Money-Laundering & Terrorism


The following article has been published in Daily Nation, dated 4th January 2015

(E-Paper (Print Edition): http://nation.com.pk/E-Paper/lahore/2015-01-04/page-9)

(Online: http://nation.com.pk/business/04-Jan-2015/money-laundering-and-terrorism)

Money-Laundering & Terrorism

By: Omer Zaheer Meer

Though the definition of terrorism is still a contentious issue but there is a growing consensus across Pakistan that the cancer of terrorism is plaguing the country and causing more damage than any of the other problems. One commonly accepted viewpoint is that harming or killing of non-combatants particularly women, children and elderly is deemed to be a terrorist activity irrespective of the cause or ideology. While many other aspects of the terrorism problem are discussed nowadays, the extremely important issues of money-laundering and its implications for terrorism are least focused.

The first thing to consider is what exactly is money-laundering? Money laundering can be defined in many ways. Most countries subscribe to the definition adopted by the United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (1988) (Vienna Convention):

The conversion or transfer of property, knowing that such property is derived from any [drug trafficking] offense or offenses or from an act of participation in such offense or offenses, for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in the commission of such an offense or offenses to evade the legal consequences of his actions;

The concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership of property, knowing that such property is derived from an offense or offenses or from an act of participation in such an offense or offenses.

The Vienna Convention further adds that money laundering involves: The acquisition, possession or use of property, knowing at the time of receipt that such property was derived from an offense or offenses … or from an act of participation in such offense or offenses.

In layman’s term money laundering is “the concealment of the origins of illegally obtained funds, typically by means of transfers involving foreign/local financial intermediaries and/or legitimate businesses”. It is the process in which the proceeds of illegal/undeclared activities are transformed into superficially legitimate money or other assets. It is therefore the blood-line of terrorism as without financing no activity, not even terrorism, can sustain itself. The problem of money-laundering is prevalent in almost all the countries across the globe in one form or another. However, in Pakistan the issue is much more severe due to the undocumented culture common amongst businesses and the resulting black-economy.

In pre-9/11 era, money-laundering in Pakistan was mostly associated with corrupt politicians, bureaucracy, generals and businessmen illegally transferring the ill-gotten money out of the country. Switzerland, Caymans’ Island, Rhodes Island and many of the similar off-shore locations were famous as “safe heavens” for the illegitimate monies laundered. The focus was minimal, if any on the funds routed for sectarian terrorism, ripe in Pakistan at that time.

However the advent of 9/11 changed the USA’s financial system with global implications. As a result, financial institutions across the globe were required to introduce additional stringent checks and allow more access to regulators or face sanctions and cutting-off from the global financial system. The developments took shape for better with even Swiss authorities agreeing to provide details of and handing over the proven money-laundered accounts and otherwise illegal funds deposited in their banks and other financial institutions. These developments did dent the flow of funds routed for terror-related activities. In developed countries with document economies, the intelligence agencies were able to wither off major terrorist plots due to the same. Why some countries like Pakistan did not opt to take advantage of these developments and get back their monies illegally stashed overseas warrants an entire write-up.

However, despite the newer laws introduced in the last decade or so most of Pakistan’s economy remains undocumented and hence outside the realms of these processes. Cash transactions and donations still form the bulk of the black-economy. More sophisticated operations utilize front companies/businesses and chains of accounts to route funds in a manner to make them very difficult to trace. The pertinent question is what can be done to address this situation particularly in the wake of USA leaving Afghanistan and Pakistan having to face the worst of the American started war being unleashed on its civilians?

Money-laundering usually requires an underlying profitable crime (like drug trafficking, target killins, corruption, market manipulation, fraud, tax evasion, e.t.c.) or a simply desire to contribute towards a non-mainstream or terrorist cause along with the intent to conceal the proceeds of the crime or to further the criminal enterprise. Hence to begin with, formal banking channels and other financial intermediaries should lower their cost of services to ensure the alternate illegitimate channels become less attractive in terms of cost-competitiveness. Government of Pakistan can legislate to make it a requirement like many others upon the financial industry or simply choose to subsidize financial institutions in part or full to ensure they feel less financial burden.

Moreover this crisis can also be used as an opportunity to run a national drive to convince businesses about and then implement the concept of a documented economy. Any transaction without a proper receipt should be deemed illegal. Receipts should be issued by Government monitoring bodies perhaps by a separate team in FBR to businesses to eradicate the possibility of counterfeit receipts which are never accounted for. Some structural reforms as recommended in my previous write-ups including lower tax rates, improvements in the progressive structure of the tax system as well as widening the tax base would be required to ensure this is achieved.

This time, the backdrop of Peshawar Army School tragedy has made the nation more aware of the issue and it will be more receptive to such measures. However, the lawmakers will need to lead by example if they’re to gain the trust of the business community and ordinary tax-payers. If that is not the case and rather millions are declared as “Qarz-e-Hasna” to their children by top Government officials to avoid tax, the drive will be bound to fail like many before it.

The author is Director of the think-tank “Millat Thinkers’ Forum”. He is a leading economist, chartered financial analyst, qualified accountant and anti-money laundering expert with international exposure who can be reached on Twitter and www.myMFB.com @OmerZaheerMeer or omerzaheermeer@hotmail.co.uk

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