The international drug mafia is estimated to be involved in a business whose total transactions cross $600-800 billion year—Drug Report 2009 released by United Nations Office of Drugs & Crime on June 24, 2009 (for complete text visit http://www.unodc.org) The successive governments in Pakistan provided money laundering schemes to the black economy (although these were termed as good economic measures to dig out black money). Our drug barons hardly need any international channels for money laundering because support from the State is available at home. If any drug smuggler remits dirty money in Pakistan through normal banking channels, the tax authorities cannot pose any question about its ‘source’. Millions of dollars come into the country every year from bank accounts maintained in various countries in fictitious names, but no action is taken under the law.

In the Income Tax Ordinance 2001, a special provision [section 111(4)] exists to facilitate the money launderers to remit (laundered is more appropriate term) their ill-gotten money through banking channels and surrender the foreign currency to the State Bank and get Pakistani rupees as encashment. In this way they can escape not only taxation but any criminal proceedings as well. This scheme aimed at bringing huge foreign funds to Pakistani economy has succeeded immensely during Musharraf-Shaukat era when foreign reserves of Pakistan crossed the US$ 15 billion mark. Even today, it is being exploited cleverly by the Pakistani drug syndicates and tax dodgers to launder their money through State patronage. In the presence of this law can anybody take Pakistan seriously in its so-called measures against money laundering?

In the past, schemes to convert black economy into documented one included Bearer National Fund Bonds and Foreign Exchange Bearer Bonds, Special Bearer Bonds, US Dollar Bonds and Certificates and a host of such other instruments. The object of these instruments was to mop up black money (believed to have been earned mainly through illicit transactions) and to bring it out in the open so that instead of remaining concealed and idle, such money could become available for augmenting resources of the State and for the utilization of social and economic planning. The said schemes, however, proved counter-productive. The bearer bonds were converted into alternate currency and exchanged hands at a premium.

The Special Bearer Bonds carried a premium in the market and an increase in the premium was witnessed as the date of maturity of these bonds came closer. Under the scheme anyone could buy the bonds, present them to the government and claim refund along with a specified interest. The source of investment in their purchase could not be questioned; whether it was white or black money. Thus, the drug barons could get their money and assets legalised with no questions asked about the source of such ‘income’.

Since 1977, after Zia’s takeover, the size of black economy has been growing at an amazing pace in Pakistan. According to figures released by various quarters, the parallel economy is growing at an alarming rate of 22.93 per cent per annum. It is estimated that every fifth rupee transacted in Pakistan is black. The volume of black money generated in the financial year 2008-09 is estimated at Rs. 800 billion. A conservative estimate is that Rs. 1000 billion is generated every year by the parallel economy, the share of illicit trade in it is not less than Rs. 300 billion to Rs. 500 billion.

Pakistan alone is not a victim of narco-money and its laundering. The former private banker, Antonio Geraldi, in a testimony before the US Senate Sub-committee, projected significant growth in the US bank laundering. “The forecasters also predict the amounts laundered in trillions of dollars and growing disproportionately to legitimate funds.” John Reed, Chairman and co-CEO of Citigroup in his testimony before the Senate as early as in 1999 said: “I am John Reed, Chairman and Co-Chief Executive Officer of Citigroup. I appear today with Todd Thomson, who became the head of our Private Bank about ten days ago, and Mark Musi, the head of the Private Bank’s Compliance and Control Department. Unfortunately, Shaukat Aziz, who ran the Private Bank for the last two years and under whose leadership many of the improvements in our Private Bank’s anti-money laundering programs took place, cannot participate in these hearings. Mr. Aziz would really have been the most appropriate witness today, given his experience and knowledge but as you know, he was called home to serve his country, Pakistan, as Minister of Finance. He left the Bank on October 29. He asked me to submit his statement for the record, and it is attached to my own. All financial institutions whether banks, securities firms, or other types of financial intermediaries are potentially vulnerable to money laundering. Private banks are just one subset of the potentially vulnerable institutions. Our Private Bank, for example, is a very small part of Citigroup, accounting for about 2.5% of Citigroup’s business. Private banks in general are no more and no less vulnerable to abuse by the unscrupulous and the dishonest than the much larger parts of most financial institutions”.

It is shocking that a person who was working closely with the US government till October 1999 to devise anti-money laundering programmes never introduced money laundering law in Pakistan during his premiership from 2004-2007. In fact, he was the Finance Minister in 2001 when the new Income Tax Law was promulgated having a special provision for facilitating money laundering. As an insider, he knew that all the big US banks established multiple correspondent relationships throughout the world so they could engage in international financial transactions for themselves and their clients in places where they did not have a physical presence. Many of the largest US and European banks located in the financial centres of the world serve as correspondents for thousands of other banks. Most of the offshore banks were (or still) laundering billions of black money. All the big banks specializing in international fund transfer are called money centre banks, some of the biggest, process up to $1 trillion a day in wire transfers. The most recent estimates (2008) are that 60 offshore jurisdictions around the world licensed about 4,000 offshore banks that control approximately $5 trillion in assets.

It was thus not very surprising that Musharraf-Shaukat era witnessed largest money laundering operations in Pakistan. The affluence that suddenly became visible for a few was not due to any domestic capital generation, but related to ill-gotten, illicit money—rent-seeking, drug money, kick-backs in arms’ deals and plundering of funds received in the name of ‘war against terrorism’ etc. The huge size of black economy in Pakistan has clear linkage with the drug-for-arms transactions. There is an urgent need to crack down on the ruthless drug barons and arms dealers, who know how to move money from one part of the world to another, buy government functionaries, control politicians, law enforcement officials and get the profits they want from the drug trade—a deal of death for many innocent people around the world.




Source: Pakistan Observer