Money laundering; a non-traditional security threat

Money Laundering

This article is written by Muhammad Ahmed Fareed, a student of International Relations at the National University of Modern Languages, Islamabad. he is interested in global politics, International relations, diplomacy, global International institutions, and International law.

Money Laundering:

Money laundering is the illegal process in which money made from illegal sources, such as money laundering, is shown as it has come from legitimate sources. The money from the criminal activity is considered dirty, and the process “launders” it to make it look clean. Money laundering is a financial crime that is considered a white-collar crime.

According to Interpol, money laundering is defined as ” Any act or attempted act to conceal or disguise the identity of illegally obtained proceeds so that they appear to have originated from legitimated sources “.

Money laundering is based on 3 basic steps: placement, layering, and integration. Placement is the initial step in which the money is deposited in foreign banks. Layering is the second step in which several transactions are done such as cash withdrawals and wire transfers for the purpose of concealing the original source of money. Integration is the final step in which the money is used to invest. When this step is successfully achieved then it becomes nearly impossible for anti-money laundering authorities to track the laundered money.

There are many methods of doing money laundering which include structuring of money, smuggling, laundering through trade, non-governmental organizations, round-tripping, bank control, cash-oriented businesses, money laundering through real estate, and foreign exchange.

Impacts of Money Laundering: 

Money laundering has several impacts on the state: economically as well as socially. It damages the strength of the economy and also acts as a social evil in society. Some of the impacts of money laundering are explained below.

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Economic Impacts: 

The hold of the state administration over its economic policy is weakened by money laundering. This may, in the future, lead to the failure of private businesses, banks and create a hurdle in the implementation of economic policy by the government. And due to the age of globalization, it will have a spillover effect and may affect the international monetary system, international currencies, and economies.

Money laundering affects the emerging or newly established markets more than those which are well established and strong. In such conditions, trade is prioritized, and restrictions are minimized, due to which money launderers, benefiting from the situation, move their drugs, black money, and arms around the world. They also have a negative impact on the private businesses of people. Since their money and products are black so they are paying the lowest cost for them, they try to sell the products in the market at a very low profit as compared to others and gain a comparative advantage. Which discourages other competitors and can devastate existing companies because they do not have the capital to bear the burden of price competition.

Money laundering also leads to the failure of banks and financial institutions, destroys the reputation of financial institutions and the national economy. It may cause monetary instability which may lead to inflation and an increase in the price of goods in the country. The thing that is directly affected by money laundering is the government’s tax revenue because a lot of money moves out of the country without being taxed.

Social Impact: 

First, money laundering hurts the international image of the country. It encourages the people of a state to smuggle and drug trafficking. It also contributes to a number of crimes, because the criminals need to hide their source of income. In this way, it provides safe haven to criminals and terrorists. In this way by motivating the people, spreads crime in society.

Money Laundering and Pakistan: 

Over the last 3 decades, money laundering has flourished in Pakistan. Unfortunately, the state administration has failed to overcome this crime. Although the law has been made to tackle this problem, the procedures are not rigorous enough because the state administration has never demoralized the factors that create ease to pursue money laundering.

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The common channels of money laundering in Pakistan include drug trafficking, smuggling of cash, corrupt politicians and administrators, real estate business, and tax evasion.

Terrorism financing: 

The terrorists need money to implement their plans, and they are sponsored by such money launderers and drug traffickers. In Pakistan, terrorist organizations are involved in money laundering. The main cases of money laundering in Pakistan include the case of Khanani and Kalia foreign exchange company and the cash smuggling case of Ayyan Ali. In the first case, the criminals were involved in illegally transferring $10 billion out of Pakistan. In the second case, model Ayyan Ali was caught smuggling $506,000 to Dubai at Islamabad Airport.

Pakistan has been kept in the grey list by the financial action task force because it is said to be a terror financing state and it can not get out of the grey list until and unless it deals with the issue of money laundering and terrorism financing.

Anti-money laundering legislation in Pakistan: 

There are a number of legislations made to punish the money launderers and criminalize money laundering but when it comes to their implementation, there it loses its effectiveness. Because the law enforcement agencies do not put the money launderers behind the bars. They either bribe the agencies, or they are politically so strong that nobody dares to arrest them. The legislations made so far are:

  • Anti-Money Laundering Ordinance 2007
  • Anti-Money Laundering Act 2010
  • Anti-Money Laundering Rules 2010
  • Anti-Money Laundering Regulations 2010
  • Amendments to Anti-Money Laundering Act 2010

Although, these documents exist their efficacy is not there. The people of the state are not afraid of the punishment they will get after committing this crime. So, the judicial system of the country should be strong and just to make the decisions and the law enforcement agencies should implement them without any fear.

Conclusion: 

Money laundering has been declared a major crime all over the world. It has been increasing in developing states in recent years. This crime is adopted by criminals to hide the original source of their income. It encourages criminals to commit more and more crimes. Although there are a lot of A.M.L organizations made to stop this crime, they have been unsuccessful in their mission to stop money laundering and this crime has spread all over the world. The volume of money laundered is in billions of US dollars.

As discussed earlier money laundering has a negative impact on a country economically as well as socially. So, it is to be made sure that this crime is countered. For this purpose, law enforcement agencies need to devise effective strategies to increase cooperation at the local, regional, and international levels. On the other hand, tax authorities need to devise their strategies so that people can be stopped from evading their taxes. Since corruption and bribery accompany money laundering, the law enforcement authorities need to trace and penalize them. If the state succeeds in adopting these steps then money laundering can be countered.

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