Daily Times

Not a single country in this world is safe from the menace of money laundering. Money laundering is ubiquitous,and according to the United Nations Office on Drugs and Crimes,each year about $800 billion to $2 trillion is cleansed through different mediums. Countries with bank-secrecy laws are directly connected to countries with bank-reporting laws,making it extremely convenient to deposit money earned through unfair means in one country,and having it transferred to some other country for use.

Money laundering is the act of making money earned from a certain source seem like it is being earned from a different source. Criminals use a variety of ways to disguise the source of their illegitimate earnings,and make them seem like they have been earned through legitimate means. In an attempt to obscure the origin of the illegitimate earnings,the money is transferred to several countries.

In developing countries the most common types of criminals are corrupt politicians,embezzlers,public officials and human & drug traffickers. There are three basic steps to launder the money; placement, layering and integration. Placement is when the laundered money is put into a legitimate financial institution. After the initial steps of placement,comes layering. Layering involves sending the money through different financial transactions to change its form. The final stage is integration. In this stage,the money reenters the economy disguised as a legitimate transaction.

The US dollar has been the currency of choice to launder money. Its popularity is due to the wide acceptance and the volume of world-wide transactions. In recent years, the Euro is becoming more widely accepted too

There are countless organizations trying to get a hold on money laundering schemes,of which one has 37 member states and organizations known as the Financial Action Task Force on Money Laundering. The United Nations,World Bank and International Monetary Fund also have special units to counter money laundering schemes. There are tremendous money laundering techniques that the authorities know about,and countless others,which are still hidden.

The famous ones include:  the black market Colombian Peso exchange; setting up shell companies; overseas deposits; underground alternative banking; investing in legitimate businesses; and structuring deposits. Some developing Asian countries have well established trust based systems with ancient roots. These systems are undocumented,leave no proper trail and operate outside of the government control. This system includes the fie chen system in China and the Hawala system in India & Pakistan.

Most money laundering schemes use the aforementioned systems, through which a vast majority of money goes unnoticed,leaving a huge impact both socially and economically. The economic effects are horrendous in nature. Issues facing the world’s economies include errors in economic policy resulting from artificially inflated financial sectors. Massive influxes of illegitimate money into particular areas of the economy that are desirable to money launderers create false demand, and officials act on this new demand by adjusting economic policy.

Socially it implies that criminal activity does pay off,and encourages criminals to continue with their illicit schemes,because this means that they can make an ‘easy’ living,with negligible repercussions. More fraud leads to more crimes. Drugs and human trafficking increases,and people who operate small businesses legally, ultimately, lose hope and desire to make an honest living; since they cannot compete with the cheaper prices of the money laundering front businesses. These businesses are set up not to make a profit,but rather,to make their ill earned money seem legitimate. Making a profit is not on their agenda,turning their black money into something useable,is their agenda.

The US dollar has been the currency of choice to launder money. Its popularity is due to the wide acceptance and the volume of world-wide transactions. In recent years,the Euro is becoming more widely accepted too. Euro being the main legal tender of 19 European Union member countries; circulates in droves across the borders,without negligible notice.Taking that into consideration, the European Union has had to issue a number of anti-money laundering directives.

To trace the origins of any deposits is a daunting task,and no country has ever been able to completely eliminate the menace of money laundering. The Financial Action Task Force(FATF) is the most prominent international organization,when it comes to taking steps to halt money laundering altogether. The FATF has issued 40 recommendations,some of which include: Report any suspicious activity; build an internal task-force to identify any laundering clues; identify and do background checks on depositors.

Despite all efforts overall,the money launderers are winning,and countries with bank-secrecy laws make it extremely cumbersome to trace and decipher ill acquired money, from money made through legitimate means. 190 jurisdictions are a signatory to the FATF’s Recommendations and Pakistan is on the list of ‘High Risk and other monitored jurisdictions’. Without effective regulation and excessive cooperation between countries,this menace is here to stay for a very long time period. Whilst criminals are having the last laugh,and are obliterating the notions upon which a society and an economy is based.

The writer is a lawyer.

Published in Daily Times, September 29^th 2018.