“MONEY LAUNDERING AND ITS IMPLICATIONS”

Abstract

The goal of a large number of criminal acts is to generate a profit for the individual or group that carries out the act. Money laundering is the processing of these criminal proceeds to disguise their illegal origin. This process is of critical importance, as it enables the criminal to enjoy these profits without jeopardizing their source. Illegal arms sales, smuggling, and the activities of organized crime, including for example drug trafficking and prostitution rings, can generate huge sums. Embezzlement, insider trading, bribery and computer fraud schemes can also produce large profits and create the incentive to “legitimize” the ill-gotten gains through money laundering. Crime can be highly profitable. Money generated in large volume by illegal activities must be “laundered,” or made to look legitimate, before it can be freely spent or invested; otherwise, it may be seized by law enforcement and forfeited to the government. Transferring funds by electronic messages between banks—“wire transfer”—is one way to swiftly move illegal profits beyond the easy reach of law enforcement agents and at the same time begin to launder the funds by confusing the audit trail. The International Monetary Fund, for example, has stated that the aggregate size of money laundering in the world could be somewhere between two and five per cent of the world’s gross domestic product. Using 1996 statistics, these percentages would indicate that money laundering ranged between 590 billion and 1.5 trillion US Dollars. The lower figure is roughly equivalent to the value of the total output of an economy the size of Spain. “The white collar crime of the 1990s is here and it is money laundering.” Money laundering has become a lucrative and sophisticated business and an indispensable element of organized crimes activities. It is the process by which a person conceals the existence, source, or use of illegitimate income and then disguises that income to make it appear legitimate. Since the present economy has made it tougher for money launders to free up the illegally acquired currency to either further their business operations or to fund new operations, they must find ways to hide the origins of the source before they could use the funds undetectably in a legitimate economy. Laundering money is no longer a domestic problem because it no longer involves drug trafficking, but all other criminals as well. According to the Financial Task Force 1997-98 Annual Report, “annual money laundering estimates range from $100 billion to $500 billion. It also reports that money laundering continues to increase in various areas around the world. For example, drug traffickers launder $100 billion globally each year and this is partly due to the increase in drug trafficking and organized crime.” The report shows that money laundering is a financial concern nationally and internationally because it is There are three principal sources of illicit funds in Pakistan: narcotics trafficking, corruption and smuggling. Narcotics trafficking proceeds come from the transshipment of narcotics produced in Afghanistan as well as Pakistan. Traffickers dealing in these narcotics operate all over the world, and the money laundering schemes associated with these trafficking operations are similarly global in nature. Large amounts of money are laundered, although the majority of the laundering takes place outside of Pakistan. Finally, many, if not all, of these schemes use the Hawala (also called "Hundi") alternative remittance system. There are longstanding allegations of large- scale corruption and money laundering against former Pakistani Prime Minister Benazir Bhutto and her husband, Ali Asif Zardari. Bhutto is under investigation in several jurisdictions. It is possible that Bhutto could have used a combination of techniques to launder money, including moving money to international financial centers in Europe and the Middle East as well as Hawallah. Prime Minister Nawaz Sharif, deposed by a military coup led by General Parvez Musharraf, is also accused of corruption. Many goods are smuggled across the relatively porous border between Afghanistan and Pakistan. For example, a smuggler will import goods into Afghanistan, which has low duties, and then smuggle them into Pakistan, which has high duties. He thus saves money on duties and sells the goods on the black market in Pakistan. In other cases, the goods are simply brought into Pakistan and sold. Smuggling operations may also involve the laundering of the proceeds of smuggling. Gold smuggling, often associated with Hawallah, is also an issue in Pakistan. Pakistan does not offer offshore services. Pakistan does not have a financial intelligence. Several agencies, most particularly the Anti-Narcotics Force and Pakistan Customs, play a major role in the investigation of financial crimes cases in Pakistan. In past years, Pakistani authorities, most particularly senior officials in the Anti-Narcotics Force, had expressed an interest in developing a working relationship with the United States on money laundering. The most significant money laundering cases involving Pakistan are the ongoing investigations of former Prime Ministers Benazir Bhutto and Nawaz Sharif. Pakistan needs to do several things to establish an effective anti-money laundering regime. First, it needs to enact legislation that fully criminalizes money laundering beyond drug trafficking. Second, Pakistan needs to mandate and implement a system of reporting of suspicious transactions by all financial institutions in Pakistan. Finally, given the major role that Hawala transactions play in money laundering in Pakistan, "anti- Hawala" countermeasures need to be developed and implemented.