Safe Havens

Many post-colonial developing countries are still grappling with money laundering, which is considered a criminal act to transfer ill-gotten money to safe havens in Europe, North America, and elsewhere. The curse of money laundering is well entrenched in Pakistan, where the wealthy class uses its resources and influence to illegally transfer money to their bank accounts in foreign countries and buy properties in foreign lands.

The Financial Action Task Force (FATF), after putting Pakistan in the grey list in 2018, removed the country from that list in October 2022. As a global watchdog that monitors terror financing, the FATF suspected that various terrorist groups from Pakistan were moving their capital to foreign countries through money laundering to finance their terrorism activities. While the state of Pakistan rejected such allegations, it took a period of four years for the FATF to remove the country from the grey list, giving a sign of relief to Islamabad.

Why is money laundering considered a ‘white collar crime,’ and how can it be eradicated? What are the types of money laundering, and how do ‘mafias’ skillfully conduct criminal activity by sending ill-gotten money to other countries?

In the last four decades, particularly since the inception of the Afghan war, drug trafficking and a surge of corruption like kickbacks from various mega projects and large-scale bribes gave an impetus to money laundering. According to the Oxford Dictionary, money laundering refers to “the concealment of the origins of illegally obtained money, typically by means of transfers involving foreign banks or legitimate businesses.” Furthermore, according to the official website of the U.S. government on financial crimes, money laundering involves disguising financial assets so they can be used without detection of the illegal activity that produced them. Through money laundering, the criminal transforms the monetary proceeds derived from criminal activity into funds with an apparently legal source.”

The money accumulated illegally and without paying taxes comes under white-collar crime because the illicit gains are not declared during the income tax return filing. There are various forms of money laundering, notably Hundi and fake banking channels. During his days in power, Pakistan’s former prime minister Imran Khan repeatedly called upon Western countries not to become ‘safe havens’ for money launderers. During his election campaign in 2018, he pledged that if he voted for power, he would bring back the black money worth $200 billion belonging to money launderers based in Pakistan. But, despite being in office for around 4 years, he miserably failed to bring that money back to the country.

It is not only in the West like the U.K. and Switzerland where money laundering is common, the Cayman Islands and the UAE are also globally known for parking ill-gotten money sent from Third World countries. When the culture of corruption, embezzlement, and nepotism is deep-rooted and the rule of law, along with accountability, is put on the back burner, it is akin to extending a free hand to those who are involved in money laundering. Money, accumulated through loot and plunder by resourceful and influential people, can easily get a safe passage through various channels to land in foreign banks. In marked contrast, money, which is legally earned and lawfully remitted, cannot be termed as money laundering. However, in Pakistan, because of strict restrictions imposed by the FATF, the State Bank of Pakistan has set strict regulations, even for those with genuine wealth. If they get remittance from abroad, even by their relatives, the recipient has to answer questions from the State Bank about the origin of foreign remittances. They cannot freely send money from their own foreign currency accounts in Pakistan if they want to travel and invest in a foreign country. Whereas, there is no check on the part of the State Bank on those mafias who revel in looted public money and shift their corrupt proceeds to other countries.