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The objectives of those studies are as follows 1. To know what is money laundering, methods of money laundering? 2. To know the history of money laundering in different eras like before 9/11 & post 9-11. 3. What are the laws in different regions to control money laundering? 4. To know notable cases of money laundering all over the world. The main objective of this study is to know money laundering & its effects on Pakistan. In this way we searched the time line of money laundering in Pakistan also 1. Notable cases of money laundering in Pakistan. 2. Different methods of money laundering in Pakistan & sub-continent. 3. Regulations against money laundering in Pakistan. 4. Social, economics & cultural effects of money laundering.
MONEY LAUNDERING- AN INTRODUCTION
Money laundering is the practice of disguising the origins of illegally-obtained money. Ultimately, it is the process by which the proceeds of crime are made to appear legitimate. The money involved can be generated by any number of criminal acts, including drug dealing, corruption, accounting and other types of fraud, and tax evasion. The methods by which money may be laundered are varied and can range in sophistication from simple to complex. Many regulatory and governmental authorities quote estimates each year for the amount of money laundered, either worldwide or within their national economy. In 1996 the International Monetary Fund estimated that two to five percent of the worldwide global economy involved laundered money. However, the FATF, an intergovernmental body set up to combat money laundering, admitted that "overall it is absolutely impossible to produce a reliable estimate of the amount of money laundered and therefore the FATF does not publish any figures in this regard." Academic commentators have likewise been unable to estimate the volume of money with any degree of assurance.  Regardless of the difficulty in measurement, the amount of money laundered each year is in the billions and poses a significant policy concern for governments.  As a result, governments and international bodies have undertaken efforts to deter prevent and apprehend money launderers. Financial institutions have likewise undertaken efforts to prevent and detect transactions involving dirty money, both as a result of government requirements and to avoid the reputational risk involved.
METHODS OF MONEY LAUNDERING
Money laundering often occurs in three steps: first, cash is introduced into the financial system by some means (³placement´), the second involves carrying out complex financial transactions in order to camouflage the illegal source (³layering´), and the final step entails acquiring wealth generated from the transactions of the illicit funds (³integration´). Some of these steps may be omitted, depending on the circumstances; for example, non-cash proceeds that are already in the financial system would have no need for placement.  Money laundering takes several different forms although most methods can be categorized into one of a few types. These include "bank methods, smurfing, [also known as structuring], currency exchanges, and double-invoicing."
Structuring: Often known as "smurfing," it is a method of placement by which cash is broken into smaller deposits of money, used to defeat suspicion of money laundering and to avoid anti-money laundering reporting requirements. A sub-component of this is to use smaller amounts of cash to purchase bearer instruments, such as money orders, and then ultimately deposit those, again in small amounts.
Bulk cash smuggling: Physically smuggling cash to another jurisdiction, where it will deposited in a financial institution, such as an offshore bank, with greater bank secrecy or less rigorous money laundering enforcement.
Cash-intensive businesses: A business typically involved in receiving cash will use its accounts to deposit both legitimate and criminally derived cash, claiming all of it as legitimate earnings. Often, the business will have no legitimate activity.
Trade-based laundering: Under- or over-valuing invoices in order to disguise the movement of money.
Shell companies and trusts: Trusts and shell companies disguise the true owner of money. Trusts and corporate vehicles, depending on the jurisdiction, need not disclose its true, beneficial, owner.
Bank capture: Money launderers or criminals buy a controlling interest in a bank, preferably in a jurisdiction with weak money laundering controls, and then move money through the bank without scrutiny.
Casinos: An individual will walk in to a casino or a horse race track with cash and buy chips, play for a while and then cash in his chips, for which he will be issued a check. The money launderer will then be able to deposit the check into his bank, and claim it as gambling winnings. If the casino is controlled by organized crime and the money launderer works for them, the launderer will lose the illegally obtained money on purpose in the casino and be paid with other funds by the criminal organization.
DRUG MONEY LAUNDRING
Real estate: Real estate may be purchased with illegal proceeds, and then sold. The proceeds from the sale appear to outsiders to be legitimate income. Alternatively, the price of the property is manipulated; the seller will agree to a contract that underrepresents the value of the property, and will receive criminal proceeds to make up the difference.
which is illegal. terrorist financing concerns itself with the disguising the destination of the money. y Black salaries: Companies might have unregistered employees without a written contract who are given cash salaries. while money laundering typically involves disguising the source of the money. which is illegal. Black cash might be used to pay them. .y Terrorist Financing: Technically not money laundering at all.
however. so that it comes out the other end as legal. Al Capone. and a tax-deduction obtained into the bargain. the use of the µloan-back¶ concept. money. or washed. Meyer Lansky (affectionately called µthe Mob¶s Accountant¶) was particularly affected by the conviction of Capone for something as obvious as tax evasion. which could be declared to the µrevenue¶ if necessary. He states that: "Money laundering is called what it is because that perfectly describes what takes place .illegal. or clean. In other words. was prosecuted and convicted in October. or dirty. however. One of the ways in which they were able to do this was by purchasing outwardly legitimate businesses and to mix their illicit earnings with the legitimate earnings they received from these businesses. that the conviction of Al Capone for tax evasion may have been the trigger for getting the money laundering business off the ground. Gangsters there were earning huge sums in cash from extortion. It was this that he was sent to prison for rather than the predicate crimes which generated his illicit income and according to Robinson this tale that the term originated from this time is a myth. . gambling and bootleg liquor. 1931 for tax evasion. the source of illegally obtained funds is obscured through a succession of transfers and deals in order that those same funds can eventually be made to appear as legitimate income". Before the year was out he had discovered the benefits of numbered Swiss Bank Accounts. It would seem. They needed to show a legitimate source for these monies. Laundromats were chosen by these gangsters because they were cash businesses and this was an undoubted advantage to people like Al Capone who purchased them. prostitution. The use of the Swiss facilities gave Lansky the means to incorporate one of the first real laundering techniques. money is put through a cycle of transactions. This is where money laundering would seem to have started and according to Lacey Lansky was one of the most influential money launderers ever. which meant that hitherto illegal money could now be disguised by µloans¶ provided by compliant foreign banks. Determined that the same fate would not befall him he set about searching for ways to hide money.HISTORY OF MONEY LAUNDERING The term "money laundering" is said to originate from Mafia ownership of Laundromats in the United States.
The expression first appeared in a judicial or legal context in 1982 in America in the case US v $4.255. the use of the latest technological means and professional assistance. They revealed that over 80 per cent of all laundering schemes had an international dimension. the flexibility and adaptability of its operations.625.39 (1982) 551 F Supp. . As a 1993 UN Report noted: The basic characteristics of the laundering of the proceeds of crime.314. In addition. "Operation Green Ice" (1992) showed the essentially transnational nature of modern money laundering. Governments also recognized that criminal organizations. When one financial centre closes business for the day. which to a large extent also mark the operations of organized and transnational crime. It was from an increasing awareness of the huge profits generated from this criminal activity and a concern at the massive drug abuse problem in western society which created the impetus for governments to act against the drug dealers by creating legislation that would deprive them of their illicit gains. Since then. a characteristic that should not be overlooked is the constant pursuit of profits and the expansion into new areas of criminal activity. helped by the International financial community which is a 24hrs a day business. are its global nature. BACKGROUND Money laundering as a crime only attracted interest in the 1980s. could contaminate and corrupt the structures of the state at all levels. through the huge profits they earned from drugs. Money laundering is a truly global phenomenon.µMoney laundering¶ as an expression is one of fairly recent origin. The international dimension of money laundering was evident in a study of Canadian money laundering police files. the term has been widely accepted and is in popular usage throughout the world. The original sighting was in newspapers reporting the Watergate scandal in the United States in 1973. the ingenuity of its operators and the vast resources at their disposal. essentially within a drug trafficking context. another one is opening or open for business. More recently.
But. individual terrorist leaders. It will affect a broad range of companies. Moreover. with the growth in international capital flows. assets of 27 entities that included terrorist organizations. Measures against money laundering have increasingly become an important front in the fight against crime.S.MONEY LAUNDERING AFTER 9-11 The first strike against terrorism after the September 11 attacks on the World Trade Center and the Pentagon was a financial one. potentially linking the members of a criminal organization and leading to convictions of the ring leaders²who are hard to connect to the day-to-day criminal operations. financial institutions dealing with foreign customers and institutions. which expanded antimoney laundering provisions. moving money around the world has become easier and. Not two weeks had passed since the attacks when President Bush signed an executive order freezing the U. a corporation alleged to be a front for terrorism. The U. and investment companies. Many foreign countries are following suit. commodity firms. in the case of terrorist financing. banks and other financial and nonfinancial institutions in the United States had been required to keep increasingly detailed records of financial transactions and report suspicious dealings. It also imposes more exacting requirements for U. and several nonprofit organizations. Such measures can facilitate detection of financial trails that provide important sources of evidence. Anti-money laundering policies promise to become even more stringent in the aftermath of September 11. fighting money laundering is no easy task.S. International organizations have worked on designing common standards to fight money laundering and have begun to pressure countries with lax regulations to adopt stricter laws. financial institutions. policies to impede the covert flow of illicit funds through the global financial system were among the measures at the heart of Congressional debates on how to fight terrorism.S. it has also become easier to mask illegitimate monies in the stream . and provides for greater scrutiny to open new accounts at U. With increasing globalization and advances in banking technologies.S. it can make it more difficult to commit future acts. This response should come as no surprise. And. such as securities brokers and dealers. finding and seizing money or assets that result from criminal activity can also serve to take the motive out of crime. Even before September 11. In the days and weeks that followed. Congress passed the USA PATRIOT Act.
inexplicable wealth can draw the attention of authorities. More than 3. merchants in China protected their wealth from government confiscation using some of the same schemes in use today: converting money to movable assets. according to a study cited by money laundering expert Nigel Morris-Cotter rill. First. And. criminals have sought new ways to disguise their loot. To disguise the unlawful nature of funds. cash must be converted into a more portable and less suspicious form²sometimes achieved by using cashier¶s checks . have emerged as centers of importance in the realm of global finance. authorities have to think very differently about the issue. from government attention has a long history. The most cited figure is between 2 and 5 percent of global GDP²or between $600 billion to $1. when it comes to terrorism finance. and estimates of the size of underground economies on the upper bound. as new domestic laws have made money laundering more difficult in particular areas of the financial system. Even as nations such as Switzerland and the Cayman Islands have begun to restrict their coveted bank secrecy regimes. And. and trading at inflated prices to expatriate funds. experts believe the amounts are large. Instead of looking for dirty money in the process of being cleansed. nations with under regulated financial systems.000 years ago. The practice of disguising wealth. moving cash outside a jurisdiction to invest in a business. It is difficult to know if money is being counted more than once as it cycles through the system and harder still to know how much goes undetected. the more difficult it becomes to camouflage its origins and enjoy the proceeds of crime.of legitimate transfers. criminals must go through a process that varies from crime to crime but that generally involves three separate stages. Still. Nonetheless. Criminals have always tried to hide their money. this is an admittedly rough estimate based on extrapolations of the global sales of illegal drugs on the lower bound. criminals have known that handling and using the spoils of their endeavors can be one of their weakest links. The greater the amount illegally earned. Similarly.5 trillion per year. such as the Pacific island nation of Nauru. they now also have to detect funds that may have legitimate origins but are destined for criminal ends. Sudden. whether legitimate or illegitimate. Today. ever since Al Capone was put behind bars for tax evasion. nobody knows for sure how much money is laundered globally.
cash can simply be brought back into the United States. While traffickers only need to smuggle and distribute about 22 pounds of heroin to net $1 million. according to James Richards. Just the bulkiness of drug money creates logistical problems. and Nogales. Once there. they can be deposited at any U. Arizona. Or. Not surprisingly. bank without raising red flags. for example.S. Customs. financial institutions altogether.S. Petty criminals can get away with working in cash. banks. they often try to avoid triggering the mandatory reporting requirements of large cash transactions by U. this time declared at the border supported by false invoices and receipts. There is some evidence this technique is widespread: Brownsville. Illegal drug trafficking is believed to be the largest source for laundering in the United States and accounts for 60 to 80 percent of all federal money laundering prosecutions. points out Richards. Texas. and Money Laundering. the drug trade. Smuggling is done in a variety of ways. Justice Department officials have estimated that the weight of cash generated by drug sales is about ten times that of the drug itself for heroin and six times for cocaine. not every criminal act calls for the profits to be laundered. In this scheme. As the funds are recognized by U. had the most funds declared upon entry into the United States from the Mexican border²$8 billion and $5 billion. making it more difficult for law enforcement agencies to follow the trail. between 1988 and 1990²amounts much higher than would be justified by . they then have to contend with 220 pounds of street cash. Bulk cash smuggling across international borders is perhaps the most widespread way of doing this. the assets of drug traffickers and other criminals who produce vast volumes of cash are believed to be most vulnerable to detection at the stage of placing cash into the financial system. author of Transnational Criminal Organizations. respectively. the funds must be integrated into the legitimate financial system. But bigger criminals have to resort to increasingly elaborate methods to create the illusion of legitimate wealth. they can be placed in banks in countries that have weaker controls. Of course.S. Cybercrime. from employing an army of couriers who physically transport loads of concealed cash to using trucks and containers. Thus.S.or money orders²and then it is entered into the financial system. Take. Finally. cash smuggled out of the country is brought back in. or steer clear of U. Once the dollars leave the United States. it goes through a series of transactions that resemble legitimate activity and often involve crossing several national borders.
In addition. always below $10. Some criminals break down the cash earned into many smaller wads for deposit. launderers can blend legal and illegal profits and make large cash deposits into banks without eliciting questions. such as restaurants or liquor stores. Treasury Department (FinCEN). Such informal financial networks are very attractive to those seeking to transfer money without government notice because the transactions leave no paper trail. as two-way flows support the exchange: Cash for the payment is provided by customers wanting to send money in the opposite direction. .S.S.S. as cited by Richards. financial system without raising suspicion.) Front companies are another common way of placing cash in the system. The broker in turn. criminals may look beyond banks to businesses such as foreign exchange bureaus. according to the Financial Crimes Enforcement Network of the U. By running cashintensive businesses. money remittance businesses.their population or flow of commerce. many people²the smurfs²make large numbers of deposits. A person who wants to send money abroad takes the cash to an underground banker who gives him a marker or some form of receipt. there is also the option of using underground banking structures such as Hawala. Hawala is an old system that originated in South Asia but now operates in many countries. thus avoiding triggering U. In this method. minus a commission. informs his contacts in the transfer¶s destination so that the designated receiver can claim the money at the other end. at several different institutions on a daily basis. Launderers have also sought ways to use the U. (See section on the Colombian Black Market Peso Exchange. and check cashers to convert cash into easier-to-handle instruments or to send the funds abroad. And. This technique came to be called ³smurfing´ by law enforcement officials in Florida after the little blue cartoon characters. bank reporting regulations.000. The money does not physically need to be transported abroad.
Afghanistan The Financial Transactions and Reports Analysis Center of Afghanistan (FinTRACA) was established as a Financial Intelligence Unit (FIU) under the Anti Money Laundering and Proceeds of Crime Law passed by decree late in 2004. Also. 2002 (Act No. the FinTRACA works closely with law enforcement to investigate and prosecute the illegal activity.The main objective of FinTRACA is to deny the use of the Afghan financial system to those who obtained funds as the result of illegal activity." In this Act. The main purpose of this law is to protect the integrity of the Afghan financial system and to gain compliance with international treaties and conventions. as well as reports of cash transactions above a threshold amount specified by regulation. this issue has been dealt with by the Prevention of Money Laundering Act. to the extent allowed by law. conversion. the FinTRACA collects and analyzes information from a variety of sources. (b) Illegal transfer. Bangladesh In Bangladesh. FinTRACA has access to all related Afghani government information and databases. "Money Laundering means (a) Properties acquired or earned directly or indirectly through illegal means. concealment of location or assistance in the above act of the properties acquired or earned directly or indirectly through legal or illegal means. and to those who would use it to support terrorist activities. In terms of section 2. development of laws and regulations to support national-level AML objectives. These sources include entities with legal obligations to submit reports to the FinTRACA when a suspicious activity is detected. ³Properties means movable or .LAWS BY DIFFERENT REGIONS Many jurisdictions adopt a list of specific predicate crimes for money laundering prosecutions as a "self launderer". The Financial Intelligence Unit is a semi-independent body that is administratively housed within the Central Bank of Afghanistan (Da Afghanistan Bank). Other functions include training of those entities with legal obligations to report information. VII of 2002). and international and regional cooperation in the development of AML typologies and countermeasures. In order to meet its objectives. FinTRACA also cooperates internationally in support of its own analyses and investigations and to support the analyses and investigations of foreign counterparts. When the analysis of this information supports the supposition of illegal use of the financial system.
has introduced the Money Laundering Prevention Act. the account opening form should be duly filled up by all the information of the Customer.00 lac in a single day that has to be reported as CTR (cash Transaction report) All the Bank Officials must go through all the 26 Circulars and must use in doing the Banking. The KYC has to be properly filled up The TP (Transaction Profile) is mandatory for a client to understand his/her transactions. If in any account there is a transaction exceeding 7. Proper documents will be required if any Client does this type of transaction. It has to be noted if suddenly a big amount of money is deposited in any account. If needed. To prevent these Illegal uses of money Bangladesh Govt. If there is any suspicious transaction is notified. 2002 came into effect on 1 July 2005. . The Act was last amended in the year 2009 and all the Financial Institutes are following this act. Structuring. the BAMLCO (Branch Anti Money Laundering Compliance Officer) has to be notified and accordingly the STR (Suspicious Transaction Report) reporting has to be done.000. the TP has to be updated at the Client¶s consent. real estate agents and many more companies to investigate and report usage of cash in excess of ¼15. y y y y y y y y European Union The EU directive 2005/60/EC on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing tries to prevent such crime by requiring banks. The Cash department should be aware of the Transactions. All other necessary papers should be properly collected along with the Voter ID card. India The Prevention of Money-Laundering Act. Till today there are 26 Circulars issued by Bangladesh Bank under this act. The Foreign Exchange Department should look into this matter cautiously. over/ under Invoicing is another way to do Money Laundering.immovable properties of any nature and description´. To prevent Money laundering a banker must do the following: y While opening a new account.
financial institutions and intermediaries (a) to maintain records detailing the nature and value of transactions which may be prescribed. etc. must be maintained for ten years after the transactions finished. whether such transactions comprise of a single transaction or a series of transactions integrally connected to each other. and where such series of transactions take place within a month. certain professions. Crime and Security Act 2001 Proceeds of Crime Act 2002 Serious Organized Crime and Police Act 2005 The Proceeds of Crime Act 2002 contains the primary UK anti-money laundering legislation. The definition also covers activities which would fall within the traditional definition of money laundering as a process by which proceeds of . The provisions of the Act are frequently reviewed and various amendments have been passed from time to time. money transmission.Section 12 (1) prescribes the obligations on banks.  In effect any handling or involvement with any proceeds of any crime (or monies or assets representing the proceeds of crime) can be a money laundering offence. (b) to furnish information of transactions referred to in clause (a) to the Director within such time as may be prescribed and t records of the identity of all its clients. An offender's possession of the proceeds of his own crime falls within the UK definition of money laundering.  including provisions requiring businesses within the 'regulated sector' (banking.) to report to the authorities suspicions of money laundering by customers or others.  Money laundering is widely defined in the UK. investment. United Kingdom Money laundering and terrorist funding legislation in the UK is governed by four Acts of primary legislation:y y y y Terrorism Act 2000 Anti-terrorism. The recent activity in money laundering in India is through political parties corporate companies and share market. Section 12 (2) prescribes that the records referred to in sub-section (1) as mentioned above.
In most circumstances it would be an offence. UK money laundering offences are not limited to the proceeds of serious crimes.  Secondary regulation is provided by the Money Laundering Regulations 2003 and 2007. Professional guidance (which is submitted to and approved by the UK Treasury) is provided by industry groups including the Joint Money Laundering Steering Group  and the Law Society. are now required to report their suspicions to the authorities (since these entail suspicions of money laundering). by criminal conduct.e. since the money laundering legislation covers assets of any description. 'tipping-off'. nor are there any monetary limits. One consequence of the Act is that solicitors. one from which he obtains some benefit in the form of money or an asset of any description) in the UK will inevitably also commit a money laundering offence under UK legislation. 2001/97/EC and 2005/60/EC. Unlike certain other jurisdictions (notably the USA and much of Europe). They are directly based on the EU directives 91/308/EEC. for the reporter to inform the subject of his report that a report has been made. evades a liability (such as a taxation liability) ± referred to by lawyers as "obtaining a pecuniary advantage" ± as he is deemed thereby to obtain a sum of money equal in value to the liability evaded. These provisions do not however require disclosure to the authorities of information received by certain professionals in privileged circumstances or where the information is subject to legal professional privilege.crime are concealed or disguised so that they may be made to appear to be of legitimate origin.  The principal money laundering offences carry a maximum penalty of 14 years imprisonment. This applies also to a person who. and insolvency practitioners who suspect (as a consequence of information received in the course of their work) that their clients (or others) have engaged in tax evasion or other criminal conduct from which a benefit has been obtained. nor is there any necessity for there to be a money laundering design or purpose to an action for it to amount to a money laundering offence. A money laundering offence under UK legislation need not involve money. In consequence any person who commits an acquisitive crime (i. accountants. .
Although 5. Checks can be carried out by HMRC on all Money Service Businesses. such as Western Union outlets. United States The approach in the United States to stopping money laundering is usefully broken into two areas: preventive (regulatory) measures and criminal measures. in the UK fall within the 'regulated sector' and are required to comply with the Money Laundering Regulations 2007.582 reports in the year ended 30 September 2010 ± an increase from the 228. Instead reports have to be made of all suspicious deposits or transfers. Bureaux de change and money transmitters. such as bullfighting in Spain. The reporting obligations include reporting suspicions relating to gains from conduct carried out in other countries which would be criminal if it took place in the UK. There are more than 200.108 different organizations submitted suspicious activity reports to the authorities in the year ended 30 September 2010 just four organizations submitted approximately half of all reports. and the top 20 reporting organizations accounted for three-quarters of all reports. Exceptions were later added to exempt certain activities which were legal in the location where they took place. Most of these reports are submitted by banks and similar financial institutions (there were 186.834 reports submitted in the previous year ).However there is no obligation on banking institutions to routinely report monetary deposits or transfers above a specified value. The offence of failing to report a suspicion of money laundering by another person carries a maximum penalty of 5 years imprisonment.897 reports from the banking sector in the year ended 30 September 2010). irrespective of their value. . Bureaux de change All UK Bureaux de change are registered with Her Majesty's Revenue and Customs which issues a trading licence for each location.000 reports of suspected money laundering submitted annually to the authorities in the UK (there were 240.
 The financial database created by these reports is administered by the U. as well as other FIU¶s around the globe. financial institutions must report transaction on a Suspicious Activity Report (SAR) that they deem ³suspicious. such as those with private banking accounts and those of foreign government officials. require financial institutions. which under the current definition include a broad array of entities. Cash transactions in excess of $10. life insurers. contained in sections 5311 through 5332 of Title 31 of the United States Code. credit card companies. generally by structuring cash deposits to amounts lower than $10. money service businesses and broker-dealers in securities.¶s Financial Intelligence Unit (FIU). and FinCEN will conduct computer assisted analyses of these reports to determine trends and refer investigations. that it is structured to evade BSA requirements or appears to serve no known business or apparent lawful purpose.000 must be reported on a Currency Transaction Report (CTR). Virginia. Additionally.´ This includes obtaining satisfactory identification to give assurance that the account is in the customer¶s true name. All accounts are subject to ongoing monitoring. The US is one of the few countries in the world to require reporting of all cash transactions over a certain limit. which is sometimes known in the parlance as ³know your customer. which is located in Vienna. or that the institution is being used to facilitate criminal activity.Preventive In an attempt to prevent dirty money from entering the US financial system in the first place.´ defined as a knowing or suspecting that the funds come from illegal activity or disguise funds from illegal activity. the United States Congress passed a series of laws. although certain businesses can be exempt from the requirement. These laws. identifying the individual making the transaction as well as the source of the cash. called the Financial Crimes Enforcement Network (FinCEN). and having an understanding of the expected nature and source of the money that will flow through her accounts. starting in 1970.S. Other classes of customers. These reports are made available to US criminal investigators. collectively known as the [Bank Secrecy Act]. including banks. are subjected to enhanced due diligence because the law deems that those types of accounts are a higher risk for money laundering. in which internal bank software scrutinizes transactions and flags . to report certain transactions to the United States Treasury. The BSA requires financial institutions to engage in customer due diligence. Attempts by customers to circumvent the BSA.000 by breaking them up and depositing them on different days or at different locations also violates the law.
location or control of the money.000 on a form called Report of International Transportation of Currency or Monetary Instruments (known as a CMIR). the U. However. such as automobile dealerships.S. That legislation. identifying the source of the cash. has been deemed a financial transaction under the law. a ³financial transaction´ has been broadly defined. in Washington D. known as ³specified unlawful activities´ (SUAs). If a manual inspection reveals that the transaction is suspicious. particularly as it related to foreign political figures. Additionally.for manual inspection those that fall outside certain parameters. . and need not involve a financial institution. Likewise. imposes controls on the movement of currency across its borders. the institution should file a Suspicious Activity Report. the Federal Reserve and the Office of the Comptroller of the Currency regularly inspect banks. businesses. or even a business. that receive cash in excess of $10. The regulators of the industries involved are responsible to ensure that the financial institutions comply with the BSA. the lone possession of money without either a financial transaction or an intent to conceal is not a crime in the United States. ownership or control of the funds. There is no minimum threshold of money. Moreover. nor is there the requirement that the transaction succeed in actually disguising the money. contained at section 1956 of Title 18 of the United States Code. In addition to the BSA. Most famously. so long as it is done with the intent to disguise the source. Criminal sanctions Money laundering has been criminalized in the United States since the Money Laundering Control Act of 1986.C. the law requires that an individual specifically intend in making the transaction to conceal the source. A number of banks have been fined and prosecuted for failure to comply with the BSA.000 must likewise file a Form 8300 with the Internal Revenue Service. Riggs Bank. was prosecuted and functionally driven out of business as a result of its failure to apply proper money laundering controls. For example. Merely passing money from one person to another. and may impose civil fines or refer matters for criminal prosecution for non-compliance. prohibits individuals from engaging in a financial transaction with proceeds that were generated from certain specific crimes. requiring individuals to report the transportation of cash in excess of $10. ownership..
But for institutions with millions of customers and thousands of customer-contact employees.[clarification needed] Technology Information technology can never be a replacement for a well-trained investigator. financial intermediaries will often be able to identify unusual or suspicious behavior. Such anomalies would include any sudden and substantial increase in funds or a large withdrawal. so too does the technology used to fight it. The software will also flag names that have been placed on government "blacklists" and transactions involving countries that are thought to be hostile to the host nation. Anti-money laundering software filters customer data. and unlike the money laundering statute. unusual transactions. requires that the money pass through a financial institution. prohibits spending in excess of $10. . structuring can lead to flagged transactions. including false identities. INTERNATIONAL ENFORCEMENT AGAINST MONEY LAUNDERING The first defense against money laundering is the requirement on financial intermediaries to know their customers²often termed KYC know your customer requirements.In addition to money laundering. traditional ways of knowing their customers must be supplemented by technology. changing behaviour. the law. the United States Department of Justice typically convicted a little over 81. or other indicators of laundering. regardless of whether the individual wishes to disguise it. but as money laundering techniques become more sophisticated. Many Companies provide software and databases to help perform these processes. Knowing one's customers. This carries a lesser penalty than money laundering. According to the records compiled by the United States Sentencing Commission.000 derived from an SUA. and inspects it for anomalies.000 people. Smaller transactions that meet certain criteria may be also be flagged as suspicious. of this. approximately 800 are convicted of money laundering as the primary or most serious charge. contained in section 1957 of Title 18 of the United States Code. classifies it according to level of suspicion. in 2009. Bank and corporate security directors can also play an important role in fighting money laundering. For example.
Unusual activity on an account may trigger a call from the card issuer to make sure it has not been misused. statistical and profiling engines. transaction risks that can be reviewed intelligently. which does not entitle them to vote. FATF has develop 40 Recommendations on money laundering and 9 Special Recommendations regarding terrorist financing. rule-based systems. but more often the common theft of credit cards or bank details.Once the software has mined data and flagged suspect transactions. the Financial Action Task Force on Money Laundering (FATF) is an intergovernmental body whose purpose is to develop and promote an international response to combat money laundering. FATF expanded its mission to include combating the financing of terrorism. it generates a report. In addition. business. and time sequence matching. link analysis. financial and law enforcement experts to achieve national legislation and regulatory AML and CFT reforms. Other elements of AML technology include portals to share knowledge and e-learning for training and awareness. its membership consists of 34 countries and territories and two regional organizations. FATF: Financial Action Task Force against Money Laundering Formed in 1989 by the G7 countries. FATF works in collaboration with a number of international bodies and organizations. FATF assesses each member country against these recommendations in published reports. In October 2001. product. neural networks. The various software packages are capable of name analysis. but permits full participation in plenary sessions and working groups. Currently. as well as automatic risk scoring of the customer taking account of country. which brings together legal. Also. These entities have observer status with FATF. entity. . FATF is a policy-making body. there are specific KYC solutions that offer case-based account documentation acceptance and rectification. peer group analysis. Countries seen as not being sufficiently compliant with such recommendations are subjected to financial sanctions. This software is not used exclusively to track money laundering.
and Switzerland. electronics.A PAKISTANI PERSPECTIVE Pakistan is not considered a regional or offshore financial center. similar to the lack of control of Islamic charities. Private unregulated charities are also a major source of illicit funds for international terrorist networks. including drug trafficking money. building materials. Some goods such as foodstuffs. The abuse of the charitable sector. The lack of control of madrassas.Luxembourg.K. and other products transiting Pakistan dutyfree under the Afghan Transit Trade Agreement are sold illegally in Pakistan. Pakistani criminal networks play a central role in the transshipment of narcotics and smuggled goods from Afghanistan to international markets. smuggling. allows terrorist and jihadist organizations to receive financial support under the guise of support of Islamic education. Pakistan is a major drug-transit country. corruption and fraud are significant problems. financial crimes related to narcotics trafficking. smuggling. terrorism. Jersey (Channel Islands). late 1990s  y Nauru: $70 billion of Russian capital flight laundered through unregulated Nauru offshore shell banks. hawala. late 1990s y Sani Abacha: $2±5 billion of government assets laundered through banks in the U. of criminal proceeds. Pakistan does not have firm control of its borders with Afghanistan. Iran and China. and physical cross-border cash transfers are the common methods used to launder money and finance terrorism in Pakistan. trade-based money laundering. Money laundering and terrorist financing are often .. estimated in billions. laundered during the mid-1980s. Counterfeit goods generate substantial illicit proceeds that are laundered. tax evasion. however.NOTABLE CASES OF MONEY LAUNDERING y Bank of New York: $7 billion of Russian capital flight laundered through accounts controlled by bank executives. facilitating the flow of smuggled goods to the Federally Administered Tribal Areas (FATA) and Baluchistan. y Bank of Credit and Commerce International: Unknown amount. Madrassas have been used as training grounds for terrorists and for terrorist funding. by president of Nigeria. MONEY LAUNDERING.
inaccurate invoicing is common in the region and could be used by entities operating out of these zones. legitimate remittances from the roughly five million Pakistani expatriates residing abroad.5 billion in 2006-2007. the State Bank of Pakistan required all hawaladars to register as authorized foreign exchange dealers and to meet minimum capital requirements. Fraudulent invoicing is typical in hundi/hawala counter valuation schemes. therefore accepting the APG requirement that members develop. In 2007. Despite the State Bank of Pakistan¶s efforts. A high-level APG delegation visited Pakistan in early July 2007 to discuss Pakistan¶s long-delayed passage of comprehensive anti-money legislation. This system is also widely used by the Pakistani people for informal banking purposes. Most illicit funds are transacted through these unlicensed operators. Pakistan has adopted measures to strengthen its financial regulations and enhance the reporting requirements for the banking sector to reduce its susceptibility to money laundering and terrorist financing. Although no evidence has emerged of EPZs being used in money laundering. unlicensed hawaladars still operate illegally in parts of the country (particularly Peshawar and Karachi). However. Pakistan has established a number of Export Processing Zones (EPZs) in all four of the country¶s provinces. For example. and authorities have taken little action to identify and enforce the regulations prohibiting nonregistered hawaladars.accomplished in Pakistan via the alternative remittance system called hundi or hawala. pass and implement anti-money laundering and counter-terrorist financing legislation and other measures based on accepted international standards.S.S. $5. 2007. The investigation also revealed that the business group used hawala to transfer large amounts of money and value through a prominent foreign exchange company based in Karachi. financial institutions are required to follow ³know your customer´ provisions and must report within three days any funds or transactions they believe are proceeds of criminal activity. The business over-invoiced the value and quantity of the exports of garments and textiles to Dubai and Saudi Arabia. $330 million. Pakistan became a member of the Asia/Pacific Group on Money Laundering (APG) in 2000. In June 2004. although controls have been significantly tightened since 2002. APG members agreed that INCSR 2008 Volume II 356 unless Pakistan enacts and proclaims into force consolidated AML legislation or issues a Presidential Ordinance prior to December 31. the value of the trade consignments totaled U. sent via the hawala system prior to 2001. At its July plenary. From 2001-2007. now flow mostly through the formal banking sector and have increased significantly to U. The chairman of the business group and his partners held 49 percent shares in the Dubai-based company that imported many of the goods. Pakistan¶s . the Directorate General of Customs Intelligence (DGCI) investigated a well-known Pakistani business group involved with trade-based money laundering.
However.g. the National Accountability Ordinance of 1999. very few suspicious transactions have been reported or utilized. and environmental crime) are covered as predicate offenses. Because Pakistan has lacked a central repository for the reporting of suspicious transactions and the lack of protection from liability for reporting. Lastly. President Musharraf signed an ordinance to implement the long-awaited AML bill through a presidential ordinance. it is subject to the supervision and control of the General Committee.membership could be suspended. In addition to the 2007 Anti-Money Laundering Ordinance. which defines the crime of terrorist finance and establishes jurisdiction and punishments. From July 2006 through June 2007. comprised of several Government of Pakistan (GOP) cabinet secretaries. On September 8. the FMU has yet to be fully staffed and investigators have not been adequately trained. the Anti-Narcotics Force (ANF). major laws in these areas include: The Anti-Terrorism Act of 1997. The AML ordinance formally establishes a Financial Monitoring Unit (FMU) to monitor suspicious transactions. the reporting structure of the Financial Monitoring Unit may affect its independence and effectiveness. thus limiting its independence. The Ordinance also does not contain any specific requirement to report transactions in relation to terrorist financing. The National Accountability Bureau (NAB). especially the core FATF Recommendations related to the criminalization of money laundering and suspicious transaction reporting. Currently. Some of the weaknesses identified in the new AML Ordinance include the following: Not all of the FATF designated categories of offenses (e. arms trafficking. and the Directorate of Customs Intelligence and Investigations (CII) all oversee Pakistan¶s financial enforcement efforts. trafficking in persons. 22 suspicious transactions were reported to the State Bank of Pakistan by various banks and five referred to law enforcement agencies for investigation. the Federal Investigative Agency (FIA). The forfeiture procedures set forth in the law are cumbersome and will inhibit the successful seizure and confiscation of property involved in offenses. While creating this ordinance averted suspension of membership in the APG. Pakistan still has work ahead to meet international standards.. The intent and knowledge requirement required to prove the offense of money laundering is not consistent with the standards set out in the Vienna and Palermo Conventions. racketeering. smuggling. not the transfer of legitimate money to promote criminal activity. Several law enforcement agencies are responsible for enforcing financial crimes laws. sexual exploitation. which requires financial institutions to report corruption related suspicious transactions to the NAB and establishes accountability courts. and . Only the concealment of criminal proceeds is an offense. The definition of what constitutes a suspicious transaction is not adequate as it does not cover cases where an individual ³suspects´ or ³has reason to suspect´ that funds are the proceeds of criminal activity.
entity or individual on the grounds that it is involved with terrorism. They have established AML units to enhance financial sector oversight. 16 names were listed in annex to the ATA. Section 11B of the ATA specifies that an organization is proscribed or listed if the GOP has reason to believe that it is involved with terrorism. As of 2006. Pakistan has the ability to freeze bank accounts and property held by terrorist individuals and entities. The ANF shares information about seized narcotics assets and the number of arrests with the USG. or is involved in a funding arrangement intending that such money or other property should be used. trusts. the Money Laundering and Financial Crimes 357 prohibition of shell banks. The State Bank of Pakistan has introduced regulations on AML that are generally consistent with the FATF recommendations in the areas of ³know your customer´ and enhanced due diligence procedures. In 1997. which has regulatory oversight for nonbank financial institutions. the government may order the freezing of its accounts. none have been added since. and other nonbank financial institutions.the Control of Narcotics Substances Act of 1997 which criminalizes acts of money laundering associated with drug offenses and requires the reporting of narcotics related suspicious transactions. these units often lack defined jurisdiction and adequate resources to effectively supervise the financial sector on AML/CTF controls. or has reasonable cause to suspect that they may be used. has also applied ³know your customer´ regulations to stock exchanges. bank accounts of 43 individuals and entities had been frozen under various UNSCRs. Pakistan has specifically criminalized various forms of terrorist financing under the Anti-Terrorism Act (ATA) of 1997. ANF and customs have the ability to seize assets whereas the State Bank of Pakistan has the ability to freeze assets. This done. record retention. The Securities and Exchange Commission of Pakistan. However. for the purpose of terrorism. Pakistan has issued freezing orders for terrorists¶ funds and property in accordance with UN Security Council Resolutions 1267 and 1373. FIA. The State Bank of Pakistan circulates to its financial institutions the list of individuals and entities that have been included on the UN 1267 Sanctions Committee¶s consolidated list. The State Bank of Pakistan and the Securities and Exchange Commission of Pakistan (SECP) are the country¶s primary financial regulators. However. Pakistan has also adopted measures to strengthen its financial regulations and enhance the reporting requirements for the financial sector to reduce its susceptibility to money laundering and terrorist financing. Sections 11H-K provide that a person commits an offence if he is involved in fund raising. and the reporting of suspicious transactions. uses and possesses property. there have been some deficiencies concerning the timeliness and thoroughness of . The ATA of 1997 also allows the government to proscribe a fund. The NAB.
Pakistan is in compliance with FATF¶s Special Recommendation IX as they have the ability to ask anyone entering Pakistan if they are bringing in any currency. the UN Convention against Transnational Crime. cash smuggling is an offense punishable by up to five years in prison. For example. Pakistan is not a signatory to the UN International Convention for the Suppression of the Financing of Terrorism. Pakistan is ranked 138 out of 180 countries monitored in Transparency International¶s 2007 Corruption Perception Index.the asset freezing. A Charities Registration Act has been under consideration by the Ministry of Welfare for some time. Reportedly. unless issued as a Presidential Ordinance by the President.S. INCSR 2008 Volume II 358 Pakistan is party to the 1988 UN Drug Convention and the UN Convention against Corruption and has signed. The State Bank of Pakistan legally allows individuals to carry up to U. The court system has also failed to affirm Pakistan¶s international obligations and maintain closure of UN-proscribed charitable organization. $10. some dating back to the middle of the nineteenth century. There is little follow-up on suspect individuals associated with charities in question. Current efforts to crack down on the flow of illicit funds via charitable organizations are limited to closure of the charity. Although . it will be better able to monitor suspicious charities and ensure that they have no links to designated terrorists or terrorist organizations. thus allowing them to operate freely under alternate names. The bill will then require approval by the cabinet and National Assembly. during 2007 authorities made a number of significant cash seizures at the international airports in Karachi.000 in dollars or the foreign currency equivalent. Under this bill. Although there is no requirement for the inbound reporting of currency. the Economic Affairs Division of the Ministry of Finance is reviewing the draft text and will then forward the bill to the Ministry of Law for review. a provincial court in Karachi permitted a charity to continue operating in the face of a closure order. bulk cash couriers are the major source of funding for terrorist activities. The GOP failed to aggressively appeal this court decision. Lahore and Peshawar as well as land border crossings. As a result of cash courier training received by Pakistan in 2006. According to the Pakistan Central Board of Revenue. In tracking the cross border movement of currency Pakistan currently has reporting requirements only for the exportation of currency not the importation of currency. The Ministry of Social Welfare hopes that when the new legislation is enacted. charities can register under one of a dozen different acts. Currently. provided the charity in question only engaged in humanitarian operations. In one such case. their efforts to stop and seize the illicit crossborder movement of cash have increased. Currently. but not ratified. charities would have to prove the identity of their directors and open their financial statements to government scrutiny. There are joint counters at international airports staffed by the State Bank of Pakistan and Customs to monitor the transportation of foreign currency.
Since few suspicious transaction reports are filed. TIME-LINE HISTORY OF MONEY LAUNDERING IN PAKISTAN AFTER 9-11 2001 2001 . that allows money to be exchanged between traders through a handshake. At expiry. In light of the role that private charities have played in terrorist financing. Pakistan must work quickly to conduct outreach. and close those that finance terrorism. Pakistan should also become a party to the UN Convention against Transnational Organized Crimeand the UN International Convention for the Suppression of Terrorist Financing. supervise and monitor charitable organizations and activities. ensure that the legal provisions are made permanent. The Presidential Ordinance was valid for only four months and was due to expire in early January 2008. comprised of political ministers. money had been transferred through an unofficial system known as hawala. the GOP needs to amend the current AML Ordinance or pass additional legislation to remedy the number of deficiencies which exist. Pakistan should implement and enforce cross-border currency reporting requirements and focus greater efforts in identifying and targeting illicit cash couriers. Pakistan¶s Financial Monitoring Unit (FMU) needs to be further staffed and strengthened and should be given operational autonomy rather than subject to the supervision and control of the General Committee. For generations. In accordance with FATF Special Recommendation IX. a piece of paper or on trust. The GOP should also issue implementing regulations to consolidate and de-conflict the reporting obligations of suspicious transactions contained in various laws and regulations. Pakistan should not become dependent on these reports to initiate investigations but rather law enforcement authorities should be proactive in pursuing money laundering in their field investigations.State Bank of Pakistan introduced stringent measures to curb money-laundering and bring foreign currency remittances into official banking channels after joining the US-led war on terrorism in 2001. the AML Ordinance must be ³re-enacted´ or ratified by the National Assembly. 2003 . and make it fully compliant with international standards.the Government of Pakistan has adopted a long-awaited AML ordinance by presidential decree after years of delay and stall tactics.
The impact clearly helped Pakistan when the remittances of overseas Pakistani workers started flowing into the country through banking channels.5 billion in 2006-07. 2004 Nov 2004 . . 2008 Feb 28. the United Kingdom. With the passage of time the monitoring by the US relaxed and the non-involvement of any Pakistani bank in money laundering also made the harsh check on Pakistan relatively soft.Aug 2003 . 2007 Nov 15.120. The FATF welcomes the significant progress made in the northern part of Cyprus and notes that the northern part of Cyprus has substantially addressed the AML/CFT deficiencies that the FATF had identified.The FATF reaffirms its public statement of 28 February 2008 regarding the money laundering and financing of terrorism risks posed by Pakistan and Sao Tome and Principe. There is currently no concerted legal framework for addressing money laundering in Pakistan. Suppliers in Pakistan transported heroin via commercial aircraft from Pakistan through the United Kingdom for further transport to the United States and Canada.In August 2003 the US Attorney's Office for the District of Maryland announced the indictment of 11 individuals in connection with an international heroin trafficking and money laundering operation with ties to Canada. 2008 . 2007 and it will be appropriate if the National Assembly passes the bill in its remaining two months. and the United States. largely due to official resistance to criminalizing tax evasion and corruption. 2007 . 2006 Jul 2006 . which multiplied the volume of inflows reaching a record $5. both of which are highly lucrative. A delay in the passage of the bill may not be in the interest of Pakistan as it may create unnecessary doubts in the mind of international community regarding the resolve of Government of Pakistan to combat and prevent Money Laundering. Pakistan.The National Assembly is completing its 5-year term on November 15.
" In Roman law. March 31. Hawala itself later influenced the development of the agency in common law and in civil laws such as the aval in French law and the avallo in Italian law. and these services are often heavily and effectively advertised. It is but one of several such systems. the "contractor himself was considered the party to the contract and it . a government lawyer said. Pakistan on Wednesday. and also.A giant portrait of Pakistan's President Asif Ali Zardari is on display on a fense near Supreme Court. or parallel to 'traditional' banking or financial channels. in Islamabad. The transfer of debt. backdrop. which was "not permissible under Roman law but became widely practiced in medieval Europe. another well known example is the 'chop'. 2010 ." The agency was also "an institution unknown to Roman law" as no "individual could conclude a binding contract on behalf of another as his agent. 2010. It exists and operates outside of. 'chit' or 'flying money' system indigenous to China. used around the world. before the introduction of western banking practices. The components of hawala that distinguish it from other remittance systems are trust and the extensive use of connections such as family relationships or regional affiliations. was due to the large extent of the "trade conducted by the Italian cities with the Muslim world in the Middle Ages. Pakistan has sent a letter to Swiss authorities asking that they reopen a money-laundering case against Zardari after an amnesty protecting him from graft prosecution was struck down by the Supreme Court. DIFFERENT METHODS OF MONEY LAUNDREING IN PAKISTAN AND SUB-CONTINENT HAWALA OR HUNDI What is hawala? Hawala (1) is an alternative or parallel remittance system. ORIGINS Hawala has its origins in classical Islamic law and is mentioned in texts of Islamic jurisprudence as early as the 8th century. These systems are often referred to as 'underground banking'. or hawala dealers (2). and is currently a major remittance system used around the world. this term is not always correct.2010 Mar 31. as they often operate in the open with complete legitimacy. Unlike traditional banking or even the 'chop' system. hawala makes minimal (often no) use of any sort of negotiable instrument. It was developed in India. The words aval and avallo were themselves derived from Hawala. Transfers of money take place based on communications between members of a network of hawaladars. especially in commercial transactions".
" On the other hand.225. he has saved $5. a fellow taxi driver who is also a part-time hawaladar. which was only gradually replaced by the instruments of the formal banking system in the first half of the 20th century. his first stop is a major bank. especially if it contains something valuable) can cost as much as $40 to Pakistan and take as much as a week to arrive. Islamic law and the later common law "had no difficulty in accepting agency as one of its institutions in the field of contracts and of obligations in general. Abdul believes he can get a better deal through hawala. At the bank. instead of 31. who is living in Karachi (3). an overnight courier service (surface mail is not always that reliable. hawala is probably used mostly for migrant workers' remittances to their countries of origin. and The bank will charge $25 to issue a bank draft. Delivery would be extra." Hawala is believed to have arisen in the financing of long-distance trade around the emerging capital trade centers in the early medieval period. he learns several things: The bank would prefer that he open an account before doing business with them. it appears to have developed into a fully-fledged money market instrument. Even though Abdul is familiar with the hawala system. From his job as a taxi driver. How does hawala work? Hawala works by transferring money without actually moving it. 35. Mohammad.took a second contract between the person who acted on behalf of a principal and the latter in order to transfer the rights and the obligations deriving from the contract to him. which has long since expired. In fact 'money transfer without money movement' is a definition of hawala that was used. In this scenario. and talks to Iqbal. Iqbal offers Abdul the following terms: A 5% 'commission' for handling the transaction. Abdul is a Pakistani living in New York and driving a taxi. which will be used throughout this paper. This will allow Abdul to send Mohammad Rs 154. successfully. and . Today. The bank will sell him Pakistani rupees (Rs) at the official rate (4) of 31 to the dollar. in a hawala money laundering case. In South Asia.000 that he wants to send to his brother. He entered the country on a tourist visa. rupees for a dollar. An effective way to understand hawala is by examining a single hawala transfer.
instead of recording individual remittances she has made.000. there is trust between Abdul and Yasmeen. He is about to make arrangements to do business with Iqbal when he sees the following advertisement (5) in a local 'Indo-Pak' newspaper (such advertisments are very common): Abdul calls the number. and speaks with Yasmeen. such as it may be. There are several possible relationships she can have with Ghulam (these will be discussed later). and gives him the details. The hawala transaction proceeds as follows: Abdul gives the $5. Yasmeen did not give him a receipt.250. and Delivery is included. First.Delivery is included. 37 rupees for a dollar. She offers him the following deal: A fee of 1 rupee for each dollar transferred. and her recordkeeping. Ghulam arranges to have Rs 180. Yasmeen contacts Ghulam in Karachi. He decides to do business with Yasmeen. As we will see. This delivery almost always takes place within a day . Abdul can send Mohammad Rs 180. in any case she trusts him to make the payment to Mohammad.000 delivered to Mohammad. it contains the elements of a hawala transaction. This diagram summarizes the transaction: Even though this is a simple example. Under these terms (6). the delivery associated with a hawala transaction is faster and more reliable than in bank transactions. is designed to keep track of how much money she owes Ghulam. This arrangement will allow Abdul to send Mohammad Rs 166.000 to Yasmeen.
000 worth of telecommunications devices.of the initial payment (a consideration here is time differences). a more formal means of balancing accounts is needed. . Ghulam would pay her $15. Another possibility is that.000 that he has given to Mohammad. Hawala networks tend to be fairly loose. someone who can arrange payment there. there are two related issues to be addressed. and send it to Ghulam with an invoice for $15. arid the payment is almost always made in person. for example. this covers the $10. send him $20. Ghulam is repaying his debt to Yasmeen by paying her hawala customers. In order to move money the other way (in this case. A third (and by no means the final) possibility is that Yasmeen has a 'rupee surplus' and Ghulam is assisting her in disposing of it. Yasmeen might import CDs and cassettes of Indian and Pakistani music and 22 carat gold (7) jewelry from Ghulam. Ghulam owes Yasmeen money. he is either repaying an existing debt to Yasmeen. As her advertisement indicates. he trusts her to repay him the equivalent of either $5.000 against this invoice. In the first case. One very likely business partner scenario is an import/export business. The first possibility is that Yasmeen and Ghulam are business partners (or that they just do business together on a regular basis). These connections allow for the establishment of a network for conducting the hawala transactions. transferring money is not only another business in which they are engaged but a part of their normal business dealings with one another. in some scenarios. The 'extra' value of goods.000.000 or Rs 180. communication usually takes place by phone or fax (but email is becoming more and more common). In the context of such a business. invoices can be manipulated to 'conceal' the movement of money. or has access to. As was stated above. and export telecommunications devices to Ghulam. but only invoice him for $15. from Pakistan to New York)'. Ghulam does not need to recover any money. so she either knows. hawala works through connections. or he is handling money that Yasmeen has entrusted to him. in this case $5. The first is the relationship between Yasmeen and Ghulam. In the last two cases.000 for the telecommunications devices as well as the other $5. For this example. Yasmeen and Ghulam are part of the same network. Ghulam pays Yasmeen $15. Connections are of equal importance. where Yasmeen and Ghulam are partners. but is unable to move out of the country. she can do it by 'under invoicing' a shipment to him.000.000 of telecommunications devices. Yasmeen has to be connected to Ghulam in Karachi to arrange this payment. Since many countries make it difficult to move money out of the country. and the second is how Ghulam 'recovers' the money that he paid to Mohammad on Abdul's behalf.000) is the money that she owes him. Finally. In this transaction. To complete this discussion.over invoicing' can be used. it is assumed that Ghulam owes Yasmeen $5.000.000 (the equivalent of Rs 180. For them.000. There are several possible ways in which this network could have been constructed. If Yasmeen needs to pay Ghulam the Rs 180.000. it is quite typical for hawala. She could buy $10. even though this is a very 'informal' relationship. she also offers service to India. She could. for whatever reason.000.
Some of the reasons for this cost effectiveness. The fourth reason is the lack of bureaucracy. He enlisted the services of a local hawaladar. if not impossible for him to open a bank account as he does not have adequate identification. who was able to complete the transaction in less than a day. is a very common means of settling accounts after the transactions have been made. In this section. In at least once instance reported to the authors. Iqbal and Yasmeen do not operate in a 'bureaucratic' framework. Ghulam and their associates. The fifth reason is the lack of a paper trail. weekends and time differences) or about the same amount of time required to send a bank draft from North America to South Asia via a courier service (surface mail is not a reliable option where the contents are valuable. Even though Abdul earned the money that he sent to Mohammad legally. Since it is rare for hawaladars to keep records of individual transactions. A hawala remittance takes place in. Abdul is living and working in the United States on an expired student visa. money for a large commercial transaction (money being sent from the United States to South Asia) was lost 'in transit' for several weeks while trying to conduct such a transaction. hawala seems cumbersome and risky.000 more (averaging exchange rates. he really does not need one). we will examine the motivations for using the hawala system. a significant savings by using the hawala system. it is unlikely that Abdul's remittance will ever be identified as part of the business dealings between Yasmeen. he does not have a social security number (and since he deals almost exclusively in cash. the main office of a foreign bank and a branch office of the recipient's foreign bank. it was returned to the customer. such as obtaining a check or ordering a wire transfer. As was shown in this example. It would be difficult. as discussed above. he would prefer to remain anonymous (this is a much more important consideration in illicit hawala transactions). which might involve the client's local bank. at most. have the potential to be problematic. Complex international transactions. In addition. . The primary reason is cost effectiveness. The second reason is efficiency. The third reason is reliability. namely low overhead. he does not completely trust banks and would prefer not to use them if at all possible. one or two days. This can be contrasted with the week or so required for an international wire transfer involving at least one correspondent bank (as well as delays due to holidays. and it can also take several weeks to arrive). its correspondent bank. Why would anyone bother with hawala? When compared to a 'traditional' means of remitting money. When the bank located the money. Abdul was able to obtain nearly Rs 30.Since many hawala transactions (legitimate and illegitimate) are conducted in the context of import/export businesses. making them a preferable alternative to the bank. this is about US$ 880). will be discussed in the next section of this paper. exchange rate speculation and integration with existing business activities. the manipulation of invoices.
they exploit naturally occurring fluctuations in the demand for different currencies. A secondary consideration is that hawala is often related or even integral to existing business dealings. and few. Why does hawala work? In brief. hawala 'works' . In India. This enables them to turn a profit from hawala transactions (which. Depending on one's perspective (and possibly jurisdiction). their transactions may be illegal (a more detailed discussion of the legality of hawala follows). 37 Rs/$ for Yasmeen and the official rate of 31 Rs/$ as cited by the bank) reflect a difference of 12-19% over the official rate. the Foreign Exchange Regulation Act (FERA). A U. The second reason is exchange rate speculation. 8(2) (8) states that '(e)xcept with the previous general or special percussion of the Reserve Bank. the 'black' or parallel economy is 30%-50% of the 'white' or documented economy. additional operational costs are incurred by a business that offers hawala remittance services.g. In addition. hawaladars are either engaging in foreign exchange speculation or black market currency dealing. In South Asia. These may actually be a little high. A business like Yasmeen's 'Music Bazaar and Travel Services Agency' operates out of a rented storefront as opposed to a bank building (which has expensive vaults and alarm systems). . no person. almost always have a foreign exchange component). Some hawaladars operate with even less. making him much more competitive than a bank. since many hawaladars are also involved in businesses where money transfers are necessary. in addition to being remittances. and they are also able to offer their customers rates that are better than those offered by banks (most banks will only transact at authorized rates of exchange). Since hawala dealers do not. Money remitted through official channels might invite scrutiny from tax authorities . if any.or competes effectively with other remittance mechanisms . and may even share space with another business (e. hawaladar (9) involved in the laundering of drug proceeds as well as legitimate remittances told one of the authors of this paper that he could still make a profit on an exchange rate margin as small as 2%. using a table in a tea shop as an office and having little more than a cellular phone and notebook as overhead expenses.S. for example. Monies from remittances and business transfers are processed through the same bank accounts.hawala provides a scrutiny-free remittance channel. In any case. a sari or gold shop). and they probably do not have insurance or access to a retirement plan. One reason for hawala's cost effectiveness is low overhead. Yasmeen's employees are paid less than bank officers.The sixth reason is tax evasion. shall enter into any transaction which provides for the conversion of Indian currency into foreign currency or foreign currency into Indian currency at rates of exchange other than the rates for time being authorised by the Reserve Bank'. in many if not most cases comply with such regulations. providing remittance services fits well into these businesses' existing activities.because of its cost effectiveness. further reducing rental expenses. whether an authorised dealer or a moneychanger or otherwise. The rates cited in this paper (35 Rs/$ for Iqbal.
In addition. Another aspect of these regulations is the use of the United Arab Emirates. and wording like 'sweet rupee deals' does not necessarily suggest remittance services. The first is the large population of expatriate workers from India and Pakistan. jurisdictions. the situation is more complicated. Enforcement of these regulations is difficult with respect to hawala. businesses like Yasmeen's do not conduct remittances as their primary activity. however. possible to state 'hawala is illegal in India and Pakistan' with nearly complete accuracy. an important component of hawala is trust. now some are using the Internet). Even though hawala is illegal from a regulatory standpoint in some U. they use hawala to send money home. and impose strict licensing requirements on money remitters and foreign exchange dealers. There are two main reasons for this. and its use as a facilitator of 'capital flight' on both large and small scales is very common. as tension between these countries makes travel between them difficult if not impossible. to pay for education or medical treatment. the prevalence of invoice manipulation as part of hawala schemes. specifically Dubai. The advertisements are often printed in foreign languages. Dubai offers a neutral meeting place for Indian and Pakistani businessmen. In South Asia. the illicit use of hawala in money laundering is discussed in the next section of this paper. which is the source of much of the gold sent (licitly and illicitly) to India and Pakistan. A detailed discussion of these regulations is beyond the scope and intent of this paper. The assumption here. many South Asian businessmen maintain offices in Dubai. hawaladars advertise their services widely in a variety of media (ethnic newspapers have been the traditional place to find them. Many South Asian nations (such as India and Pakistan) have laws that prohibit speculation in the local currency. prohibit foreign exchange transactions at anything other than the official rate of exchange. Many people in these countries have money that they would like to move to another country due to concerns about stability. Hawala dealers are almost always honest in their dealings with customers and fellow hawaladars. there are regulations governing inbound and outbound remittances. and money is often wired there to circumvent regulations elsewhere. of course. in part. The important point for our purposes is that the existence of these regulations is another reason hawala is still used.Finally. Breaches of trust are extremely rare. is that these remittances are like Abdul's. and 'legitimate'. . Dubai. In addition. Moreover. It is worth noting that one of the meanings attached to the word hawala is 'trust'! Is hawala legal? Since hawala is a remittance system. for hawala transactions. Because of this. unlike many other South Asian nations. The second is Dubai's large gold market. Hawala provides a ready means of doing this. The existence of these laws also explains. allows essentially unregulated financial dealings. this question really addresses regulations governing remittance services (10) and the circumstances of the remittance. It is.S.
How is hawala used to launder money? Up to this point. This distinction is valuable for money laundering enforcement. when it is done through the 'traditional' banking system it presents two problems to the money launderer. money derived from criminal activities is introduced into the financial system. Some jurisdictions. Abdul gave Yasmeen US$ 5. she will make periodic bank deposits consisting of cash and checks. . The term 'black hawala' refers to illegitimate transactions. however. that is illegal in most jurisdictions. and attempting to circumvent such reporting requirements by making smaller transactions is an offense. fraud). the term 'white hawala' is used to refer to legitimate transactions. Since hawala is a remittance system. and intent. require reporting by financial institutions of cash transactions over a certain amount (in the U. `Black' hawala transactions. such as the United States. She will justify these deposits to bank officials as the proceeds of her legitimate business. A component of many layering schemes has been seen to be the transfer of money from one account to another. The efficiency and cost effectiveness of hawala make it an attractive means of remitting money under almost any regulatory regime. Money laundering consists of three phases: placement. she will not object to this as it would arouse suspicion at the bank (and her business provides more than adequate justification).000) (12). reducing her need to deposit that cash into her bank account. be considered a condemnation of the economic policies of India or Pakistan. such as Abdul's. Following Indian and Pakistani usage. Related to this is the paper trail created by these transactions. are not illegal in other jurisdictions. In the layering stage. however. are almost always associated with some serious offense (e. Abdul's remittance to his brother) and where the source. Many 'white' hawala transactions are essentially remittances. First. both of which have taken concrete steps to combat money laundering. If any portion of the laundering network is examined.S. In many money laundering schemes. In the example. and. In placement. She may also use some of the cash received to meet business expenses. of the transactions is illegitimate. Even though she might prefer it if reports were not filed. layering and integration. specifically hawala money laundering (11).This paper should not. no distinction has been made between hawala transactions where the source of the money is legitimate (e. the related paper trails could lead a diligent investigator directly to the source of the criminal proceeds and unravel the money laundering network. there is the possibility that a transaction could be considered to be suspicious and reported as such. narcotics trafficking.g. while illegal under Indian and Pakistani law.000 in cash.g. Even though this is done as carefully as possible. it is US$ 10. the biggest 'problem' here is handling cash. Since she also operates a business (and also performs remittance services for others). Hawala can provide an effective means of placement. it can be used at any phase. the money launderer manipulates the illicit funds to make them appear as though they were derived from a legitimate source.
many checks were seen with the word 'bangle' written on them. consisting of a name (presumably of the person to whom the money is remitted to) or something supposedly indicating what was 'bought' with the money. this was done apparently in order to make it appear as though the checks. Given hawala's close ties to business activities. Indian. What are some indicators of hawala? As has been shown in this paper. hawala techniques are capable of transforming money into almost any form. These checks may be made out to the primary account holder. It is.g. The same characteristics of hawala that make it a potential tool for the layering of money also make it ideal for the integration of money. the mixture of legal goods and illegal money. There is no reason. and have found that even 'basic' hawala transfers can be difficult to trace and tie to the original. usually in the forms of cash and checks. Afghan. Pakistani. as we have seen. which are often from one or more ethnic communities (e. . confusion about `valid' prices and a possibly complex international shipping network create a trail much more complicated than a simple wire transfer. and then back to the United States. Yasmeen could very easily arrange for the transfer of money from the United States to Pakistan. had been written to purchase jewelry. One of the most consistent and valid indicators of hawala activity in investigations conducted in the United States is seen in bank accounts. which were almost all for even dollar amounts. Bangladeshi. or some secondary entity (often outside the United States) somehow associated with the account. uses the funds to enjoy his ill-gotten gains or to continue to invest in additional illegal activities. This complexity of variation makes it nearly impossible to lay out a straightforward guide to recognizing hawala money laundering as part of a criminal undertaking. integration. These checks may also have some sort of notation. A 'hawala' bank account almost always shows significant deposit activity. and by distributing the transfers over time. much of the complexity associated with and ascribed to hawala money laundering comes from the nearly infinite number of variations that are encountered in hawala transactions. possible to provide a few indicators that may be useful. why hawala transfers could not be 'layered' to make following the money even more difficult. offering many possibilities for establishing an appearance of legitimacy. criminal source of money. hawala is actually quite simple. Both of the authors of this paper have investigated hawala money laundering. This is when money seems to become legitimate. Even when invoice manipulation is used. the launderer invests in other assets. In the final stage of money laundering. and. In one case. however. there is no reason why money cannot be 'reinvested' in a legitimate (or legitimate appearing) business. apparently as part of an investment in a business there. however.Hawala transfers leave a sparse or confusing paper trail if any. Somali) associated with the hawaladar. This could be done by using hawala brokers in several countries.
law. Dubai. precious stones) Foreign Exchange Rugs/Carpets Used Cars Car Rentals (usually non-chain or franchise) Telephones/Pagers Laws in India. NOTABLE MONEY LAUNDERING CASES IN PAKISTAN . Criminal activities in these countries may often involve foreign currency (especially dollars). A 'solution' that has been seen to this problem is the shipment of these negotiable instruments from South Asia to the United States. as discussed previously. Switzerland. Pakistan and other countries make it difficult to convert foreign currency (or foreign currency instruments. which pose something of a problem. it is not possible to give an exhaustive list. and. hawala accounts will not always be seen to balance. Given the flexible and casual nature of the hawala business.S. Three of the most common locations are Great Britain. Once again. such as travelers' checks). Even though such shipments may violate both courier policies and U. certain businesses are also more likely than others to be involved in hawala. but the following is a starting point: Import/Export Travel and Related Services Jewelry (gold.These accounts will also almost always show outgoing transfers (usually by wire) to a major financial center known to be involved in hawala. The following diagram summarizes 'hawala account' behavior: As has been discussed. the money launderers accept these risks rather than try to attempting to place these instruments into their local economies.
Today. FIA officials said during initial interrogation Javed Khanani has disclosed the names of some very influential people whose money he had sent abroad. who has taken the franchise of the Khanani & Kalia Company. were arrested by FIA on the charges of money laundering and illegal money transfer of 10 Billion Dollars. They also have an online due diligence manual. The report also recommended strong and instant action against persons involved in the Hundi and Hawala business. the exchange company. fearing that a forex crisis would hit the country in the near future. Lahore. its head office. The main charge against them is that they were involved in µphysical¶ transfer of foreign currency from Pakistan and ran the illegal µHawala or Hundi business¶. According to SBP. franchises. directors of Khanani and Kalia International (KKI). According to FIA officials. branches.Munaf Kalia and Javed Khanani. was involved. Know-Your-Client Policy and a Franchise Policy. Gujranwala. Faisal. Karachi and Peshawar are the main cities where a majority of money changers were running the Hundi and Hawala business and anyone could send any amount anywhere in the world without any check. the State Bank of Pakistan has suspended with immediate effect the license of Khanani & Kalia International (KKI) for a period of 30 days for violation of its (SBP) rules and regulations. as per its web site. claims to be Pakistan¶s first ISO 9001 and 27001 certified Exchange Company. According to the News. the largest Foreign Exchange company of Pakistan. payment booths and currency exchange booths have been debarred from undertaking any kind of business activity during the suspension period. but the owner of Dunya Moneychangers. Bostan said that Munaf Kalia informed him that his company was not involved in Hundi or Hawala business. KKI. Forex Association of Pakistan President Malik Bostan said that the foreign exchange dealers bring eight billion dollars in the country everyday and such action against them was unjustifiable. . Talking to a TV channel. Special Investigation Group (SIG) of FIA Lahore prepare a report in April 2008 about the flight of dollars from the country.
The case of Khanani and Kalia is still in progress. According to Citibank. It has been reported that the government of Pakistan claims that Ms. through the services of Kamran Amouzegar. Mr. Zardari stole over $1 billion from the country. According to Citicorp. Mr. a British Virgin Island PIC. he was incarcerated in 1990 and 1991 on charges of corruption. Schlegelmilch informed the Dubai banker that he would serve as the representative of the account and the signatory on the account. Schlegelmilch had a Dubai residency permit and a visa signed by a member of the Dubai royal family. At various times. Amouzegar agreed to introduce Mr. dismissed by the President of Pakistan in August 1990 for alleged corruption and inability to maintain law and order. Zardari¶s relationship with Citibank began in October 1994. Capricorn Trading. in spite of all certifications and operating procedures in place. what the State Bank of Pakistan was doing when the Dollar was elevated in open market from 70 rupees to 90 rupees within a span of few weeks. Citibank opened and maintained three private bank accounts in Switzerland and a consumer account in Dubai for three corporations under Mr. During Ms. Bhutto and Mr. We have to see if real culprits behind ³flight of dollar´ are taken to justice or this turns out to be another facade. Bhutto¶s second term there were increasing allegations of corruption in her government. Zardari served as Senator. Mr. Zardari¶s control. Mr. the husband of Benazir Bhutto. Environment Minister and Minister for Investment in the Bhutto government. Schlegelmilch to a banker in the Citibank branch office in Dubai. During the period 1994 to 1997.It is quite alarming if. Zardari. and Jens Schlegelmilch. and dismissed by the President again in November 1996. the charges were eventually dropped. former Prime Minister of Pakistan. Mr. The stated purpose of the account was to receive money and transfer it to Switzerland. elected Prime Minister again in October 1993. a bank is not required to know an account¶s beneficial owner. Also. Amouzegar that he was working for the Dubai royal family and he wanted to open some accounts at the Citibank branch office in Dubai. There are allegations that some of these accounts were used to disguise $10 million in kickbacks for a gold importing contract to Pakistan. Bhutto was elected Prime Minister in 1988. Structure of Private Bank Relationship. Under Dubai law. ASIF ALI ZARDARI CASE The Facts The second case history involves Asif Ali Zardari. The government and media have to be very cautious in handling of this case as any false move will further derogate the image of Pakistan abroad and amplify the ongoing financial crisis. According to Citibank.S. KKI was unable to trace and stop the illegal transaction by its franchise. a Swiss lawyer who was the Bhutto family¶s attorney in Europe and close personal friend for more than 20 years. Mr. In between the two Bhutto administrations. and a major target of those allegations was Mr. The account was opened in early October 1994. Schlegelmilch told the Citibank Dubai banker that he wanted to open an account in the name of M. Mr. a private banker at Citibank private bank in Switzerland. only the signatory. Citibank told the . Schlegelmilch represented to Mr. Ms.
and (e) Hubertus Rukavina. identified Mr. Citibank said that bank officials were also aware of the M. (c) Phillipe Holderbeke. Each private bank account listed Mr. Mr. Schlegelmilch signed a standard referral agreement with Citibank Switzerland private bank guaranteeing him 20% of the first three years of client net revenues earned by the bank from each client he referred to the private bank. Zardari was large enough to support a large private bank account. Citibank reasoned that if the charges for which Mr. he never heard whether the accounts were ultimately opened. Instead. Zardari. and the account manager never asked him the identity of the beneficial owner of the account. he did not make the decision to open them. The accounts were opened in the name of M. The officials were: (a) Mr. the Dubai account manager was apparently still operating under the assumption that the beneficial owner of the Dubai Capricorn account was a member of the Dubai royal family. Capricorn Trading. working with Mr. Rukavina told the Subcommittee staff that when he was asked about opening the Zardari accounts.Subcommittee staff that Mr. Rukavina left the private bank in 1996 and left Citibank in 1999. Middle East. but rather directed that the matter be discussed with Mr. (d) Salim Raza. Schlegelmilch. two other British Virgin Island PICs established by Mr. Zardari at the time it opened the accounts in Switzerland. Zardari as the beneficial owner of each PIC. Capricorn Trading account in Dubai. according to Citibank. Mr. however. then head of the EMEA Division of the private bank. 1995. Amouzegar informed his superiors that Mr. Schlegelmilch. then head of private bank operations in Pakistan. On February 27. then head of the Citibank private bank. Citibank informed the Subcommittee staff that the private bank was aware of the allegations of corruption against Mr. even though Citibank was not able to specify what actions were taken to verify the amount and source of their wealth. Zardari had been incarcerated for two years had any merit. Mr. According to Citibank.S. they would not have been dropped. (b) Deepak Sharma. Inexplicably. and they were comforted by the fact that there had been no problems with that account. Subcommittee staff have been unable to determine whether Citibank officials were unaware of or inattentive to the serious inconsistency between Citibank Switzerland and Citibank Dubai with respect to the Capricorn . which already had an account at Citibank¶s Dubai branch. according to Citibank. according to Citibank. According to Mr.S. Zardari was the beneficial owner of the Capricorn account in Dubai when they were considering the request to open the accounts in Switzerland. Rukavina. a government-required beneficial owner identification form. the account manager actually performed some due diligence on the royal family member whom she believed to be the beneficial owner of the account. Mr. Schlegelmilch to open the three accounts on behalf of Mr. According to Citibank. she assumed the beneficial owner of the account was the member of the royal family who had signed Mr. Amouzegar. Sharma. the private banker. opened three accounts at the Citibank Switzerland private bank. Schlegelmilch as the account contact and signatory. Citibank informed the Subcommittee that the Swiss Form A. Lack of Due Diligence. Shortly after opening the account in Dubai. then head of private bank operations in Switzerland (who became head of the Europe. However. Africa Division in February 1996). Bank officials also believed that the family wealth of Ms. involved officials at the highest levels of the private bank. The decision to allow Mr. Amouzegar. Schlegelmilch did not reveal to the Dubai banker that Mr. Schlegelmilch¶s visa. as well as Marvel and Bomer Finance. Zardari was the beneficial owner of the PIC [Private Investment Company: an offshore company often used to launder money]. Mr. Bhutto and Mr.
Citibank records show that one $5 million deposit was made on October 5.1994. Bhutto's recent political activities]. a company owned by Abdul Razzak Yaqub [since then. On February 25. Records show that the payment was made through American Express. 1995. in December 1994. stable investments.¶s exchange services. One bank representative explained that if the bank felt that it needed to place restrictions on the client¶s account. The source of both deposits was A. incidentally. nor does it know the source of the $8 million. Citibank told the Subcommittee staff that. None of the Citibank personnel interviewed by Subcommittee staff could identify any other private bank account with these types of restrictions. and on May 5. however. making any payments to Mr.S. Both transfers involved U. $8. but she has not yet done so. Schlegelmilch to open the three accounts for Mr. only three deposits were made into the M.Y. a third deposit of $8 million was made into the Dubai M. a Pakistani gold bullion trader living in Dubai. Zardari on the condition that the private bank would not be the primary accounts for Mr. and another was made on October 6. All of the funds in the Dubai account of M. with the originator of the account listed as ³Morgan NYC.Trading account. The existence of the restrictions are in themselves proof of the private bank¶s awareness of Mr.´ Citibank indicated it does not know who Morgan NYC is. the Bhutto government awarded Mr. Bhutto told the Subcommittee staff that since A.S. Ms. Zardari¶s poor reputation and concerns regarding the sources of his wealth.S. Razzak an exclusive gold import license. Holderbeke signed a memo delineating the restrictions placed on the accounts. Zardari. International Exchange. totaling $10 million were made into the account almost immediately after it was opened. however. Capricorn Trading account. Mr. The banks all said they had not.R. it didn¶t want that type of client.Y. According to the New York Times. 1995. Capricorn Trading were moved to the Swiss accounts in the Spring of 1995. On March 6. Citibank told the Subcommittee staff that Mr. Mr. Razzak acknowledged that he had used the exclusive license to import more than $500 million worth of gold into Pakistan. The staff invited Ms. without multiple transactions or funding pass-throughs. Movement of Funds. Citibank also informed the Subcommittee staff that bank officials had some concerns that if they turned down the accounts.1 million was transferred. 1994. Other private banks interviewed by the Subcommittee staff were asked if they had ever accepted a client on the condition that certain restrictions be imposed on the account. the owner of several ARY television channels that. 1995. their actions may have implications for the corporation¶s operations in Pakistan. but could have come from a third party who was merely making use of A. Zardari¶s assets and the accounts would function as passive investment accounts. Capricorn Trading account in Dubai. and transaction restrictions requiring the accounts to function as passive. once opened. Razzak denies.R. dollars and were . Citibank could not explain the two $5 million payments. Bhutto to provide additional information on the M. another $10. Capricorn Trading accounts.2 million was transferred. they said they never received any threats on that issue. have been providing favorable coverage of Ms. Citibank told the Subcommittee staff the private bank decided to allow Mr. In an interview with the New York Times. Razzak. the payments did not necessarily come from Mr.Y. Two deposits.S. International Exchange is a foreign exchange business.R.S. including a $40 million aggregate limit on the size of the three accounts.
in 1996. apparently because the accounts had reached the previously imposed limit of $40 million. Citibank told the Subcommittee staff that Mr. 1996. In June. Zardari had purchased real estate in London triggered still another review of the Zardari accounts. Citibank private bank told the Subcommittee staff that its Swiss office internally discussed the source of the funds for the property purchase. and apparently concluded that the allegations were politically motivated and that the accounts should remain open. In September. the Swiss office of the private bank conducted a number of reviews of the Zardari Swiss accounts. Sharma and Amouzegar participated in the review. [Salim] Raza. Amouzegar left the private bank to open his own company. . even though this account activity violated the condition imposed by Citibank that the accounts were not to be used as a pass through for funds. triggered by increasing publicity about allegations of corruption against Mr. was assassinated. Mr. Bhutto and Mr. Citibank told the Subcommittee staff that. Citibank told the Subcommittee staff that Mr. Bhutto¶s mother accused Ms. Account Monitoring. Citibank told the Subcommittee staff it is not sure if anyone at the private bank attempted to validate the information about the sale of the sugar mills. Zardari and Ms. Capricorn Trading closed its Dubai account shortly after the last transfer was completed. the accounts were kept open. Citibank told the Subcommittee staff that Messrs. Holderbeke considered the request. Amouzegar asked that the overall limit on the Zardari accounts be increased from $40 million to $60 million. He also reviewed the transactions that had taken place within the accounts. The Subcommittee staff was told that the review did not include looking at the accounts¶ transaction activity.S. Bhutto¶s only surviving brother. who allegedly informed them that funds had been deposited into the Citibank accounts. Bhutto. In March or April. Bhutto¶s re-election campaign increased its activities prior to a February election date.routed through Citibank¶s New York offices. Grant began to review the Zardari accounts about one month later to familiarize himself with them. press reports in the United Kingdom that Mr. Zardari. In September and October 1996. Closing the Accounts. Murtaza Bhutto. Schlegelmilch. Cedric Grant. after Mr. the $40 million cap was reached. Holderbeke. Citibank has indicated that significant amounts of other funds were also deposited into the Swiss accounts. press accounts in Pakistan repeatedly raised questions about corruption by Mr. Amouzegar and Mr. The first review was allegedly in early 1996. Mr. However. transferred to another PIC account outside of Citibank and used to purchase the property. as Ms. took over management of the Zardari accounts. In July 1996. Schlegelmilch allegedly indicated the funds had come from the sale of some sugar mills and were legitimate. and Ms. Swiss bank secrecy law has prevented the Subcommittee from obtaining the details on the transactions in the Zardari accounts. another private banker. finally deciding in October to close them. [Salim] Raza then met with Mr. and millions of additional dollars also passed through those accounts. In addition. Mr. As described below. Ms. but declined to increase the $40 million limit. Citibank informed the Subcommittee staff that M.
directly contrary to the private bank¶s restrictions.S. Zardari was arrested a second time for corruption in November 1996. reviewing all of the accounts opened in the Dubai office. In October. In June 1998. Amouzegar had either ignored or did not pay attention to the account activity. in anticipation of a New York Times article that eventually ran in January 1998. and that he held Citibank accounts in Dubai and Switzerland. Grant completed his review of the Zardari accounts and provided a written analysis to Messrs. On September 8. Mr. In July 1998. Bhutto. Mr. Grant had found numerous violations of the account restrictions imposed by Citibank. from his position as head of credit card operations to head of private banking. Shaukat Aziz was transferred at Citibank's New York headquarters. Benazir Bhutto-Zardari. authorities of the accounts until late November 1997. it took no action nor did it make any effort to inform U. though Subcommittee staff were unable to ascertain the actual amount because Swiss bank secrecy law prohibits Citibank from sharing that information with the Subcommittee. the Swiss government issued orders freezing the Zardari and Bhutto accounts at Citibank and three other banks in Switzerland at the request of the Pakistani government. and nearly two months after the Swiss government had ordered four Swiss banks (including Citibank Switzerland) to freeze all Zardari accounts.] Legal Proceedings. Zardari was indicted for violation of Swiss .Zardari of masterminding the murder. Mr. Mr. Department of Treasury. because the brother had been leading opposition to Ms. Citibank did not identify any changes made or planned for the Swiss office. [Note: In May 1997. including requiring the Dubai office to identify the beneficial owner of all Dubai accounts. thirteen months after Mr. On December 5. Citibank indicated that Mr. for money laundering in connection with kickbacks paid by the Swiss companies for the award of a government contract by Pakistan. Zardari had accepted bribes. Schlegelmilch and two Swiss businessmen. about the accounts and the steps it had taken as a result of the Zardari matter. well over $40 million had flowed through the accounts. 1997. Switzerland indicted Mr. On December 8 and 11. Nawaz Sharif became Prime Minister. Mr. 1997. Schlegelmilch to the private bank and terminating his referral agreement. and tightening up account opening procedures in Dubai. the banking supervision arm of the US Department of Treasury] about the Zardari accounts in late November. Citibank contacted the Federal Reserve and OCC [Office of the Comptroller of the Currency. In November 1996. including multiple transactions and funding pass-throughs. the former senior executive vice president of SGS and the managing director of Cotecna. Holderbeke. Sharma and [Salim] Raza. 1997. The filing was made fourteen months after its decision to close the Zardari accounts. and in February 1997. and they were closed by January 1997. Citibank briefed the OCC and the Federal Reserve. Citibank told the Subcommittee staff that the accounts had functioned more as checking accounts than passive investment accounts. Grant recommended closing the accounts. according to Citibank. Since Citibank had closed its Zardari accounts in January 1997. Farooq Laghari had dismissed the government of Ms. These steps included: closing all of the accounts that had been referred by Mr.S. Mr. even though the majority of the activity with respect to the Zardari accounts had taken place in Switzerland. respectively. alleging that Mr. Mr. Apparently. Citibank prepared a Suspicious Activity Report on the Zardari accounts and filed it with the Financial Crimes Enforcement Network at the U.
Zardari had a level of wealth sufficient to support the size of the accounts that he was opening. Capricorn Trading account. the account officer in Dubai performed due diligence on an individual who had no relationship to the account being opened. Zardari and Ms. In October 1998. Zardari. that there were troubling accusations concerning corruption surrounding Mr. A trial on the charges is expected. The Issues The Zardari case history raises issues involving due diligence. [Shaukat] Aziz [currently. has been determined to have been a repository for kickbacks paid to Mr. fined them $8. Mr. Citicorp¶s Chairman John Reed wrote the following to the Board of Directors: ³We have another issue with the husband of Ex-Prime Minister Bhutto of Pakistan. the new private bank head. Zardari in Switzerland. Ms. Prime Minister of Pakistan]. I do not yet understand the facts but I am inclined to think that we made a mistake. In addition. In Switzerland. Citigroup CoChair John Reed informed the Subcommittee staff that he had been advised by Citibank officials in preparation for a trip to Pakistan in February 1994. Zardari.6 million and disqualified them from holding public office. Pakistan¶s Lahore High Court convicted Ms.money laundering law in connection with the same incident. Bhutto. Zardari remains in jail. denounced the decision. the bank¶s failure to perform due diligence on the PICs meant that it had no knowledge of the activities. Ms. 1999.´ Mr. Bhutto and Mr. For example. that he should stay away from him. with taking a hard look at the bank¶s public figure policy and public figure accounts.S. assets or entities involved with the corporations. the Swiss private banker took no action to validate the legitimacy of the source of the funds that were deposited into the account.´ Citibank has been unable to confirm that bank employees verified that Mr. Yet one year later. One of the PICs. Because the PICs were client-created. there was no effort made to verify the claims that some of the funds derived from the sale of sugar mills. The Zardari case history begins with the Citibank Dubai branch¶s failure to identify the true beneficial owner of the M. Reed told the Subcommittee staff that when he learned of the Zardari accounts he thought the account officer must have been ³an idiot. Citibank officials opened three private bank accounts despite evidence of impropriety on the part of Mr. Reed told the Subcommittee staff that it was the combination of the Salinas and Zardari accounts that made him charge Mr. secrecy and public figure accounts. Zardari of accepting the kickbacks and sentenced them to 5 years in prison. Bhutto was indicted in Switzerland for the same offense in August 1998. Mr. More reason than ever to rework our Private Bank. after an 18-month trial. Citibank also performed no due diligence on the client owned and managed PICs that were the named accountholders. Bomer Finance. Zardari. On April 15. Additional criminal charges are pending against both in Pakistani courts. and those kickbacks tainted funds deposited at the . the private bank opened three accounts for Mr. On December 11. As a result. 1997. In an interview with Subcommittee staff. Bhutto for accepting kickbacks from the two Swiss companies in exchange for the award of a government contract. who now lives in London. and that he was not a man with whom the bank wanted to be associated. Pakistan indicted Mr.
Geneva branch of Union Bank of Switzerland. In December 1995. and inadequate monitoring of accounts.S. The shortcomings identified in the audits included policies. during most of that time. Pattern of Poor Account Management. These audit scores indicate the office¶s poor handling of the Zardari accounts was part of an ongoing pattern of poor account management. the Minister of State stated. including anti-money laundering requirements. Another due diligence lapse was the private bank¶s failure to monitor the Zardari accounts to ensure that the account restrictions imposed on them were being followed. all of which resulted in ³unacceptable´ internal audit ratings. Mentioning to objectives of the bill. served as the headquarters of the private bank. this inability to produce documentation related to a troubling case again highlights the problems with U. Hina Rabbani Khar. The Zardari case history took place during a series of critical internal and federal audits between 1992 and 1997 of the Swiss office which.S. since all Citibank officials are subject to Swiss secrecy laws prohibiting discussion of client-specific information.S. after the Salinas scandal became public.000 on violation of the law. they nevertheless allowed the accounts to continue. had raised serious . The account was repeatedly reviewed in 1996. Citibank claims that its decisionmaking in the Zardari matter cannot be fully explained or documented. the Swiss office received the lowest audit score received by any office in the private bank during the 1990s. When officials were presented with evidence in 1996 that the restrictions were being violated. They included: y y y y y failure of the ³corporate culture´ in the Swiss office to foster ´ µa climate of integrity. Yet there is no evidence that anyone in the private bank had been sensitized to the problems associated with handling an account of a person suspected of corruption. The Zardari accounts in Switzerland were opened one day before Raul Salinas was arrested. NATIONAL ASSEMBLY ACTS AGAINST MONEY LAUNDERING IN PAKISTAN The National Assembly adopted Anti-Money Laundering Bill 2009 suggesting one to ten years imprisonment and a fine up to Rs 1. inadequate due diligence. Financial Action Task Force (FATF) and Asian Pacific Group which are responsible for monitoring compliance of AML/Combating Financing Terrorism (CFT) regime by member countries. banks are supposed to oversee their foreign branches and enforce U.S. standards´. law. procedures. lack of oversight and control of third party referral agents such as Schlegelmilch. ³less than acceptable internal controls´. The Zardari example also demonstrates the practical consequences of secrecy in private banking. and problems that affected the management of the Zardari accounts.000. In light of the fact that U. banks choosing to operate in secrecy jurisdictions. ethical conduct and prudent risk taking¶ by U. Moved by Minister of State for Finance and Revenue. Documentation has not been made available to determine whether Bomer Finance also used its Citibank account for illicit funds. the 46-clause bill was adopted with a majority vote thought there was no amendment in any of the reported clauses of the Bill.
³This required necessary review and changes in the law to bring it in line with international standards. The source told the daily that the anti-moneylaundering laws are totally new and the government intends to promote their enactment delicately "so that neither banks nor the clients get afraid of this exercise. and more than $61 million in terrorist assets having been frozen globally since Sept. she said.S. MONEY LAUNDERING Money laundering is an integral part of Transnational Organized Crime. On Dec. with 139 countries now have blocking orders on terrorist assets in force." a Pakistani daily reported Tuesday. whosoever commits offences of money laundering shall be punishable with rigorous imprisonment for a term which shall not be less than one year but may extend to ten years and shall also be liable to fine which may extend to Rs one million and shall also be liable to forfeiture of property involved in the money laundering.reservations on certain provisions of AML Bill 2007. Similarly.S.must have no safe harbor. government in a bid partly to prevent "financing of terrorism. CURRENT SITUATION OF MONEY LAUNDERING IV. The Pakistani government will introduce anti-moneylaundering laws with assistance from the U. 11 called for the building of a "global coalition against the financing of terrorism" in which it says terrorist assets . officials and businessmen. the bill provides. the U. The Transnational Criminal Organisations have resorted to money laundering in .S. For punishments. shall also be punishable under this section. The U. team will arrive in Islamabad next month to help the Pakistani government map out new rules under which both local and foreign banks will be required to disclose full information about large cash transactions. the News said. 11. It further provides that the aforesaid fine may extend to Rs five million in case of a company and every director. The English-language daily quoted "a credible source" as saying the government is especially concerned about the role of foreign banks in Pakistan as they are the least bothered to get themselves involved in knowing the sources of money that they transfer to their foreign branches.´ she stated. meanwhile. Treasury Department said that 196 countries and jurisdictions have committed to join this effort.. in order to meet requirements indicated by internal bodies and lending institutions. expansion in the list of predicate offences and modifying the definition of money laundering in line with the internationally accepted standards.like the terrorists themselves ." Pakistan has been keen to get the support of Western countries for recovery of vast sums of money sent out of the country to foreign financial institutions by corrupt rulers. officer or employee of the company found guilty under this section. She said amendments in AML Bill 2007 were also part of conditionalities under Pakistan¶s Accelerating Economics Transformation Programme of ADB. A high-level U.S. 4. PAKISTAN TO INTRODUCE ANTI-MONEYLAUNDERING LAWS. the proposed amendments address and broadly provide for AML law¶s applicability in the area of countering financing of terrorism. has since Sept.
The money is deposited with the local agent. in China. For example. international Mafia have used ghosts beneficiaries. Organized criminal gangs have used this system to launder their drug and illicit arms proceeds. front and fictitious companies for money laundering. (v) over invoicing of goods in seemingly normal business transactions. money laundering is indulged in by . who sends instructions to his counterpart in the native country to pay the money to the recipient. Experience in various countries shows that the general techniques to launder money are: (i) investing the dirty money m the legitimate business either through shell companies or through genuine companies in pseudo name. A rough estimate is that about 2-5% of the global GDP is the dirty money that enters the capital market every year. an alternative non-banking remittance channel. (vi) routing of money through tax haven countries. One of the popular methods of remittance among the Asian communities settled abroad who have to send money back home is hundi or hawala. In India. (iv) use of non-banking channels in transfer of money. The extent of money laundering is difficult to estimate since it is an illegal trade for which no statistics is available. It has also been used by money launderers since there is no audit or accounting as the system works on trust. This method is in vogue for a number of years. This is a fast and convenient method for transfer of money. Triads have used this system and in India. (iii) deposit of money in banks in noncooperative countries and remittances through banking channels to the host country. In Brazil.different countries in an effort to legitimise the proceeds of crime. (ii) acquisition of assets by paying the requisite taxes.
Undeniably. money laundering has linkage with drug trafficking. The other methods include over invoicing of goods and trading in stocks and shares. 226 RESOURCE MATERIAL SERIES No. investment in real estate. The methods adopted. 58 Furthermore. establishment of front companies. money laundering has correlation with attempt to legitimise the proceeds of crime by concealing their true origin and ownership. acquisition of commercial and noncommercial properties. . money laundering is an essential financial activity of Transnational Criminal Organisations to evade detection and enjoy the proceeds of their unwholesome activities. Money laundering techniquesincludesmurfing. tax evasion and corruption. smuggling. legitimate business and foreign remittances. The Organized criminal groups involved in drug trafficking repatriate money from abroad by direct purchase and re-sale of luxury items like cars and jewelry. Chinese ¶Snakeheads¶ have used underground banks in their human trafficking activities in Japan for money laundering. remittances through Hawala (Non-banking channel). In Pakistan.corporate houses to evade taxes as well as by the Organized criminal groups to launder dirty money. the role of authorities in pursuing the money trail is becoming increasingly cumbersome. An Iranian group was reported to have remitted proceeds of drug trafficking to Middle East through banking channels. Boryokudans have also indulged in laundering of the proceeds of sale of stimulant drugs. over-invoicing and double invoicing. Therefore. amongst others. include hawala. There have been about ten cases of money laundering in Japan since 1992 when the law on money laundering was enacted. in Nigeria. over invoicing of exports and under invoicing of imports.
the person entrusted with it is 3rd International Conference on Postgraduate Education (ICPE-3 ¶08. Although money laundering is a contemporary crime. they will not avail him. Money laundering involves the process of concealing the origin of proceeds from illegal activity by giving it the appearance of legal sources.23 In other words it is a process of transforming proceeds from illegal activity into proceeds from legal activity. However. terrorist activity. conceptual wise it has been addressed over 1. Penang-Malaysia. ³how does Islamic jurisprudence view the contract of al-wadi¶ah (banking deposit)? And ³how far does it insist on business ethics and moral principles?28 To address these posers in light of money laundering activities within Islamic banking and finance.22 Although there is no specific definition of the economic crime of money laundering in Islamic jurisprudence however.29 The Islamic law position with regard to such bank deposit (contract of al-wadiah) is that such contract would be regarded as void since it is tainted with fraud (tadlis. Money laundering is all about illegal criminal activities. the intention of the launderer who deposits money in Islamic bank and financial institutions is not for safe custody but rather to take advantage of the facilities offered by Islamic banks to actualise his/her criminal activity. Ibn Qayyim was reported to have said that ³Islamic law and its rules specify that the intention and the motive behind contract is an essential . the fundamental question here is.400 years ago under the Islamic jurisprudence. In the light of the above definitions. Money laundering activities are not restricted to conventional banks and financial institutions.ISLAMIC PERSPECTIVE OF MONEY LAUNDERING Money laundering as Economic Crime under Islamic Law There is no gain saying that money laundering has become a global phenomenon with relevant regional and international institutions working tirelessly in formulating legal framework to combat it. wadiah in a pure legal sense means a thing entrusted to the care of another.27 The common method of concealing the origin or identity of proceeds from illegal activities is through bank deposit or structured transactions. Proceeds from illegal activities could also be deposited in Islamic banks and financial institutions in form of banking deposit (al-wadiah). will be caste into fire. The proprietor of the thing is known as mudi (depositor). Wadiah in its ordinary meaning means leaving something for safekeeping in somebody¶s custody. it is imperative to attempt the definition of the contract of al-wadiah. lodge or deposit. The Islamic ruling on money laundering can be garnered from relevant the Qur¶anic injunctions and the Sunnah. 2008) 2008 known as wadi¶ or mustawda´ (custodian) and the deposited asset is wadiah. into legitimate proceeds. prostitution. embezzlement. concealment of information and illegality. the essential justification for prohibiting money laundering are well embedded under Islamic law. fraud and so on). Money laundering through bank deposit (al-wadiah) is obviously a bogus transaction.26 The Prophet (SAW) was also reported to have warned that prayers and supplications of the one who lives on property or income derived from unlawful means will not be accepted by Allah and in case he does good deeds. illegal commercial operations which aim to convert massive amount of money that are derivable from illegal activities (for example corruption.25 Money or property that is acquired through illegal means is patently unclean (haram) and unlawful which must not be put into use by anyone either for himself or for the benefit of others. Thus. ³Any activity built from Soht. The term wadiah is derived from the verb ³wada¶a´ which means to leave. Thus.24 It was well reported that the Prophet Muhammad (SAW) prohibits any activity funded by money derived from Soht (unlawful trade or ill-gotten property). drug trafficking. taghrir).
a few million extra dollars changing hands doesn't attract attention. dirt does not clean dirt´34 RECOMMENDATIONS The Effects of Money Laundering Currency of Choice For decades. it will not be accepted by him. Islam never objects to wealth creation and acquisition provided it is pursued through lawful means. the euro could be the perfect currency: It is the main legal tender of more than a dozen countries. dollar has been the most popular currency for launders to use.33 In another similar narration. There will be no blessing in that he spends and that he leaves behind. ³When a servant of Allah earns property in an unlawful manner and then gives it in charity. but it becomes a provision for the fire of Hell. wealth creation and distribution´.32 In another narration.31 Any other manner of unlawful wealth acquisition.S. ³Whoever gathered unlawful riches and then gave out in charity. . consumption and protection. but erases evil with good action. the U. As far as money laundering goes. Undoubtedly. meaning it circulates in tremendous volume and moves regularly across borders without any notice at all.30 Money laundering as an economic crime is totally prohibited in Islam. ³Anybody raised an unlawful provision will be fuel for the fire of Hell on the Day of Judgment´. The Islamic economic system is premised on a comprehensive system of moral and divine principles regulating social cum economic affairs of the people in terms of their ³business conducts. which is incongruous to the well being of the society.consideration and affects their validity´. However. This submission is amply justified by the saying of the Holy Prophet (SAW) that. the euro has slowly gained a foothold in the laundering industry since its introduction into common use in 2002. on the contrary he will have to bear the burden of his evil deed´. he will have no reward. In reality. the Prophet (SAW) stated. is prohibited in Islam. However. Allah does not wipe out evil with evil. the Messenger of Allah says. Its popularity is due to its wide acceptance and the volume of worldwide transactions that use the currency -.
Other major issues facing the world's economies include errors in economic policy resulting from artificially inflated financial sectors. not turn a profit. When the laundering process reaches a certain point or if law-enforcement officials start to show interest. legitimate small businesses can't compete with money-laundering front businesses that can afford to sell a product for cheaper because their primary purpose is to clean money. The economic effects are on a broader scale. numerous banks in the developing Baltic states ended up with huge. This success encourages criminals to continue their illicit schemes because they get to spend the profit with no repercussions. widely rumored deposits of dirty money. The global effect is staggering in social. Bank patrons proceeded to withdraw their own clean money for fear of losing it if the banks came under investigation and lost their insurance. Interrupting the laundering process can cut off funding and resources to terrorist groups. This makes them a prime target. And on the other end. The banks collapsed as a result. more drug-related crime. more crime. meaning the rest of us ultimately have to make up the loss in tax revenue. law-enforcement resources stretched beyond their means and a general loss of morale on the part of legitimate business people who don't break the law and don't make nearly the profits that the criminals do. Developing countries often bear the brunt of modern money laundering because the governments are still in the process of establishing regulations for their newly privatized financial sectors. Massive influxes of dirty cash into particular areas of the economy that are desirable to money launderers create false demand. In the 1990s. more violence. and officials act on this new demand by adjusting economic policy.Depending on which international agency you ask. terrorists do not use credit cards and checks to purchase the weapons. and that financial sector falls apart. CONCLUSION Money laundering is the major financial crime that affects the economic & social system of the country. Some problems on a more local scale relate to taxation and small-business competition. They launder the money so authorities can't trace it back to them and foil their planned attack. The effect of successfully cleaning drug money is clear: More drugs. They have so much cash coming in that they might even sell a product or service below cost. The connection between money laundering and terrorism may be a bit more complex. all of that money that will suddenly disappear without any predictable economic cause. On the socio-cultural end of the spectrum. The majority of global investigations focus on two prime money-laundering industries: Drug trafficking and terrorist organizations. economic and security terms. Laundered money is usually untaxed. Also. This means more fraud. more corporate embezzling (which means more workers losing their pensions when the corporation collapses). criminals launder anywhere between $500 billion and $1 trillion worldwide every year. more drugs on the streets. Although governments. Most people who financially support terrorist organizations do not simply write a personal check and hand it over to a member of the terrorist group. successfully laundering money means that criminal activity actually does pay off. They send the money in roundabout ways that allow them to fund terrorism while maintaining anonymity. but it plays a crucial role in the sustainability of terrorist organizations. all over the world have taken many steps to eradicate money . plane tickets and civilian assistance they need to carry out a plot.
we want to present recommendations to eradicate money laundering in Pakistan. RECOMMENDATIONS 1. 6. INVOLVEMENT OF HIGHER AUTHORITIES MUST BE MONITOR & CRUSH :As we know that money laundering is the crime that can¶t be happen on a large scale without the help of government officials. Asif ali Zardari ± Swiss case etc. We have many examples in this regard like khanani & kalia case. ISLAMIC LAWS MUST BE IMPLEMENT:As the major source of money laundering is drug trafficking which is absolutely illegal according to Islam so money obtained or laundered in this way is also illegal according to Islamic point of view. So we can eradicate money laundering if we follow Islamic rules & regulations. STOP HAWALA OR HUNDI Government of Pakistan & financial institutions must try to convince the people of Pakistan living abroad to send their money into Pakistan through proper financial channels. there are no major incentives for business community. Govt. This money of drug trafficking is use by Terrorist for money laundering & to finance their weapons. 4. As we have mentioned in our study that majority of people are sending their money through Hawala or Hundi that severally effects the economy of Pakistan give incentives to Pakistanis living abroad to adopt the proper financial channel to send their money to their loved ones in Pakistan in order to stop money launderings. .laundering in their respective countries but there are many to crush the head of money laundering crime. INCENTIVES TO BUSINESS COMMUNITY:Government must give incentives to the business community. must enforce the laws of Anti-money laundering without absorbing any kind of pressure. On the basis of our study. 5. 2. 3. Government of Pakistan with the help of Afghan government must try to step this drug trafficking from Afghanistan side into Pakistan in order to stop money laundering. In money laundering perspectives. In Pakistan. ENFORCEMENT OF LAWS WITHOUT HESITATION:In Pakistan we have laws for different crimes but the major problem arises when there is a matter of their enforcement. DRUG TRAFFIKING FROM AFGHA-PAKISTAN BORDER MUST BE ERADICATED:Drug trafficking from Pak-afghan border is not a new phenomenon in this region. so law enforcement agencies like Police. NAB must have an eye on government officials. We are experiencing this evil from the era of Afghan Jihad. not by means of Hawala or Hundi. We must follow Islam not just in our personal life but also social & economic sectors of our economy. to stop their involvement in this crime. so they try to obtain money from illegal business laundering taxes they use money laundering techniques.
Government must give different incentives & facilities to business community. 7. . not just in order to increase business activities in the country but also to decrease money laundering. WE KNOW THAT IT IS VERY DIFFERENT TO ERADICATE MONEY LAUNDERING BUT IF WE TRY TO FOLLOW THE ABOVE MENTIONED RECOMMENDATIONS IN OUR SOCIETY THEN WE WILL BE ABLE TO DECREASE THIS EVIL FROM OUR SOCIETY. SERVE PUNISHMENTS:There must be serve punishments for the peoples involved in money laundering so that people must not follow their footsteps.