June 26 is observed as the International Day against Drug Abuse and Illicit Trafficking.
Successive governments in Pakistan provided money laundering schemes to the black economy, including proceeds from the drug trade in the name of ‘good economic measures’ to ‘boost industrial progress’.
Our drug barons hardly need any channels to launder money because support from the state is available. If anybody brings money (earned from the drug trade) into Pakistan through normal banking channels in the name of ‘home remittance’, the tax authorities cannot pose any question about the ‘source’.
Governments in other parts of the world confiscate such dirty money, through asset-seizure legislation, and punish the offenders.
Our rulers, instead legalise this kind of money. Criminals remit millions of rupees every year which enjoy complete immunity from investigation by law under the Protection of Economic Reforms Act of 1992.
In the Income Tax Ordinance 2001, a special provision – Section 111(4) – was inserted. This section helps money launderers to remit (launder is a 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 probe into the source of the income. This scheme, aimed at bringing foreign funds to the economy, succeeded immensely as foreign remittances crossed the US$ 14 billion mark in 2012. This provision is being abused by Pakistani drug syndicates and tax dodgers to launder their money through state patronage. Double of this money comes through hundi or hawala [informal transfer system without movement of actual funds].
Many schemes in the past – like the Bearer National Fund Bonds, Foreign Exchange Bearer Bonds, Special Bearer Bonds, US Dollar Bonds and Certificates etc – also helped drug barons to decriminalise their dirty money. Since the Zia era, Pakistan’s black economy has flourished at an amazing rate. According to various studies, the parallel economy is growing at an alarming rate of 23 percent per year. It is estimated that every fifth rupee transacted in Pakistan is black.
A study by the State Bank of Pakistan, ‘The Size of Informal Economy in Pakistan’, estimates that the total size of the country’s informal economy is around 30 percent of the total economy. This means that annually around Rs800-900 billion are generated by the parallel (untaxed) economy (informal, though not illegal). Black money, generated through organised criminal activities e.g. kidnapping for ransom, rent-seeking, smuggling in goods and narcotics trade etc, is about Rs1300 billion. This figure does not appear in the SBP study but is documented in my books Pakistan: Enigma of Taxation and Pakistan: Drug-trap to Debt-trap – these estimate the total figure of informal economy at US$95 billion.
Pakistan suffers terribly under terrorism and money laundering. There is sufficient evidence that militant groups working against the security and stability of the state generate huge funds through organised criminal activities and also get huge ‘donations’ from ‘sympathisers’ in and outside Pakistan. It is an irrefutable fact that certain laws protect illegal money, for example Sections 5 and 9 of the Protection of Economic Reforms Act, 1992 and Section 111(4) of the Income Tax Ordinance, 2001. These laws ensure an unlimited flow of remittances and dealings in foreign currencies.
In the presence of the so-called ‘protective’ economic laws cited above, the provisions of the Anti-Money Laundering Act of 2010 have rarely been invoked. In fact, it has become a dormant law. Banks are not reporting any suspicious transactions under Section 7 of the Act or Section 67 of the Control of Narcotic Substances Act of 1997. This shows the slackness of institutions and agencies responsible for implementing these laws. Our terrorist networks are connected with international drug syndicates and private banks provide them every facility to launder drug money. In these operations western banks are equally involved.
In 1999, John Reed, Chairman and co-CEO of Citigroup in his testimony before the Senate said: “I am John Reed, Chairman and Co-Chief Executive Officer of Citigroup….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…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 percent 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”.
This statement shows the expertise of our former prime minister (who also held the portfolio of finance minister) in ‘anti-money laundering’ areas, none of which was introduced in Pakistan during his tenure. On the contrary, laws promoting money laundering were passed.
Today, big US banks have established multiple correspondent relationships throughout the world to be able to engage in international financial transactions for themselves and their clients in places where they 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 are laundering billions of black money.
All large banks specialising in international fund transfer are called money centre banks, some of the biggest process up to $1 trillion in wire transfers a day. The most recent estimates (2012) are that 60 offshore jurisdictions around the world licensed about 4,000 offshore banks that control approximately $35 trillion in assets.
This is the situation on the ground. All the while, though, we hear tall claims about the war against drugs and terror. This is all eyewash. In reality all the financial institutions and state structures are subservient to these billionaires – the ruthless drug barons.