TOUGH anti-money laundering legislation is being passed in the US and Europe hastily as a part of their efforts to deny the use by terrorists of their banks and other financial institutions for funding terrorist activities around the world.

Such steps can be very helpful to the Third World countries, like Pakistan whose nationals are said to retain $60 to $100 billion abroad after earning much of that illegally or through criminal means and shifting that abroad to evade detection and penal action at home.

The US Senate has already passed a tough anti-terrorist law along with firm steps against money-laundering while the House of Representatives has passed an anti-terrorist bill without adequate provisions for preventing money-laundering. Hence a supplementary law may be passed now to add to the original bill to prevent money-laundering.

The European Parliament is now dealing with a tougher legislation than it has now to prevent money-laundering with very strong support from European ministers who say countries which do not cooperate in the that may face “financial isolation.”

Interestingly, many of these countries had been dragging their feet when the Third World countries like Pakistan asked for their help in uncovering vast sums looted by their nationals at home and taken to foreign banks and other financial institutions. They did not want to lose the money deposited there by perverted rulers, corrupt officials and businessmen indulging in massive tax evasion and other illegal practices, not excluding drug traffic. But in the heated post-September 11 environment, they are hastening tougher legislation to prevent use of their banks for storing money made through major crimes, drug trade, etc, which could be funnelled for terrorist activities.

The ministers have also agreed to give the European Commission, the executive branch of the European Union,powers to deal with tax evasion by their own citizens, storing their savings abroad. And that may lead to an increased exchange of information between financial centres to avoid tax fraud.

New measures to stop the flow of terrorist funds are to be discussed at a special meeting of the financial action task force [FATF] in Washington on October 29-30. The FATF, based in Paris, was set up in 1999 by the Group of Seven leading industrial states and it already co-ordinates the fight against money laundering among its 31 members, who include members of the EU and the Gulf Cooperation Council whose cities are emerging as major centres for money-laundering, particularly for Osama bin Laden’s the Al-Qaeda network.

The FATF meeting is expected to force countries that are being used to handle terrorist funds to take action, and they include the already blacklisted 19 financial centres with inadequate financial controls, countries which resist such demands may find themselves excluded from the international financial system by the threat of sanctions against banks that continue to use such funds.

And stepping up its drive against corruption the international watch dog for corruption the Transparency International based in Berlin has called for treating corruption and terrorism alike as the two are linked together globally and funds earned through corruption are used partly to finance terrorism.

The new EV legislation which is called a directive to the EU Commission will apply to the proceeds of all serious crimes including terrorism and not just drug trafficking as in the past. And it will set a new international benchmark for the fight against money-laundering.

The European Internal Market commissioner Frits Bolkesteing says the EU is ready to apply increasing pressure on countries which failed to cooperate in matters of money-laundering and financial crimes. And that may continue to the point of all transactions with these countries coming under intense scrutiny and may in the end have to be stopped.

The meeting of the financial action task force is expected to call on all off-shore financial centres or tax havens to implement tougher money laundering rules or face isolation as British Chancellor of Exchequer Gordon Brown has said.

Opposition to the numerous tax-havens which have sprung around the world, particularly in Europe and the American continent as a whole has been increasing in the chancelleries of the world after income tax rates have come down heavily around the world and the tax havens nevertheless have been increasing in number and becoming richer.

Rich Pakistanis siphoned off vast fund to these tax havens like Channel Islands and Isle of man and Cayman Islands. Then there are countries like Switzerland and Luxemberg. Pakistanis have not only deposited their funds in such tax havens but also set up many shell companies there which invest a part of such funds in various enterprises, like the Rockood House near London. Our political leaders have been great users of these havens followed by officials and they use expert advice when handling large funds.

When some of the Western countries began looking into such illegal deposits and some of the tax havens become somewhat wary a good deal of such funds was diverted to Dubai. But now the the whole of UAE too has come under the glare of western attention which is highlighting the role of its banks in the use of such unexplained deposits and their dubious use.

President George Bush froze the accounts and transactions of 27 individuals and groups associated with the Al Qaeda following the September 11 terrorist attacks in the US. Then he came up with a list of 39 names linked with Al Qaeda or other terrorist organisations while admitting al Qaeda was originally an entrepreneurial group set up to finance a range of business in Africa. Among its companies identified by the US in Africa are a leather tannery, a road construction company and a gem trading company.

The Al Qaeda is also linked with ostensible food outfits like the Al Hamati Sweet Bakeries, Al Noor Honey Press Shop and Al Shifa Honey Press in the Gulf.

Al Qaeda is also said to use ‘hawala’ transactions in a big way. And Haji Abdul Mannan Agha is mentioned by the US as a large scale ‘hawala’ dealer whose business is called the Qadir Traders with its base in Quetta.

The US officials are hoping the list of names published by them would now prompt a wave of fresh leads from their international allies as they pursue the assets and transactions linked to the 21 names listed by Washington last week.

These could very well be the reasons why the rupee is gaining against the dollar now after it had gone down hopelessly against it - gone far below not only the Indian rupee but also the Bangladesh taka.

Those who have their large deposits abroad do not now know when would the US or other Western governments pounce on their foreign deposits, on one criminal charge or the other, or link them with some terrorist or criminal association for making a donation to it. They think it is better to get some of that money back home, though not all of that.

If western banks have become risky even Dubai and the UAE as a whole, have become some what hazardous. Foreign banks are not ready to suffer heavy penalties or black listing for the sake of relatively small deposits of Pakistanis sent there illegally.

It has become too hazardous to keep large incomes from drug trafficking abroad or bring much of that home. Officials and other influential persons who shipped out large earnings from corruption or crime too may not risk bringing that home unless there is some kind of an amnesty which will be resented by the people particularly when those with large illegal incomes want to live it up.

Fifteen years have passed since the military dictator Ferdinand Marcos fell in the Philippines but very little of his vast loot of the country earlier estimated at $20 billion have been recovered. His wife Emelda Marcos offered to surrender all the loot if she was offered 25 per cent of that. But the country refused. Last week she was being finger-printed on a charge of trying to recover $28 million from a Swiss bank. Pakistan too has been trying to recover the large loot of its political leaders and top officials deposited abroad for long but with scant success for want of cooperation of foreign governments and their banks. But the efforts can be stepped up with possible far better results.

Pakistanis who have retained vast amounts in foreign countries —upto 100 billion dollars— are in six groups.

1. The oldest group comprise importer who over-invoiced their imports and exporters who under-invoiced their exporters and retained 10 to 20 per of the money abroad. And that began as early as the 1950s and has continued more or less since then.

2. Those who imported machinery for setting up industries and over invoiced their imports by 10 per cent initially and by as much as 24 to 30 per cent in the 1990s when politicians received large bank loans and imported machinery , got-kick backs and retained their share of the loot abroad.

3. Tax evaders within the country who sent out large sums to be retained in banks abroad or make investments in bonds and other financial papers.

4. Corrupt political leaders and officials, including those in the taxation services who sent their large bribes abroad. A classic case was a customs officer, later shot dead, who had kept 40 million dollars in a Swiss bank account. The fact might not have leaked out if his powerful second wife had not foolishly moved the court claiming half that share with the first wife getting the other half.

5. Those engaged in heroin traffic, internal and external and who profit by kidnapping and other high paying crimes.

6. People who feel insecure about retaining their deposits, including the tax evaded within the country and prefer the security of retaining the same abroad in foreign exchange which is not exposed to frequent devaluation as the rupee suffers.

Some of these deposits have been turned into real estate, hotels and other business enterprises, if not in dollar bonds with the help of expert advice.

While in the years gone foreign governments have not been helpful to Pakistan in recovering and repatriating this money they should be more responsive to similar requests now.