Laundered funds

Published May 27, 2016

A LINE is doing the rounds with increasing conviction that within the existing legal framework the government is powerless to scrutinise the source of funds that leave the country through official banking channels. Most recently, the line has been repeated by the chairman FBR before the Public Accounts Committee, when he stressed that the laws prevent his department from proceeding against individuals known to have accumulated undeclared assets abroad. He even mentioned some amendments to the legal framework that the FBR has suggested be made in the forthcoming budget to plug the loopholes that have created these implied money-whitener schemes.

Unfortunately though, the line itself is totally unconvincing. The legal framework in Pakistan gives plenty of options to investigate money laundering, and all that is needed is the will to follow up. If it was indeed that easy to move money out of Pakistan through banking channels, why would the State Bank governor tell a Senate committee back in 2013 that almost $25m is smuggled out of the country in suitcases every day? The only reason there is a suitcase trade in foreign-currency cash is because using banking channels is not as straightforward as it is made out to be. Pakistan has one of the highest pools of tax-evaded wealth in the world, and the vast amount of Pakistani money parked in Dubai real estate is an indication of this. This money, that dare not speak its name, needs to move around, and often travel into and out of the country. For this purpose, an elaborate system has come into being to fulfil this purpose without triggering alarms. In large measure this system operates through the collusion of government departments, through the use of offshore companies and through loopholes in the law or the unwillingness of state officials to vigorously implement it to intercept funds. If the quantum of funds to be moved is large, the hired expertise of high-level transaction lawyers and chartered accountants is also pressed into service. This system has been plying its sleuthful craft for decades now, and those invoking impotent laws to argue their helplessness are, in reality, afraid of disrupting this machine that gives white-gloved treatment to the rich and powerful. If the state wants to shut down this apparatus, it needs no new laws. But the sad fact is it does not.

Published in Dawn, May 27th, 2016

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