Daily Times

Lately, there has been a lot of talk about money laundering in Pakistan as well as in different parts of the globe. Frequent calls are being made to check and curb the menace and improve legislations so that we can bring back money stashed abroad.

Though a lot is being said about the issue, there is still little awareness about what constitute money laundering and how is it undertaken.

Money laundering is a generic term used to describe the process by which criminals disguise their original ownership and control of the proceeds of criminal conduct and activities by making such proceeds appear to have been derived from a legitimate source.

The processes by which criminally-derived properties may be laundered are extensive and many. Though criminal money may be successfully laundered without the assistance of the financial sector, the reality is that hundreds of billions of dollars of criminally-derived money is laundered through financial institutions, annually.

The nature of the services and products offered by the financial services industry, namely managing, controlling and possessing money as well as property belonging to others, means that it is vulnerable to be abused by the money launderers.

Money laundering offences have more or less similar characteristics internationally. There are two key elements to committing a money laundering offence:

1. The necessary act of laundering i.e. the provision of financial services, and
2. A requisite degree of knowledge or suspicion , either subjective or objective,  relating to the source of the funds or the conduct  of a  client.

The act of laundering is committed in circumstances where a person is engaged in an arrangement,  by providing a service or product,  and that arrangement involves the proceeds  of crime . These arrangements also include a wide variety of business relationships such as banking, fiduciary and investment management.

The required degree of knowledge  or suspicion as such will depend  upon the specific offence  but will also usually be present where  the person providing  the arrangement, service or product knows , suspects or  has reasonable grounds  to suspect  that the property involved in the arrangement represents  the proceeds of the crime. In some cases, the offence may also be committed where a person knows or suspects that the person with whom he or she is dealing is engaged in or has benefitted from some criminal conduct.

Different jurisdictions define crime predicting the offence or money laundering in different ways. Generally, the difference between the definitions may be summarized as follows:

1. Differences in the degree of severity of crime regarded as quite sufficient  to predicate  an offence of money laundering. For example, in some jurisdctions, it is defined as being any crime that would be punishable by one or more years’ imprisonment. In other jurisdictions, the necessary punishment may be in the range of three to five years imprisonment; or
2. Difference in the requirement for the crime to be recognized both in the country where it took place  and by the laws of the jurisdiction where money laundering activity takes place or  there may be  simply a requirement  for the conduct  to be regarded  as a crime in the country  where the laundering  activity takes place, irrespective if how that conduct is  treated in the country where it had taken place. In practice, all service crimes including drug-trafficking, terrorism, fraud, robbery, prostitution, illegal gambling, arms-trafficking bribery and corruption are capable of predicating  money laundering offences in most jurisdictions.

There arises a pertinent question: can fiscal offences such as tax evasion predicate money laundering ? The answer depends upon the definition of crime contained within the money laundering legislation of a particular jurisdiction. The evasion and other fiscal offences are treated as predicating money laundering crimes in most of the countries of the world which have most effectively regulated jurisdictions.

The objective of the criminalisation of money laundering is to take the profit of crime. The rationale for the creation of the offence is that it is wrong for individuals as well as organisations to assist criminals to benefit from the proceeds of their criminal activity.

Lately, there has been a lot of talk about money laundering in Pakistan as well as across the globe. Frequent calls are being made to check and curb the menace and improve legislation to bring back money stashed abroad

How is money laundered?  The processes are many and extensive. Generally speaking, money is laundered whenever a person or business deals in any way with another person’s benefit from crime. This can happen in a number of ways.

Traditionally, money laundering has been described as a process with three quite distinct stages: placement, the stage at which criminally derived funds are introduced in the financial system; layering, the substantive stage of the process in which the property in ‘washed’ and its ownership and source remains disguised; integration  is the final stage at which the ‘laundered’ property  is re-introduced into the legitimate economy.

This three staged definition of money laundering is highly simplistic. The reality is that these so-called stages often overlap and in some cases, for example in cases of financial cries, there is no requirement  for the proceeds of the crime to be ‘placed’.

Money laundering as such is the process which is used to disguise the source of money or assets derived from some criminal activity. Profit-motivated crimes span over a variety of illegal activities ranging from drug trafficking and smuggling to fraud, extortion and corruption.

The scope of criminal proceeds is quite significant also as it is estimated at some 590 billion dollars to 1.5 trillion dollars worldwide each year,

Needless to mention that money laundering facilitates corruption and can destabilise economies of susceptible countries around the globe. It also compromises the integrity of legitimate  financial systems  and institutions and  provides organized crime the funds it needs  to conduct further criminal activities..

It is a global problem of quite serious nature and the techniques used are numerous and also very sophisticated. Technological advances in e-commerce, the global diversification of financial markets and new financial product developments provide further opportunities to launder illegal  profitand obscure the money trail.

Only in March 2017,the US State Department International Narcotics Control Strategy Report  had  reported that the international community loses hundreds of  billions of  dollars  every year  to trade-based  money laundering  alone,  and it identified  China, Russia, Mexico  and  India  as the fourtop  sources of  illegal financial  outflows, this practice is costing Pakistan about  10 billion dollars  a year.

And, a British report mentioned sometime back that Pakistanis were among the top in the list of communities associated with inflow of money into Britain illegally.

The incumbent Pakistan government is attaching due importance to controlling and eliminating money laundering. The Federal Government is in the process of requesting the friendly countries for information about those Pakistanis who have stashed big money illegally abroad and to help in bringing back these criminals to Pakistan for facing the legal process. A lot will be required to be done to pinpoint the money laundering culprits and to plug the gaps created by their activities in the economy.

The writer is Lahore-based Freelance Journalist, Columnist and retired Deputy Controller (News) Radio Pakistan, Islamabad

Published in Daily Times, February 16^th 2019.