06 Sep 2019
Money laundering is a complex type of a white-collar crime. It has far-reaching negative effects upon the economy of any country. What is money laundering? The Financial Action Task Force (FATF) identifies it as the processing of criminal proceeds to disguise their illegal origin. FATF being watchdog of governments’ financial activities to track any misappropriation related to money laundering regulations included Pakistan in its ‘grey list’ in June 2018. Let us understand how money laundering is being done in Pakistan.
Smurfing of money is a process where large amounts of money are divided into multiple small transactions, often spread out over many different accounts, to avoid detection. By investing in mobile commodities such as gems and gold, the same is easily moved to other jurisdictions.
Hundi is a major channel of money laundering in Pakistan. Overseas nationals send remittances to their relatives and friends through Hundi. It works as a credit transfer or IOU, and transfers money without actually moving it from one region to another. Allegedly, some foreign exchange companies use this process to hide their taxable earnings from government.
Physical bulk cash smuggling involves transferring cash to another jurisdiction and depositing it in a financial institution, such as an offshore bank, with greater bank secrecy or less rigorous money laundering enforcement. The purchase of real estate with cash is carried out in different ways such as use of third parties to buy real estate, manipulation of property values, structuring of cash deposits to buy real estate, rental income to legitimise illicit funds, overseas-based criminals investing in real estate, purchase of real estate to facilitate other criminal activity, renovations and improvements to property, use of front companies, and trust and shell companies to buy properties.
Sponsorship to terrorists is provided by money launderers and other criminals who support them in a disguised manner. In such cases, all the money that terrorists receive is actually ‘laundered’ money because it is kept hidden, and neither its original source nor its destination is revealed to government.
Pakistan, Iran, Afghanistan and India, have a high volume of opium cultivation and trade origins. Since their borders are not strictly protected and monitored, drug traffickers move drugs across the border and get cash in return from drug lords.
Laundering through trade involves under or over-valuing invoices to disguise the movement of money. For example, the art market has been accused of being an ideal vehicle for money laundering due to several unique aspects of art such as the subjective value of art works as well as the secrecy of auction houses about the identity of the buyer and the seller.
In cash-oriented businesses, typically expected to receive a large proportion of its revenue as cash, accounts are used to deposit criminally derived cash claiming it as legitimate earnings. Service businesses are best suited to this method, as such enterprises have little or no variable costs and/or a large ratio between revenue and variable costs, which makes it difficult to detect discrepancies between revenues and costs. Examples are parking structures, strip clubs, tanning salons, car washes, arcades, bars, and restaurants.
By Shahid Ilyas Khan, Daily Times, 6 September 2019
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