THIS illegal wealth hidden mostly out of the country where generated, in a way that the trails cannot be detected to avoid any proceedings by the law enforcement agencies. In other words, it is the way of making the dirty money look clean. No one can tell that when actually money laundering started. However, we know this fact that it was a practice thousands of years back. In the “Lords of the Rim” Sterling Seagrave explained how in China some 2000 years back, the merchants would hide their wealth from the leaders who took it or punished them. They would also move this wealth to either remote provinces of China or abroad.
Likewise, money laundering is said to have started from the illegal transportation of goods and proceeds in the USA. The Chicago gangster Al Capone is said to be the father of modern money laundering. He carried out business in cash to hide his illegal alcohol proceeds in the early 1920s. The first scandal that appeared in the newspapers was the “Watergate scandal” in the USA in 1973.
The money laundering is carried out in a way that the illegal money is transferred utilizing financial institutions, shell companies, investment, etc. Shell companies are those that do not have any serious operations, employees, or manufacturing. Such institutions are formed to hide the ownership in the tax havens where the enforcement of laws is relatively relaxed. Money laundering has three main stages i.e. placement, layering and integration by which the criminal launders his black money in the economy thus causing great consequences domestically and internationally. Most common is it fuels corruption and organized crime. The corrupt public officials can easily launder bribes, public funds, kickbacks, etc.
In 1989, during the G-7 summit the Financial Action Task Force (FAFT) formed to monitor the financial sectors of the world. The FAFT is the global supervisory body that fosters international action against money laundering. FAFT recommended that all financial institutions needed to monitor all the major and large transactions that had no proper economic evidence. However, money laundering has been an issue in many countries.
Concisely, the different techniques used as highlighted by FATF that money could be laundered through financial crimes using financial systems such as cash courier, legal exports and imports. There are three stages first called pre-washing when the money-laundering criminals deposit their money from tax evasion into the bank. The second stage is called the main wash where the money travels globally to hide the illegal source of money. Offshore centres play a pivotal role at this stage. The more the money travels in the world there are fewer chances to be traced to the origin of the crime. Finally, this is the stage when the money can be used.
It is a sad fact that money laundering is a prevalent problem in Pakistan. All sorts of financial crimes related to narcotics, smuggling, tax evasion and corruption are the momentous problem of our country. The proceeds from narcotics and funding for terrorist activities are laundered through the alternative remittance system named hawala.
The regulators’ State Bank of Pakistan (SBP), National Accountability Bureau (NAB), Anti-Narcotics Force (ANF), Federal Investigation Agency (FIA) along with customs authorities look into enforcing Anti Money Laundering Laws. Nevertheless, it is uncontrollable due to the loopholes in the laws and unstable political regimes with stakes. Measures have been taken but the laws are not stringent enough and there is a weakness in the regulation and supervision.
We can take certain measures to reduce this menace. The printed and electronic media need to be mindful of “nip the evil in the bud” by playing a constructive role. It is important to increase public awareness and education on financial crimes and highlight the additional measures taken by the anti-money laundering acts. It is also important that there is strict scrutiny of the big and small projects thus controlling money laundering to some extent. Moreover, international laws should be formulated, especially the banking system to minimize money laundering. There is a need for such a system where banks refuse to keep illicit money globally.
—The writer is a Chevening Scholar LLM International Business.