The international community loses hundreds of billions of dollars every year due to trade-based money laundering whereas Pakistan loses $10 billion a year to money laundering. A recent US reports identifies China, Russia, Mexico and India as the top four sources of illicit financial outflows.
The US State Department’s International Narcotics Control Strategy Report, refers to TBML (trade-based money laundering), the process by which criminals use a legitimate trade to disguise their criminal proceeds from their unscrupulous sources. This tradition allows traders and the currency big group to launder hundreds of billions of dollars every year. This is one of the most refined methods of cleaning the black money. The trade based money laundering red flags are among the hardest to determine.
In Pakistan, illegal financial flows put over $10 billion as escaping taxation and being taken out outside the country. The terrorist and insurgent financing, money laundering, bulk cash smuggling, abuse of informal value transfer systems and other illicit activities financing criminal activity continue to jeopardize the Pakistan’s security and development.
A United States think-tank, the Global Financial Integrity (GFI) estimates that India loses up to $51 billion every year due to illicit financial outflows. China tops the GFI list with $139 billion average outflow of illicit finances per annum, followed by Russia ($104billion) and Mexico ($52.8billion). India is the fourth largest source of illicit financial outflows in the world. Its main money laundering exposure comes from a widespread lack of access to formal financial institutions, particularly in the rural sector. Afghanistan remains the world’s largest opium producer and exporter. Corruption remains a major obstacle to the nation’s advancement. Afghanistan’s National Unity Government has enacted laws and regulations to battle financial crimes, but faces a substantial challenge in implementing and enforcing them.
India has been advised to consider the regulation of traditional money transfer methods and facilitate the development and expansion of new payment products and services, including mobile banking. The most common money laundering methods in India include opening multiple bank accounts to hide funds, purchasing bank cheques with cash and routing funds through complex legal structures. Criminal organizations in India use offshore corporations and trade-based money laundering to evade capital controls.
In India illicit funds are sometimes laundered through real estate, educational programs, charities and election campaigns. Laundered funds in India are derived from trafficking of narcotics and people and illegal trade, as well as tax avoidance and economic crimes.
In November 2016, the Reserve Bank of India demonetized the 500 and 1,000-rupee notes and introduced new banknotes to try to crack down on ‘black money’ stemming from corruption, tax evasion and other illicit financial activities. This did little to lessened long-term money laundering risks.
Pakistan is placed 46th among countries with high terror-financing, money laundering risks. It is among the top 50 countries with high terrorism financing and money laundering risks, according to a latest report by a Swiss group.
The Basel Institute on Governance, in its 2017 edition of the Basel Anti-Money Laundering (AML) Index which has assessed 146 countries regarding money laundering and terrorism financing risks, said that Afghanistan, Nepal and Sri Lanka stand out with particular high risk scores in the Index.
Pakistan has been placed on the 46th position in the list of 146 countries which have been given marks on a scale of 0 — low risk to high risk — to 10, by the Switzerland-based independent not-for-profit competence center. The average risk score this year is equal to 6.15.
The 10 countries with the highest AML risk are Iran, Afghanistan, Guinea-Bissau, Tajikistan, Laos and Mozambique. Mali, Uganda, Cambodia and Tanzania while the three lowest risk countries are Finland, followed by Lithuania and Estonia, the group said in a recent report published on its website.
Top-ranked Iran has scored 8.60 marks and bottom-ranked Finland 3.04. Pakistan has been given 6.64 marks, above this year’s average of 6.18. India has been placed on 88th rank with 5.58 marks.
The greatest improvements since 2016 have been made by Sudan, Taiwan, Israel and Bangladesh. The countries that deteriorated most severely in their scores in 2017 are Jamaica, Tunisia, Hungary, Uzbekistan and Peru.
In South Asia, Afghanistan, Nepal and Sri Lanka have been given 8.38, 7.57 and 7.15 marks and placed on the second, 14th and 25th ranks respectively. New York branch $225 million for failures to comply with laws and regulations designed to combat illicit money transactions.
A group of wealthy individuals residing in Pakistan have received ‘gifts’ worth Rs 102 billion during the last fiscal year 2016-17. The Federal Board of Revenue informed the Senate standing committee that the Anti-Money Laundering (AML) cell has started a probe into possible money laundering using the gift scheme.
Millions of rupees which should have gone to the government as taxes, were avoided by many individuals who reported this money as ‘gifts’ obtained from overseas family members.
There is nothing wrong with receiving gifts from abroad. The fact that no tax is deductible on these gifts makes it an attractive source of laundering money.
The AML cell’s data revealed that 2,785 wealthy individuals attributed Rs 102 billion in their wealth statements to gifts received from abroad.
Three of the individuals declared gifts of Rs 1 billion and above. Eight declared gifts worth between Rs 1 billion and Rs 500 million. 194 of them valued these gifts between Rs 500 million to Rs 100 million, while 280 reported between Rs 100 million and Rs 50 million. The remaining 2,348 were between Rs 50 million and Rs 10 million. In the preliminary investigation of the returns, wherever the net assets grew without any taxable income, ‘gifts’ were declared as the source of income without disclosing any details about the source of the gifts.
Money laundering with the intent of evading tax is a strict violation of the law and the money can be confiscated under the Anti-Money Laundering Act 2010. Moreover, culprits are liable to imprisonment for up to 10 years. Pakistan blames US for failure to curb money laundering. It put the blame of its failure to completely crack down on money laundering and terror financing on the United States.
It is not actively supporting its bid for membership of a global alliance. The Legal Working Group of the organization found some deficiencies in Pakistan’s Anti-Money Laundering (AML) Act and rejected the application. Pakistan had shared the latest status with both Japan and the US, requesting them to resume the process of its membership.
Mostly illicit money emanating from Pakistan due to corruption and organized and other serious crimes went out of the country. The assets acquired in Pakistan or abroad through illicit proceeds could be traced on the receipt of intelligence from the foreign FIUs or sharing of information with them. The group’s membership was very important for Pakistan. Despite engagements with the US, there had been no productive results so far.