White-collar crimes severely impact economies. The most common crimes include corruption, tax evasion, insider trading, embezzlement, cybercrimes, money laundering, copyright infringements and professional frauds. However, corruption and money laundering have the most severe impact on our global economy.
What is the cost of white-collar crimes? According to the United Nations (UN) Secretary General, international corruption costs $3.6 trillion and represents the main hurdle to achieving its sustainable development goals of 2030. A Millennium Project Report highlighted that the world loses $780 billion in illicit trade, $300 billion in piracy and counterfeiting and around $1 trillion to the drug trade. A Federal Bureau of Investigation report stated that white-collar crimes cost the USA more than $300 billion annually. A EU observer reported that European countries lose around €120 billion to corruption every year. Whereas Transparency International reported that the U.K. loses around £48 billion or 2% of their GDP to money laundering. The Federal Criminal Service Canada reported that organized financial crimes cost Canada roughly $5 billion per year. These statistics are disturbing, but who is leading the fight to address these challenges?
New Zealand, Denmark and Finland are the least corrupt countries on the Transparency International corruption index. In New Zealand, the Serious Fraud Office investigates financial crimes including bribery. The Electoral Commission deals with elections and ensures donations transparency. The Independent Police Conduct Authority investigates complaints against police and their conduct. Their judiciary ensures transparency and answers to a Judicial Conduct Commissioner. Corruption in the police and judiciary is low and favorable judicial decisions against irregular payments are rare.
An FATF – Asia Pacific Group (APG) Report found that Pakistan’s law enforcement agencies possessed only minimal knowledge of anti-money laundering/terrorist financing (AML-TF) risks
Effective monitoring systems and proper checks and balances can also be found in Finland and the U.S. Violations under Finnish laws result in conditional sentences that can include confiscation of proceeds, contract profits and prohibitions against engaging in business for three to seven years. In the United States, the Foreign Corrupt Practices Act (FCPA) is a comprehensive regulation with global reach that addresses both domestic and international crimes related to bribery. In all these countries, courts are transparent and provide impartial proceedings that ensure defendants receive fair trials and adjudication.
By comparison, Pakistan’s has weak preventive mechanisms to control corruption and fight white-collar crimes. Transparency International reported that in Pakistan bribes are pervasive. People encountered demands 43% of the time when dealing with local governments, 69% from the judiciary, 84% from police, and 48% when trying to procure medical services. An FATF – Asia Pacific Group (APG) Report found that Pakistan’s law enforcement agencies possessed only minimal knowledge of anti-money laundering/terrorist financing (AML-TF) risks. The Report also highlighted that Pakistan’s Banker’s association was not aware of provisions in the National Risk Assessment or AML-CFT risks faced by its members. The APG concluded that inefficient bureaucracy and high levels of corruption pose a significant barrier to compliance and business growth in Pakistan.
Why is Pakistan behind in combating white-collar crimes, corruption and money laundering? A review of our legislative history provides clues uncovering that many Acts and Orders were each created and utilized for personal gain. PRODA and EBDO were utilized to convict dissenting voices. EBDO articles five; seven and eight were used to disqualify around 6,000 people including more than 75 famous politicians. While General Zia’s presidential orders were suppose to eliminate corruption, he systematically enabled corruption by giving his supporter’s favors, writing off their loans, and issuing grants to members of national and provincial assemblies.
Musharraf followed his predecessor’s footsteps by rewarding his allies. He offered them lucrative Government positions and waived their outstanding loans. To punish his opponents, Musharraf introduced the NAB Ordinance and made it retroactive from 1985. This action violated a provision of Article 12 in the Constitution of Pakistan, which provides for protection against retrospective punishments. The NAB Ordinance resulted in the silencing of many dissenting voices. NAB was used to arrest people on flimsy grounds, keep them in jail for extended periods, and subject them to mental and physical torture to extract confessions or plea bargain. The ex-Chief Justice of Pakistan, Jawad S. Khawaja, described this practice as institutionalized corruption. The APG’s Mutual Evaluation Report observed that NAB’s performance resulted in only one person being convicted for money laundering related cases from 2013-2018.
Another impediment to eradicating white-collar crimes is our judicial system. As per a Global Competitive Report (GCR), two out of five Pakistanis believe that our judicial system is corrupt and issues favorable decisions for those accused of irregular payments. The report highlights that the corporate sector has no faith in the judiciary. It highlights that Pakistan’s judiciary is known for inefficiency, poor case management, unnecessary delays, nepotism and is subject to undue influence from the power corridor of wealthy, religious and political figures. Most foreign businesses operating in Pakistan prefer to include international arbitration clauses in their contracts to avoid litigation. One of the best examples is ICSID CASE NO. ARB/13/1 title Karkey Karadeniz Elektrik Uretim A.S vs Islamic Republic off Pakistan. In this case, the ICSID tribunal disagreed with both NAB and the Supreme Court’s findings, stating that there were no specific findings of corruption in NAB investigations as well as the Supreme Court judgment, related to Karkey in this case.
These examples highlight our need to urgently combat corruption, white-collar crimes, and illicit proceeds that all corrode the foundations of our society. Selective accountability has not only promoted corruption, but it has also drained our economy. To improve our global image, the way forward is clear. We must refocus our institutions, insist on a uniform application of our laws, and implement robust, effective controls over law enforcement and the judiciary to protect the rights of all Pakistanis.
The writer is a U.S. based corporate lawyer and subject matter expert in White Collar Crimes and Sanctions Compliance. He has written books on corporate and taxation law in Pakistan. [email protected]