any other notified law
                  enforcement agency.

              19. The thirty-third and thirty-fourth recommendations require the taking of measure
                  to prevent the unlawful use of legal persons and unlawful use of legal arrangements
                  by money launders. These recommendations are adequately covered by the AMLO
                  provisions discussed here in above. In this behalf section 8 of the AMLO also merits
                  mention. Section 8 ibid contains detail provisions for attachment of property
                  involved in money laundering.

              20. The thirty-fifth, thirty-sixth, thirty-seventh, thirty-eight, thirty-ninth and fortieth
                  recommendations relate to international coordination and mutual legal assistance
                  and extraditions these recommendations inter-alia requires all countries to provide
                  widest possible range of mutual legal assistance in relation to money laundering
                  and terrorist financing investigations prosecutions and proceedings relating to
                  money, and extraditable offences. Section 26 of the AMLO empowers the Federal
                  Government to enter into agreements or reciprocal bases with governments of
                  other countries for enforcing the provisions of MFLO. To exchange information
                  for prevention of offence under the AMLO or corresponding law of the other
                  country and to seek or provide assistance or evidence in respect of money
                  laundering and predicate offences and transfer of properties involved in such
                  offences. Section 27 empowers the investigating officers to issue letters of request
                  to States with whom Federal Government has entered into such agreements.
                  Section 28 obligates Pakistani courts and investigating agencies to provide
                  assistance to investigating agencies of contracting States. Section 29 contains
                  detail provisions for processing and assisting transfers of accused persons from
                  Pakistan to a contracting State and vice versa. Section 30 provides for attachment,
                  seizure and forfeiture of property in a contracting State or within Pakistan. Section
                  31 lays down the procedure to be followed in respect of letters of requests

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    received from or sent to a contracting State.

21. the eight(8) special recommendation with respect of terrorist financing are listed

         I.    Ratification and implementation of UN instruments
               Each country should take immediate steps to ratify and to implement
               fully the 1999 United Nations International Convention for the Suppression
               of the financing of Terrorism. Countries should also immediately implement
               the United Nations resolutions relating to the prevention and suppression
               of the financing of terrorist acts, particularly United Nations Security
               Council Resolution 1373.

         II.   Criminalizing the financing of terrorism and associated money
               Each country should criminalize the financing of terrorism, terrorist acts
               and terrorist acts and terrorist organizations. Countries should ensure
               that such offences are designated as money laundering predicate offences.

         III. Freezing and confiscating terrorist assets Each country should
              implement measures to freeze without delay funds or other assets
              of terrorists, those who finance terrorism and terrorist organizations
              In accordance with the United Nations resolutions relating to the
              prevention and suppression of the financing of terrorism, terrorist acts.
              Each country should also adopt and implement measures, including
              legislative ones, which would enable the competent authorities to seize
              and confiscate. Property that is the proceeds of, or use in, the financing
              of terrorism, terrorist acts or terrorist organizations.

         IV. Reporting suspicious transactions related to terrorism
             If financial institutions, or other business or entities subject to anti-
             money laundering obligations, suspect or have reasonable grounds to
             suspect that funds are Linked or related to, or are to be used for
             terrorism, terrorist acts or by terrorists organizations, they should be
             required to report promptly their suspicions to the competent authorities

         V.    International co-operation
               Each country should afford another country, on the basis of a treaty,
               arrangement or other mechanism for mutual legal assistance or information
               exchange, the Greatest possible measure of assistance in connection
               with criminal, civil enforcement, and administrative investigations,
               inquiries and proceedings relating to Financing of terrorism, terrorist
               acts and terrorist organizations Countries should also take all possible
               measures to ensure that they do not provide safe heavens for individual
               charged with the finance of terrorism, terrorist Acts or terrorist
               organizations, and should have procedures in place to extradite, where
               possible, such individuals

         VI. Alternative remittance
             Each country should take measures to ensure that persons or legal
             entities, including agents, that provide a service for the transmission

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                            of money or value Including transmission through an informal money or
                            value transfer system or network, should be licensed or registered and
                            subject to all the FATF recommendations that apply to banks and non-
                            bank financial institutions. Each country should ensure that persons or
                            legal entities that carry out this service Illegally are subject to
                            administrative, civil or criminal sanctions

                       VII. Wire transfer
                            Countries should take measures to require financial institutions, including
                            money remitters, to include accurate and meaningful originator information
                            (name, address and account number) on funds transfers and related
                            messages that are sent. And the information should remain with the
                            transfer or related message through the payment chain countries should
                            take measures to ensure that financial institutions, including money
                            remitters, conduct enhanced scrutiny of and monitor for suspicious
                            Activity funds transfers which do not contain complete originator
                            information (name, address and account number)

                       VIII. Non-profit organizations
                             Countries should review the adequacy of laws and regulations that relate
                             to entities that can be abused for the financing of terrorism. Non-profit
                             organizations are particularly vulnerable, and countries should ensure
                             that they cannot be misused:

                            o   By terrorist organizations posing as legitimate entities;
                            o   Of escaping asset freezing measures; and
                            o   To exploit legitimate entities as conduits for terrorist financing,
                                including for the purpose of escaping asset freezing measures; and
                            o   To conceal or obscure the clandestine diversion of funds intended
                                for legitimate purposes to terrorist organizations

              22. A ninth special recommendation was added in October 2004. it relates to cash
                  couriers and reads as under:
                  IX Cash couriers Countries should have measures in place to detect the physical
                  cross-border transportation of currency and bearer negotiable instruments,
                  including a Declaration system or other disclosure obligation Countries should
                  ensure that their competent authorities have the legal authority to stop or restrain
                  currency or bearer negotiable instrument that are suspected to be related to
                  terrorist financing or money laundering or that is falsely declared or disclosed.
                  Countries should ensure that effective, proportionate and dissuasive sanctions
                  are available to deal with persons who make false declaration(s) or disclosure.
                  In cases where the currency or bearer negotiable instruments are related to
                  terrorist financing or money laundering, countries should also adopt measures,
                  including legislative ones consistent with Recommendation 3 and Special
                  Recommendation III, which would enable the confiscation of such currency or

              23. It would be seen that the special recommendations are similar to and/or
                  amplification of the revised 40 recommendations. These special recommendations
                  are covered by various provision of the AMLO detailed and discussed hereinabove.
                  In addition pakistan's obligations under the various Security Council Resolutions

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    relating to freezing of lands and other financial resources of certain individuals
    and entities e.g. Al Qaida and Taliban, arms embargoes and Travel restrictions
    are being met through various SRO's issued by the Ministry of Foreign Affairs under
    the United Nations (Security Council) Act 1948 (XIV of 1948). The latest such SRO
    is No.473 (I) 2008 dated 14th May 2008

24. Section 35 of the AMLO bars the jurisdiction of the civil courts. Section 39 gives
    AMLO overriding effect over any other law for the time being in force.
Section 41 clarifies that thing in the AMLO shall apply to fiscal offences. Section 42
    empowers the Federal Government to amend the schedule containing the list of
    predicate offences. Section 43 empowers the government to make rules to give
    effect to the provisions of the AMLO. Section 44 empowers the FMU to make
    regulations for the enforcement of the Ordinance subject to the provisions and
    control of the National Executive Committee. Finally, section 45 empowers the
    Federal Government to remove any difficulty faced during the course of

25. There can be no doubt that the provisions of the AMLO fulfill Pakistan's obligations
    under the 1988 UN Convention and the 1998 UN General Assembly Resolution as
    spelt out in the FATA recommendations including the special recommendations
    relating to terrorist financing. The question still remains as to how effective will
    be its implementation.

26. The question of enforcement is vital importance because even after enactment
    of the AMLO Pakistan and is financial institutions can become the target of
    “appropriate counter-measure” by countries who determine that there is insufficient
    compliance with AMLO provisions. Self-evidently appropriate measure could
    include a variety of sanctions. In this behalf it is necessary and instructive to
    refer to the precise text of the twenty-first and twenty-second FATF
    recommendations. They reads as under:

“Measures to be taken with respect to countries that do not or insufficiently
comply with the FATF Recommendations”

    21. Financial institutions should give special intention to business relationships
    and transaction with persons, including companies and financial institutions, from
    countries which do not or insufficiently apply the FATA recommendations. Whenever
    these transactions have no apparent economic or visible lawful purpose, their
    background and purpose should, as far as possible, be examined, the findings
    established in writing, and be available to help the competent authorities, where
    such a country continues not to apply or insufficiently applies the FATA
    recommendations, countries should be able to apply appropriate countermeasure

    22. Financial institutions should ensure that the principal applicable to financial
    institutions, which are mentioned above are also applied to branches and majority
    owned subsidiaries located abroad, especially in countries which do not or
    insufficiently apply the FATA recommendations, to the extent that local applicable
    laws and regulations permit. When local applicable laws and regulations prohibit
    this implementation, competent authorities in the country of the parent institutions
    should be informed by the financial institutions that they cannot apply the FATA

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              27. As noted earlier in section 5 of the AMLO set up a National Executive Committee
                  (NEC) chaired by the Federal Finance Minister for developing, coordinating and
                  implementing the national strategy to fight money-laundering. Section 5(3)(a)
                  of the AMLO requires the NEC to meet regularly, to provide guidance and sanction
                  in framing of rules and regulations under the AMLO and to issue necessary direction
                  to the agencies involved in implementation. It appears essential that NEC should
                  meet at least once in 6 month for the purpose of reviewing enforcement of the
                  AMLO. The General Committee set up under section 5(4) to take measures for
                  development and review of performance of investigating agencies and training
                  programs for government, financial institutions, etc, should meet at least once
                  in a quarter. Similarly the Central Board of Directors of the State Bank should
                  regularly review the enforcement of its prudential Regulations for Corporate and
                  Commercial banking relating to money-laundering on quarterly basis. The Finance
                  Committee of National Assembly should also be appropriately involved in the
                  review process. Unless all this is done it may well be that AMLO will. like many
                  other laws, remain a document or deed letter with adverse consequences to our
                  national interests

                                        Quotes About Law:
                     “In a democracy, the opposition is not only tolerated as
                             constitutional, but must be maintained
                                   because it is indispensable.”
                                         Walter Lippmann

                      “One has not only a legal but a moral responsibility to
                         obey just laws, but conversely, one has a moral
                             responsibility to disobey unjust laws.”
                            Rev. Dr. Martin Luther King, Jr.


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