An Overview of Money Laundering in Pakistan and Worldwide: Causes, Methods, and Socioeconomic Effects

AutoreWaseem Ahmad Qureshi
CaricaAdvocate Supreme Court of Pakistan
Pagine300-345
ARTICLES & ESSAYS
https://doi.org/10.6092/issn.2531-6133/7816
UNIVERSITY OF BOLOGNA LAW REVIEW
ISSN 2531-6133
[VOL.2:2 2017]
This article is released under the terms of Creative Commons Attribution 4.0 Inter national License
300
An Overview of Money Laundering in Pakistan and Worldwide: Causes,
Methods, and Socioeconomic Effects
WASEEM AHMAD QURESHI
TABLE OF CONTENTS: 1. Introduction; 2. Causes, Methods, and Effects of Money
Laundering; 2.1. Causes of Money Laundering; 2.1.1. Tax Evasion; 2.1.2. Weak Financial
Regulations; 2.1.3. Bribery; 2.1.4. Corruption; 2.1.5. Failure of Banks in Detecting
Laundered Money; 2.1.6. Nature of Borders; 2.2. The Three Stages of Money
Laundering; 2.2.1. Placement; 2.2.2. Layering; 2.2.3. Integration; 2.3. The Methods of
Money Laundering; 2.3.1. Structuring of Money; 2.3.2. Smuggling; 2.3.3. Laundering
through Trade; 2.3.4. N.G.Os.; 2.3.5. Round Tripping; 2.3.6. Bank Control; 2.3.7. Cash-
Oriented Businesses; 2.3.8. Money Laundering through Real Estate; 2.3.9. Foreign
Exchange; 2.4. Effects of Money Laundering; 2.4.1. Economic Impacts; 2.4.2. Social
Impacts; 3. Global Magnitude and Combating of Money Laundering; 3.1. Magnitude of
the Problem; 3.2. Curbing Money Laundering; 3.2.1. International A.M.L. Organizations;
3.2.1.1. Financial Action Task Force (F.A.T.F.); 3.2.1.2. United Nations Office on Drugs
and Crime; 3.2.1.3. FinTRACA; 3.2.2. International A.M.L. Standards; 3.2.2.1. United
Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic
Substances; 3.2.2.2. United Nations Convention against Transnational Organized Crime;
3.2.2.3. United Nations Convention against Corruption; 3.2.2.4. F.A.T.F.
Recommendations; 3.2.3. Criticisms of A.M.L. Standards; 3.3. Notable International
Money Laundering Cases; 3.4. A.M.L. Legislation in Different Countries; 3.4.1. The U.S.;
3.4.1.1. Preventive Money Laundering Measures; 3.4.1.2. Criminal Offenses Measures;
3.4.1.3. Impacts of A.M.L. Legislation; 3.4.2. The U.K.; 4. Money Laundering and
Pakistan; 4.1. Channels of Money Laundering; 4.1.1. Drug Trafficking; 4.1.2. Smuggling
of Cash; 4.1.3. Corrupt Politicians and Administrators; 4.1.4. Real Estate Business; 4.1.5.
Tax Evasion; 4.1.6. Hundi; 4.2. Terrorism Financing; 4.3. Pakistan and International
A.M.L. Standards and Organizations; 4.4. Prominent Cases of Money Laundering in
Pakistan; 4.4.1. The Case of the Khanani and Kalia Foreign Exchange Company; 4.4.2.
The Cash Smuggling Case of Ayyan Ali; 4.5. A.M.L. Legislation in Pakistan; 4.6. Effects
of A.M.L. Legislation in Pakistan; 5. Conclusion.
ABSTRACT: Money laundering is the clandestine movement of cash from one region to
another without notifying it to the government authorities with the purpose of evading
taxes, disguising ill-gotten incomes, and converting illegally earned money into
legitimate assets. Money laundering involves three steps: the placement of cash into a
foreign bank, performing transactions as layers of cash, and then capitalizing the
withdrawn cash into legitimate investments. The failure of financial institutions,
including banks, in detecting the laundered cash is a major reason for money
laundering. On the other hand, round tripping, cash structuring, bank controlling,
N.G.O. funding, and foreign exchange agencies’ illegal money transferring activities are
some of the methods of performing money laundering, which in the long run cause
disastrous effects to the economy, especially on the private sector and emerging
University of Bologna Law Review
[Vol.2:2 2017]
https://doi.org/10.6092/issn.2531-6133/7816
301
markets. Money laundering also invites social costs, which expedite the elevation of
other serious crimes such as drug trafficking, smuggling, arms trafficking, and the
financing of terrorism. Through effective legislation and implementation of anti-
money laundering laws, as well as cooperating with international anti-money
laundering agencies, the illicit crime of money laundering can be prevented at both
regional and global levels.
KEYWORDS: Money Laundering; Anti-Money Laundering (A.M.L.); Drug Trafficking; Smuggling;
Stages of Money Laundering; Round Tripping; Terrorism Financing; Tax Evasion.
University of Bologna Law Review
[Vol.2:2 2017]
https://doi.org/10.6092/issn.2531-6133/7816
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1. INTRODUCTION
Money laundering is the method used for transferring money earned through
clandestine means
1
to or from a foreign land without paying the tax applicable
on the transferred amount.
2
It can also be defined as converting illicit
monetary assets into legitimate possessions.
3
Money laundering is recognized
as a crime in domestic law worldwide. It is also considered a thought crime.
4
The United States Treasury Department has defined money laundering as
disguising financial transactions and funds that are used by terrorists or other
criminals for their illicit purposes.
5
Money laundering can be carried out
through several kinds of financial and commercial activities, for instance
digital money transfers, cash transactions, credit card payments, offshore
property building, and wire transfers, Money laundering can be carried out
through several kinds of financial and commercial activities, which include
supposedly legal actions such as digital money transfers, cash transactions,
credit card payments, offshore property building and wire transfers .
6
Money is
also laundered through trading, drug trafficking, smuggling, etc., thus
allowing Anti-Money Laundry (hereinafter A.M.L.) international financial and
legal authorities to describe money laundering as an illegal activity
7
that is
intertwined with other serious crimes.
8
Notably, the financing of terrorist and
other criminal organizations is also conducted through the channels of money
laundering.
9
Advocate Supreme Court of Pakistan.
1
See JOHN MADINGER, MONEY LAUNDERING: A GUIDE FOR CRIMINAL INVESTIGATORS 5 (3rd ed, CRC Press
2016) (1999) [Hereinafter: Madinger].
2
See PAUL V. DALY, THE SUPPLY OF ILLICIT DRUGS TO THE UNITED STATES: THE NNICC REPORT 78 (1996).
3
See COLLEEN CROSS, EXIT STRATEGY (Slice Publishing 2014) (2011).
4
See MARK NESTMANN, THE LIFEBOAT STRATEGY (eBookIt.com 2011) (2003).
5
See JAMES R. RICHARDS, TRANSNATIONAL CRIMINAL ORGANIZATIONS, CYBERCRIME, AND MONEY LAUNDERING
44 (1999).
6
See IMF, Staff Country Reports, 19 (2009).
7
See ASIAN DEVELOPMENT BANK, Manual on Countering Money Laundering and the Financing of Terrorism,
ADB.ORG (Mar., 2003), https://www.adb.org/sites/default/files/publication/27932/countering-
money-laundering.pdf.
8
See BRIGITTE UNGER & DAAN VAN DER LINDE, RESEARCH HANDBOOK ON MONEY LAUNDERING (2013).
9
Id.

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