10.6092/issn.2531-6133/7816
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steps: the placement of cash into a foreign bank, performing transactions as layers of cash, and then capitalizing the withdrawn cash into legitimate investments.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 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. 
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Waseem Ahmad Qureshi
University of Bologna Law Review
Tax Evasion
An Overview of Money Laundering in Pakistan and Worldwide: Causes, Methods, and Socioeconomic Effects
Text.Serial.Journal
https://bolognalawreview.unibo.it/
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Articles & Essays
2018-02-11
2018-02-09
2017-11-22
2018-12-14
300-345
UBLR
Waseem Ahmad Qureshi
2017
10.6092/issn.2531-6133/7816
300
Advocate Supreme Court of Pakistan
2531-6133
2
Tax Evasion
en
345
An Overview of Money Laundering in Pakistan and Worldwide: Causes, Methods, and Socioeconomic Effects
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2
ARTICLES & ESSAYS                                                         https://doi.org/10.6092/issn.2531-6133/7816




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

                                                    ISSN 2531-6133

                                                     [VOL.2:2 2017]

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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.




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           1. INTRODUCTION

Money laundering is the method used for transferring money earned through
clandestine means1 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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There are various ways to launder money, each method having a certain level
of complexity associated with it. 10 Nonetheless, money launderers almost
always perform the following interlinked three steps: 1) placement, or

structuring, of funds; 2) layering; and 3) integration. 11 The only exceptions
include cases that involve non-cash funds that might already be present in the
fiscal system.12

          The methods and magnitude of money laundering, and its causes and
effects, in different countries, including Pakistan, the United Kingdom (U.K.),
and the United States (U.S.), will be elaborated in this paper, along with the
measures for preventing the crime, regionally as well as internationally.




          2. CAUSES, METHODS, AND EFFECTS OF MONEY LAUNDERING

     2.1. CAUSES OF MONEY LAUNDERING

Several factors give rise to money laundering, and they may be present within
a country or state, or might operate transnationally.13 Some of the most
prominent factors that lead to money laundering are discussed below.




     2.1.1. TAX EVASION

Tax evasion leads to the hiding of financial assets owned by a person or
company—to evade taxes, people hide their assets and the sources of their
earnings14      Generally,    the   rationale       behind   avoiding         paying         taxes        is
accumulating wealth. Moreover, some people do not give a portion of their
wealth to the government, particularly if they feel that their tax money would
not benefit their well-being or if they have no concern for the public good. 15


10
    See ERNESTO U. SAVONA, EUROPEAN MONEY TRAILS 15 (Routledge 2014) (1999).
11
   See JEROME BJELOPERA & KRISTIN FINKLEA, ORGANIZED CRIME: AN EVOLVING CHALLENGE FOR U.S. LAW
ENFORCEMENT 14 (2012).
12
   See U.S. GOV'T ACCOUNTABILITY OFF., GAO-03-813, COMBATING MONEY LAUNDERING OPPORTUNITIES EXIST
TO IMPROVE THE NATIONAL STRATEGY 7 (2003).
13
   See KANNAN SUBRAMANIAN, THE MONEY LAUNDERING AND FINANCING OF TERRORISM ECO-SYSTEM (2016).
14
   See Richard Waber, Money Laundering, U.S ATT'Y BULL., Sept. 2007, at 21.
15
   See LAWRENCE GITMAN, MICHAEL JOEHNK & RANDY BILLINGSLEY, PERSONAL FINANCIAL PLANNING 82 (3RD




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Tax evaders might also perform manipulations of their tax forms by not
reporting the correct amount of income that they get from different sources.
Upon fearing that the authorities might track their concealed monetary and
nonmonetary assets and earnings, they either transfer their money to foreign
banks, or invest in property ventures furtively by hiding their identities and
reassigning ownership of their nonmonetary assets and property into someone
else’s name, usually that of a family member without the will or capacity to
control that asset independently.16 This constitutes tax evasion if the
transferred property is not shown on income tax returns 17 and can lead to
money laundering if the cash or property is transferred to foreigners’ accounts
surreptitiously. This type of laundering is also performed by politicians,
especially those who are in or seeking power. They hide their monetary and
nonmonetary wealth assets18 or transfer them to foreign lands to avoid scrutiny
by tax authorities.19 Hence, this crime is performed by the “will” of politically
powerful elites, whose influence surpasses the authority of A.M.L. authorities
and, thus, the practice continues until they lose their political influence or
power.20




      2.1.2. WEAK FINANCIAL REGULATIONS

Another cause of money laundering is the weakness and inadequacy of
financial regulations and relevant authorities within a country. For instance, if
the tax department is not strong enough to question the politicians, elites, and
general public about their earnings and “monetary and nonmonetary” assets,
then it is not difficult for people to hide taxes and perform money laundering
by buying property in relatively more stable but offshore economies. 21

          Money laundering and tax evasion are crimes which need to be curbed
by the financial regulatory authorities and institutions. The financial

ED.  2014).
16
   See MARK GOODFIELD, Transferring Property among Family Members, LINKEDIN (Sept. 23, 2014),
https://www.linkedin.com/pulse/20140923125602-8635921-transferring-property-among-
family-members-a-potential-income-tax-nightmare.
17
   See ERNEST LARKINGS, INTERNATIONAL APPLICATIONS OF U.S. INCOME TAX LAW 380 (2003).
18
   See ATO KWAMENA ONOMA, THE POLITICS OF PROPERTY RIGHTS INSTITUTIONS IN AFRICA 219 (2009).
19
   See JOHN CASSARA, TRADE-BASED MONEY LAUNDERING 79 (2015) [Hereinafter: Cassara].
20
   MADINGER, supra note 1, at 3.
21
   See MARY ALICE YOUNG, BANKING SECRECY AND OFFSHORE FINANCIAL CENTERS 12 (2013).




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regulatory authorities in each country need to re-examine their policies and
financial regulatory principles to check if they can be implemented effectively
or if there are any loopholes that might allow politicians and the elite classes to
conceal the details and sources of their assets, as well as destinations of money
that they receive or transfer to foreign regions at any given time.




     2.1.3. BRIBERY

Bribery is also linked to weak financial regulations as financial regulatory
authorities or airport officials might be bribed by money launderers to allow
them to transfer funds abroad without paying the applicable taxes and by not
tracking down the sources or destinations of the money. 22 This paves the way
for secured money laundering facilitated by the officials of airport authorities. 23
As a consequence, the money illegally moves out of the country.




     2.1.4. CORRUPTION

Corruption is unethical conduct aimed at gaining personal benefits by using
either authority or bribery.24 Politicians, statesmen, ministers, etc. hide the
monetary and nonmonetary assets that they earn illegitimately, i.e., through
means of corruption. For instance, they might take bribes and would prefer to
transfer the bribe money into foreign banks or other investments. 25 They would
thus avoid transferring it to local or personal bank accounts so that local
financial auditing authorities do not discover the bribe amount. 26 Hence, their
corruption causes a flow of cash to foreign banks or causes them to hide their
financial assets as well as the sources of earning, which leads to money
laundering. It is of paramount importance we curb corruption in order to
prevent this form of crime




22
   See IAN JEFFRIES, THE NEW RUSSIA: A HANDBOOK OF ECONOMIC AND POLITICAL DEVELOPMENT 88 (2002).
23
   Id.
24
   See COMMONWEALTH SECRETARIAT, COMBATING MONEY LAUNDERING AND TERRORISM FINANCING 66
(2006).
25
   See MARGARET E. BEARE, ENCYCLOPEDIA OF TRANSNATIONAL CRIME AND JUSTICE 37 (2012) [Hereinafter:
Beare].
26
   Id.




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      2.1.5. FAILURE OF BANKS IN DETECTING LAUNDERED MONEY

Another reason for the untracked facilitation of money laundering is the failure
of banks to detect and report the money in their reserves that is being
laundered.27 Huge sums of money are transferred by money launderers to
foreign banks, and some accept without carrying out any effective inspection
as to their source.28

          Unfortunately, there is no automated mechanism devised worldwide to
accurately track down the source of money; neither do most banks usually pay
any attention to it because of the costs associated with it 29. Furthermore, there
is no incentive to use resources to investigate the money that has been placed
in their financial reserves.30 Therefore, the issue remains untouched and
unrestrained, and causes banks not to perform sufficient scrutiny over the
funds that reach their branches through wire transfers or any other means,
which consequently encourages money launderers to transfer funds to foreign
banks without any threat of being accountable for the actual source of the
money.31 For example, in 2010 H.S.B.C. was convicted of being involved in
money laundering as it did not scrutinize the movement of laundered cash that
its     different    branches       worldwide        were     receiving        and        transacting. 32
Consequently, the bank was fined $1.9 billion by the international financial
regulatory and A.M.L. authorities.33




      2.1.6. NATURE OF BORDERS

Online financial transactions and the smuggling of cash through airports are
not the only means of laundering money. Cash is also smuggled physically
through borders, particularly in those countries where there is weak or no



27
   See 1 LAWRENCE SALINGER, ENCYCLOPEDIA OF WHITE-COLLAR & CORPORATE CRIME 78 (2005).
28
    Id. See also U.S. Dep't of State, The Fight against Money Laundering, ECON. PERSPECTIVES, May 2001,
at 27.
29
   See STEVEN MARK LEVY, FEDERAL MONEY LAUNDERING REGULATION: BANKING, CORPORATE AND SECURITIES
COMPLIANCE 1–17 (2nd ed. 2016).
30
   See MICHAEL TONRY, THE OXFORD HANDBOOK OF CRIME AND PUBLIC POLICY 375 (2009).
31
   Id.
32
   See FERNANDO SOTELINO & IRENE FINEL-HONIGMAN, INTERNATIONAL BANKING FOR A NEW CENTURY 202
(2015).
33
   Id.




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vigilance over cross-border trafficking.34 For instance, this practice is more
common across the international borders of countries where the border area is
either mountainous or too long to control and monitor strictly and
continuously, e.g., across the Mexico–U.S. border35 or the Afghanistan–
Pakistan border.36      37
                             The money launderers, in such a case, act as smugglers
and either cross the border themselves or assign the chore to their loyal
followers.38 Drug lords prefer to launder money by smuggling cash in return for
drugs and vice versa.39 This is the quickest and safest mode of money
laundering for them as they do not have to create any bank accounts and never
have to show their identity during online transactions. They remain
undercover and get money through furtive sources of money laundering. 40

         This issue has affected the peace of the countries where the smuggling
of cash and weapons is taking place across borders. 41 There have been reported


34
   BEARE, supra note 25, at 37.
35
   Id., at 38.
36
    See 2 BUREAU FOR INTERNATIONAL NARCOTICS AND LAW ENFORCEMENT, U.S. DEP’T OF STATE,
INTERNATIONAL NARCOTICS CONTROL STRATEGY REPORT: MONEY LAUNDERING AND FINANCIAL CRIMES 149
(2011) [Hereinafter: Brownfield].
37
   Both, the Mexico–USA and the Pakistan–Afghanistan borders are spread across mountainous
regions and they are very difficult to fully track and continuously monitor by the border security
forces. For details, see BEARE, supra note 25, at 38. see also Id. .
38
   Brownfield, supra note 36, at 11.
39
   See WILLIAM BLAKE, A MANUAL OF PRIVATE INVESTIGATION TECHNIQUES 222 (2013).
40
   For instance, in Mexico and Afghanistan, smugglers and money launderers smuggle large sums
of money as well as large quantities of drugs across international borders, because, here, Mexico
and Afghanistan are the leading manufacturers and traffickers of illicit narcotic drugs. The drug
dealers and manufacturers in these countries earn money through smuggling drugs to other
countries and laundering cash profits in return. The Mexican drug dealers have the aim of
smuggling drugs through the U.S. border in order to gain a higher return in U.S. currency by
surreptitiously selling drugs there and to launder the earned dollar currency in Mexico. Similarly,
the Afghan drugs manufacturers get laundered cash money by trafficking the drugs across the
international borders of Afghanistan to the Balkan states, Iran, Central Asian republics, and
through Pakistan to the Golden Triangle (Burma–Thailand–Laos), which is the center of drugs
trafficking to East Asia, Australia, Canada, and Europe. The border with Pakistan becomes the
gateway for Afghan drugs manufacturers for receiving of large sums of cash, which they earn
from the Golden Triangle region’s traffickers of drugs. Hence, the cash surreptitiously flows in the
region in parallel to the clandestine drugs trafficking. For details, see Brownfield, supra note 36, at
11-149.
41
   For instance, in certain states of the US, gun permit laws are in effect that legalize the sale and
carrying of guns. The drug dealers, money launderers, smugglers, and criminals from Mexico
acquire guns from these states and surreptitiously smuggle them to Mexico. In this way, the guns
and weapons are being trafficked to Mexico. For details, see JESS T. FORD, FIREARMS TRAFFICKING:
U.S. EFFORTS TO COMBAT ARMS TRAFFICKING TO MEXICO FACE PLANNING AND COORDINATION CHALLENGES:
CONGRESSIONAL TESTIMONY, 3. (2009) . Arturo Santa Cruz and Brian Bow further elucidate in their
book that drugs trafficking organizations (DTOs) earn money by acquiring weapons from U.S.
firearms traders and selling the weapons to other criminal organizations in Mexico or in other
regions. The money earned by these DTOs is, in fact, black money that they receive through
laundering of cash. For details, see BRIAN J. BOW & ARTURO SANTA-CRUZ, THE STATE AND SECURITY IN
MEXICO: TRANSFORMATION AND CRISIS IN REGIONAL PERSPECTIVE, 30 (2013).



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cases in which the smuggled currency has been used for illegitimate purposes,
i.e., mostly for financing terrorist and anti-state activities in these countries.42




     2.2. THE THREE STAGES OF MONEY LAUNDERING

Money is laundered in the following three steps.43




     2.2.1. PLACEMENT

The first step is related to depositing cash funds in foreign banks.44 This step is
called placement, as the funds are placed in foreign banks without drawing the
attention of national authorities.45




     2.2.2. LAYERING

The second step is linked to carrying out financial transactions, cash
withdrawals, wire transfers, etc. and hiding the original source of money. 46
This step is called layering, as the money launderer performs several financial
transactions, which act as layers of cash.47 Online transactions, notably wire
transfers, are the quickest way of layering,48 as multiple cash transactions can
occur speedily through them.




     2.2.3. INTEGRATION

The third step is related to the use of money for investment or any other
action. This step is called the integration of funds, as the laundered money is
actually used at this stage.49 When money has reached this step, it becomes


42
   Beare, supra note 25, at 37–40.
43
   See ROBERTO DURRIEU, RETHINKING MONEY LAUNDERING & FINANCING OF TERRORISM IN INTERNATIONAL
LAW: TOWARDS A NEW GLOBAL LEGAL ORDER, 36–38 (474 ed. 2013).
44
   See SUNDER GEE, FRAUD AND FRAUD DETECTION: A DATA ANALYTICS APPROACH 254 (2015); See also ENID
MUMFORD, DANGEROUS DECISIONS: PROBLEM SOLVING IN TOMORROW'S WORLD 187 (1999).
45
   Id.
46
   See KAROLINE SPIES & RAFFAELE PETRUZZI, TAX POLICY CHALLENGES IN THE 21ST CENTURY 258 (2014).
47
   Id.
48
   See JAMES BANKS, ONLINE GAMBLING AND CRIME: CAUSES, CONTROLS AND CONTROVERSIES 71 (2016).
49
   See MUMFORD, supra note 44.




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difficult or almost impossible for the A.M.L. authorities to track the laundered
money, unless a trial or investigation had started when the money was in the
first or second stage.50

         All of the three steps are interconnected and must take place for the
laundered money to be used in the foreign land.51 Nonetheless, if someone
transfers large taxable52 sums of money to the foreign banks and does not
withdraw the money there, i.e., if there is a placement of funds but no
withdrawal or integration, then this would still be considered money
laundering if the funds had been transferred without notifying the local
government authorities and, in particular, if the amount had been transferred
without paying tax on it.53




     2.3. THE METHODS OF MONEY LAUNDERING

There are also several methods that smugglers and money launderers use to
perform the crime of money laundering without bringing it to the attention of
any A.M.L. authorities




     2.3.1. STRUCTURING OF MONEY

This method entails the division of large amounts of cash, which need to be
laundered, into smaller amounts.54 Each divided amount is then transferred,
through money orders, online transactions, cash deposits, etc., to foreign


50
   See 1 ROBERT C. EFFROS, CURRENT LEGAL ISSUES AFFECTING CENTRAL BANKS 240 (1992); see also its
Volume 2, 1994.
51
   MADINGER, supra note 1, at 7.
52
    In every country, national governments have allowed certain amount of cash that can be
transferred or moved across international borders for every individual for any purpose. Any cash
beyond that certain amount is a taxable amount of money. If the taxable amount of cash is
transferred or moved across the international border without notifying the local financial
regulatory authority, government, or tax authorities, then this will be considered money
laundering. For details, see WORLD BANK (WB), Combating Money Laundering and the Financing of
Terrorism: A Comprehensive Training Guide (Jun. 25, 2009),
http://documents.worldbank.org/curated/en/389491468331905743/pdf/499600v10PUB0C101Offici
al0Use0Only1.pdf. In addition, to read about the taxable amount of a country, see the local laws
and financial regulations of that country.
53
   Id.
54
   See PIERRE-LAURENT CHATAIN, ANDREW ZERZAN, WAMEEK NOOR, NAJAH DANNAOUI & LOUIS DE KOKER,
PROTECTING MOBILE MONEY AGAINST FINANCIAL CRIMES: GLOBAL POLICY CHALLENGES AND SOLUTIONS 35
(2011).



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banks. The nontaxable sum,55 which can be legally traveled with, can also be
taken to the foreign country by traveling legitimately. The scheme of dividing a
sum of money into smaller portions and transferring the portions is also
termed      “smurfing.”56      It   generally    includes   the    first      stage        of     money
laundering—the placement of funds in foreign banks—either through online
transfers, wire transfers, money ordering, or traveling as a group but
pretending to be individuals, with each person having the maximum but
different amount of cash to legally travel with.57




     2.3.2. SMUGGLING

This method involves taking bulk cash to a foreign country by deceiving the
airport or border authorities of the actual amount of money being displaced.
This amount is then deposited into a bank of that foreign country, where the
money laundering laws might be weaker or not strictly enforced. 58 This is
considered to be the most common method of money laundering. 59




     2.3.3. LAUNDERING THROUGH TRADE

Money       laundering      through    trade     happens    when        invoices          are      either
undervalued or overvalued, depending upon the cash inflow/outflow or costs,
respectively. Traders often accomplish this by providing fake invoices and
accounts.60




     2.3.4. N.G.OS.

Founding        a     non   governmental    organization     (hereinafter              N.G.O.)         and
registering it in another country and providing funds to it can lead to money
laundering if the N.G.O. is not making use of the funds for a noble cause for the


55
   The maximum amount of cash which it is legal to possess while traveling abroad.
56
   Zerzan et al., supra note 54.
57
   See PHILIP REICHEL & JAY ALBANESE, HANDBOOK OF TRANSNATIONAL CRIME 170–260 (2014).
58
   Beare, supra note 25, at 37.
59
   See Act of Mar. 31, 2002, Pub. L. No. 107–156, 2049.
60
   See RAYMOND W. BAKER, CAPITALISM’S ACHILLES HEEL: DIRTY MONEY AND HOW TO RENEW THE
FREE/MARKET SYSTEM 25 (2005).



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local public.61 Some businessmen create trust organizations and give their
money to them as a charity payment so that the charitable amount is not
taxed; this therefore avoids taxation. 62 If such an N.G.O. or trust organization is
working in another country and the funds are provided to it in the foreign land
illegitimately, then it certainly constitutes money laundering. 63

         On the other hand, ironically, some N.G.Os. have also been reported to
be linked with terrorist or anti-state elements, and the funds are generated to
such elements through N.G.Os.64 For instance, in Pakistan, after the attack on
the Army Public School children in Peshawar, several N.G.Os. were banned
from Pakistan by the Interior Ministry because those N.G.Os. were reportedly
involved in anti-state activities and were also diverting their funds to finance
terrorism.65 Similarly, “madrassahs” and educational trust institutes that were
receiving laundered money from abroad were also shut down by the Pakistani
government.66




     2.3.5. ROUND TRIPPING

Round tripping is used for money laundering, 67 as well as for tax evasion.68
This is a technique through which a company sells its assets to another


61
   This aspect was identified by the Bank Secrecy Act of U.S (1970). For details, see FED. FIN.
INSTITUTIONS EXAMINATION COUNCIL, BANK SECRECY ACT/ ANTI-MONEY LAUNDERING EXAMINATION MANUAL
311 (2014).
62
    This is a globally accepted principle that nonprofit charity organizations are not taxed in
accordance with the laws in every country, generally. For details, see JOSEPH J. CORDES, ROBERT D.
EBEL & JANE G. GRAVELLE, THE ENCYCLOPEDIA OF TAXATION & TAX POLICY 277 (2005).
63
   This is because the NGO is not working as a charitable organization as it is not performing any
charitable nonprofit activity. It receives large cash flows that are, though taxable, not taxed owing
to the charity label associated with that organization. Hence, such an NGO is showing a false
appearance of itself, which itself is a crime in addition to the crime of money laundering that is
associated with the cash it receives. For details, see MICHAEL BARNETT & JANICE STEIN, SACRED AID:
FAITH AND HUMANITARIANISM 152–153 (2012).
64
   See EMILY JANSONS, FEMIDA HANDY & MEENAZ KASSAM, PHILANTHROPY IN INDIA: PROMISE TO PRACTICE
40 (2016). See also Bank Secrecy Act, supra note 61.
65
   For instance, see the statements by the former Interior Minister of Punjab Col. (Retd.) Shuja
Khanzada at: IMRAN ALI, Some NGOs involved in Pakistan terrorism – Shuja Khanzada,
STAYCONNECTING.COM (Apr. 11, 2015), http://stayconnecting.com/some-ngos-involved-in-pakistan-
terrorism-shuja-khanzad/; See also the statements from the Federal Interior Minister Ch. Nisar
Chaudhry at: IRFAN HAIDER, Pakistan will not allow NGOs working against national interest: Nisar,
DAWN.COM (June 12, 2015), https://www.dawn.com/news/1187773.
66
   DAWN NEWSPAPER STAFF REPORTER, Terror – linked madressahs to face action: Khanzada, DAWN.COM
(Jan. 16, 2015), http://www.dawn.com/news/1157389.
67
   See LINDA M. AMBROSIE, SUN & SEA TOURISM: FANTASY AND FINANCE OF THE ALL-INCLUSIVE INDUSTRY 3
(2015).
68
   See ALAN R. KANUK, CAPITAL MARKETS OF INDIA: AN INVESTOR’S GUIDE (2011).




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company and then, at the same time, signs an agreement to buy some or all of
the same assets at the same price. The selling and buying of assets liquefies 69
the latter, facilitating their quick conversion into cash and vice versa. The cash
can be moved abroad by labeling it as “foreign direct investment” (hereinafter
F.D.I.) and is exempted from tax.70 For instance, an individual or a company
might hire a foreign law firm or any other organization and pay it for their
services; it then cancels the agreement exactly at the time when the money
(fee) has been sent.




     2.3.6. BANK CONTROL

In this method, money launderers become major shareholders of a bank in a
foreign or local region where there is weak scrutiny related to money
laundering. Hence, by making an investment in the bank and gaining some
shares, the money launderers try to gain influence over the bank and perform
money laundering through it without scrutiny as it becomes a major client of
that bank. This kind of money laundering is very rarely identified because the
financial regulatory authorities consider the movement of currencies from the
bank as usual cash proceeds.71 Nonetheless, examples of investigating banks for
money laundering cases exist in recent history; for instance, H.S.B.C. was fined
$1.9 billion after conviction for money laundering.72




     2.3.7. CASH-ORIENTED BUSINESSES

Some enterprise organizations are involved in cash-oriented businesses, i.e.,
they deal with large sums of cash and have multiple operations, some of which
are also linked to illegal activities, for instance gambling bars, casinos, and
clubs. Such businesses do not specifically show their income earned through
illegal means, neither do they record the destination of their funds. 73 They


69
   Liquefying the assets implies turning the assets into cash. A liquefied asset can be bought and
sold at the same price.
70
   BEARE, supra note 25, at 37.
71
   See LAWRENCE M. SALINGER, ENCYCLOPEDIA OF WHITE-COLLAR & CORPORATE CRIME 78 (2005).
72
   See MERRILL SINGER & BRYAN PAGE, THE SOCIAL VALUE OF DRUG ADDICTS: USES OF THE USELESS 145
(2016).
73
   See BANKS, supra note 48.




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depict the “dirty money”74 as clean money that is included in their profit, 75 and
this constitutes money laundering. For example, a person enters a casino with
huge sums of cash earned through illegal means. He plays the game for a while
and gives all the cash to the casino. This cash is represented by casinos as a
profit amount earned through gambling wins. 76 However, it is not investigated
whether the person who gave the cash to the casino might have originally
worked for that casino or for a money launderer who is connected directly to
the casino.




     2.3.8. MONEY LAUNDERING THROUGH REAL ESTATE

Some criminals buy property with cash earned through illegal means and then
sell the property to reacquire the cash, so as to justify it as legitimate money. 77
As the illegitimate money is converted into legitimate earnings, it is considered
laundered money.78 It is also possible that the price of that property may be
underrepresented to reduce the taxable amount. 79 This hides the exact amount
of money spent on buying the property, and it is mainly done to evade tax.




     2.3.9. FOREIGN EXCHANGE

Uncertified and unregulated foreign exchange companies also have a presence
in different regions of several countries. These companies also collect

74
   Money earned through illegitimate means.
75
   World Bank, supra note 52.
76
   See U.S. MONEY LAUNDERING THREAT ASSESSMENT 33 (2005)US DRUG ENFORCEMENT ADMINISTRATION –
DEPARTMENT OF JUSTICE,National Money Laundering Threat Assessment, 33 ( 2005); See also BANKS,
supra note 48.
77
   This process is also called “whitening of money.” The black money earned by the criminals is
whitened by deceivingly depicting the earnings as legitimate. For instance, if a person who earns
black money and also owns a property, e.g., a restaurant or hotel, then he/she can persuade the
tax authorities that the earnings are coming as profits from his/her restaurant or hotel property
and are not from any illegal source. In this way, he/she can outwardly present his black money as
legitimate. However, for this purpose, the launderer may need to perform or acquire services of a
fraudulent audit of his/her money. He can perform this by bribing audit officials to list his black
money as white money and earnings from his legitimate sources. For details, see JORIS D. KILA &
MARC BALCELLS, CULTURAL PROPERTY CRIME: AN OVERVIEW AND ANALYSIS OF CONTEMPORARY PERSPECTIVES
AND TRENDS 80 (2014).
78
   The black money has been converted to white money; however, it will still be considered
laundered money because the conversion is illegal and surreptitious. The act of unlawful
conversion or the act of hiding the actual source of money directly constitutes money laundering.
For details, see VARUN CHANDNA, THE CURIOUS CASE OF BLACK MONEY AND WHITE MONEY: EXPOSING THE
DIRTY GAME OF MONEY LAUNDERING! (2017).
79
   See US CONGRESS, CONGRESSIONAL RECORD, VOLUME 149, PT. 12, 16823 (2003).




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remittances and then deliver the relevant amount of remittance to the families
of the senders without notifying government authorities.80 These foreign
exchange companies have multiple currencies with them and they usually
transfer funds abroad upon the requests of the locals. Meanwhile, the
government        never    notices     that    the    foreign     exchange           companies             are
transferring funds abroad or are collecting cash that is sent to them from
people from foreign lands as remittances. Hence, the government is deprived
of the collection of remittances, as well as the taxes that it can get from the
cash that is sent abroad. As a result, this method of currency exchange or
remittances, which is also related to Hawala 81 or Hundi, is illegal82 in most
countries.83




     2.4. EFFECTS OF MONEY LAUNDERING

The effects of money laundering are socioeconomic in nature.84 Money
laundering affects the nation’s economy, as well as giving rise to several social
costs.85 On the one hand, it spoils the strength of the economy by causing a
corrosive impact;86 on the other hand, it acts as a social evil. 87 Some of the
major impacts of money laundering are discussed below.




     2.4.1. ECONOMIC IMPACTS

Money laundering reduces the control of government over economic policy. It
also raises the risk of the potential failure of banks, businesses, and
government        to    implement        economic        policies.    Furthermore,                due        to
globalization, the impacts reach international monetary systems and can

80
    For instance, read about the remittances coming to Pakistan and whitening of black money
flowing from Pakistan at: RASHID AMJAD & SHAHID JAVED BURKI, PAKISTAN: MOVING THE ECONOMY
FORWARD 15 (2015).
81
   CASSARA, supra note 19, at 61.
82
   See DAVID GOLD & SEAN COSTIGAN, TERRORNOMICS 58 (2016).
83
   See Mohammed El-Qorchi, Hawala: Based on Trust, Subject to Abuse, ECON. PERSP., Sept. 2004, at 23.
84
   SUSANNE ROSNER, MONEY LAUNDERING 4 (2010). See also INTER-AMERICAN DEVELOPMENT BANK,
UNLOCKING CREDIT: THE QUEST FOR DEEP AND STABLE BANK LENDING, 242 (2004).
85
   See John McDowell & Gary Novis, The Consequences of Money Laundering and Financial Crime, ECON.
PERSP., May 2001, at 8.
86
   Id., at 6.
87
   Id. See also DONATO MASCIANDARO, GLOBAL FINANCIAL CRIME: TERRORISM, MONEY LAUNDERING, AND OFF
SHORE CENTRES, 63 (2004).



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adversely affect international currencies and economies, depending upon the
volume of money laundering.88



Vulnerable Emerging Markets

Money laundering also affects emerging markets in those regions where it is
established. Emerging markets are more vulnerable to the impact of money
laundering because financial regulatory authorities give more attention to
well-established and strong markets than to emerging ones.89

        For instance, cross-border trade can be an emerging market if the
relations between the bordering countries have been recently established, as
peaceful and agreements of economic cooperation and trade development have
been signed. In such a case, if the encouragement of trade is greater than the
oversight over trade, then the smugglers, drug lords, and even terrorists will
benefit from it by moving their black money, drugs, and arms across the
border to support their criminal activities there.90 Hence, the impacts of money
laundering are both microeconomic and macroeconomic in nature. 91



Damage to the Private Sector

Damage to the private sector is another adverse effect that the money
launderers cause to the economy of a nation. Money launderers often act
through front companies, which acquire their funds. By acquiring large
amounts of funds they can lower the prices of their services or products to a
large extent to penetrate the market. They gain competitive advantage when
other companies are not able to match their prices.92 Hence, intense
competition can devastate existing small and medium-sized private companies




88
   Novis & McDowell, supra note 85, at 7.
89
   Novis & McDowell, supra note 85, at 7.
90
   See WILLIAM BLAKE, A MANUAL OF PRIVATE INVESTIGATION TECHNIQUES, 222 (2013); SEE ALSO BARRY
LEONARD, NATIONAL DRUG THREAT ASSESSMENT 2008 (2008).
91
   Novis & McDowell, supra note 85, at 7.
92
   Novis & McDowell, supra note 85, at 7.




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because smaller companies usually lack sufficient capital to bear the brunt of
price competition.93

            An example of this is the founding of a foreign exchange company,
which may offer its services at a very low profit and then destroy the
operations of other—certified—foreign exchange companies. Hence, that
company will also proceed with money laundering activities without bringing
it to the knowledge of the local government or by hiding the exact amount of
the financial transactions that it carries out. Instances have occurred in the
United States where money launderers have adopted this strategy, particularly
for exchanging currencies of high international value with low-value regional
currencies.94



Failure of Banks and Financial Institutions

Money laundering can cause the failure of banks and financial institutions. For
instance, if a large sum of money is transferred to a bank and then, after a
short duration, that money is transferred to another bank, it may cause a
liquidity problem to the financial assets of that bank. 95 The bank can go
bankrupt if a large number of people start approaching it to withdraw their
deposits upon knowing that a massive amount of money has been moved from
that bank by money launderers.96 There are many examples of such incidents
in history; for instance, the failures of the Liberty Reserve Bank 97 and Bank of
Credit and Commerce International (hereinafter B.C.C.I.)98 are both cases where
banks have failed owing to money laundering. 99



93
     See Maurice E. Stucke, Is Competition Always Good?, 7 J. ANTITRUST ENFORCEMENT 162 (2013).
94
     See 1 LAWRENCE SALINGER, ENCYCLOPEDIA OF WHITE-COLLAR & CORPORATE CRIME 78 (2005).
95
   See MARGARET BEARE, ENCYCLOPEDIA OF TRANSNATIONAL CRIME AND JUSTICE, 37 (2012).
96
   See THE LAW SOCIETY, Chapter 11: Money Laundering warning signs, LAWSOCIETY.ORG.UK (Oct. 22,
2013),http://www.lawsociety.org.uk/support-services/advice/practice-notes/aml/money-
laundering-warning-signs.
97
   For details about the case of the Liberty Reserve Bank, see: PHILIP MULLAN, THE DIGITAL CURRENCY
CHALLENGE: SHAPING ONLINE PAYMENT SYSTEMS THROUGH U.S. FINANCIAL REGULATIONS (2014). See also
SUSAN ROSE-ACKERMAN & BONNIE J. PALFIKA, CORRUPTION AND GOVERNMENT: CAUSES, CONSEQUENCES, AND
REFORM (2ND ED., 2016).
98
   For details about the BCCI money laundering case, see: JOHN KERRY & HANK BROWN, THE BCCI
AFFAIR: A REPORT TO THE COMMITTEE ON FOREIGN RELATIONS 202 (2012). See also JAMES R. RICHARDS,
TRANSNATIONAL CRIMINAL ORGANIZATIONS, CYBERCRIME, AND MONEY LAUNDERING 44 (1999).
99
   See also ROBERT E. GROSSE, DRUGS AND MONEY: LAUNDERING LATIN AMERICA’S COCAINE DOLLARS 95
(2001).



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Reputation

Money laundering tarnishes the reputation of financial institutions and the
nation’s economy        especially when        money laundering also causes the
embezzlement of funds etc. In such a case, market confidence diminishes and
investors lose interest in the local market. 100 Moreover, if the speculations of
the ill reputation of the market reach abroad, then it also reduces the chances
of F.D.I.101 This results in declining economic opportunities for the economy at
both domestic and international levels. Hence, it eventually leads to weaker
economic growth and it becomes harder to revive the economy. 102



Impact on Economic Policy

As money laundering tarnishes the reputation of the financial institutions of a
country, it might also affect the related economic indicators and variables, for
instance the interest rate, which can affect inflation, Consumer Price Index
(hereinafter C.P.I.), and the value of the currency of that country. This can
cause monetary instability and can also affect the prices of goods in the
country.103



Decline in Tax Revenues

Money laundering directly affects the government’s tax revenue. As A huge
sum of currency that could have been taxed is moved abroad. This loss of
revenue must be covered by the government by collecting more taxes from
other taxpayers by increasing the tax rate.104 This hurts honest taxpayers, as
well as making tax collection tougher for the government as the public may
retaliate by protesting against the hike in tax rates.




100
    Novis & McDowell, supra note 85, at 8.
101
    See I Wayan Nasa Nugraha, The Impact of Corruption and Money Laundering on Foreign Direct
Investment in ASEAN, 6 J. EKONOMI KUANTITATIF TERAPAN 106, 109 (2013).
102
    Novis & McDowell, supra note 85, at 8.
103
    Novis & McDowell, supra note 85, at 7.
104
    Novis & McDowell, supra note 85, at 8.




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      2.4.2. SOCIAL IMPACTS

Money laundering gives birth to a number of social costs and dilemmas. 105 It
also affects the reputation of a country at the international level if it appears
that the financial institutions of that country might be involved in money
laundering.106 Furthermore, it can expose or encourage the people of a country
to smuggling, drug trafficking, etc. Money laundering can also contribute to
other crimes, as criminals, drug lords, smugglers, black money owners, etc.
have to hide their source of income; moreover, they have to employ money
laundering techniques to conceal their black money under the cloak of legality
or safety from law enforcement agencies.107 Hence, money laundering gives a
safe haven to criminals and terrorists to hide their illegally earned money and,
therefore, motivates others to enter the criminal world as they might consider
any of the methods of money laundering to be a promoter and cover to their
criminal activities.108 Thus, crime will spread in society, which has not only
geographical but also international implications because the nature of the
crime has become global in scope.




           3. GLOBAL MAGNITUDE AND COMBATING OF MONEY LAUNDERING

      3.1. MAGNITUDE OF THE PROBLEM

Several financial regulatory organizations have attempted to predict the overall
scale of money laundering. Michel Camdessus, the former managing director
of the I.M.F., predicted that the total volume of money being laundered has
reached approximately 55% of the total gross domestic product (G.D.P.) of all
the countries in the world.109




105
    Novis & McDowell, supra note 85, at 8. See also DONATO MASCIANDARO, GLOBAL FINANCIAL CRIME:
TERRORISM, MONEY LAUNDERING, AND OFF SHORE CENTRES 63 (2004).
106
    Novis & McDowell, supra note 85, at 8.
107
    See U.S. DEP.’T JUST., DRUGS, CRIME, AND THE JUSTICE SYSTEM, 8 (1992).
108
    See supra note 60.
109
    Address by Michel Camdessus, Managing Director of the International Monetary Fund at the
Plenary Meeting of the Financial Action Task Force on Money Laundering: the Importance of
International Countermeasures, (February 10, 1998).



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Nonetheless, it is almost impossible to give an exact estimate of the total
magnitude of money that is being laundered owing to the furtiveness
associated with each of the money laundering methods. 110 The Financial Action
Task Force (hereinafter F.A.T.F.)111 confirms this: “Overall, it is absolutely
impossible       to   produce a        reliable estimate          of     the     amount           of    money
laundered.”112

          Similarly, researchers and scholars have also been unable to estimate
the precise amount of money being laundered at the global level.113
Nonetheless, rough estimates still suggest that the overall global volume of
money laundering might be in the billions of U.S. dollars.114




      3.2. CURBING MONEY LAUNDERING

As explained in the first section of this paper, money laundering causes
adverse effects to the economy and society of a country; therefore, there is a
need to curb this crime by banishing and eliminating all of the conditions that
support it. Most nations, including Pakistan, 115 need to take serious but focused
action immediately so as to rid this disease from and within society,
particularly if the money laundering is widespread there. It is also notable to
mention here that the curbing of money laundering will also cause a demise in
other relevant criminal activities—for instance, drug trafficking, smuggling,
and the financing of terrorism—because all of these crimes are financed by
money laundering activities.116


110
    See MARINELLA MARMO & NERIDA CHAZAL, TRANSNATIONAL CRIME AND CRIMINAL JUSTICE, 121 (2016).
[Hereinafter Marmo & Chazal].
111
    The Financial Action Task Force (F.A.T.F.) is an international organization combating money
laundering activities. To know more about F.A.T.F., see: OECD, THE FINANCIAL WAR ON TERRORISM: A
GUIDE BY THE FINANCIAL ACTION TASK FORCE (2004). See also James K. Jackson, The Financial Action
Task Force: An Overview, (CONGRESSIONAL RESEARCH SERVICE, 2012). JAMES K. JACKSON, CONG. RESEARCH
SERV., RS21904, THE FINANCIAL ACTION TASK FORCE: AN OVERVIEW (2012).
112
     MARMO & CHAZAL, supra note 110, at 121.
113
    See DIANA KENDALL, SOCIOLOGY IN OUR TIMES,204 (2015).
114
    See GEORGE WALKER & JOSEPH NORTON, BANKS: FRAUD AND CRIME 203 (2013).
115
    In Pakistan, money laundering is pervasive, particularly in the elites; therefore, it needs to be
given special treatment there. For details, see IMF, Pakistan: 2009 Article IV Consultation and First
Review Under the Stand-By Arrangement: Staff Report; Staff Statement; Public Information Notice and
Press Release on the Executive Board Discussion; and Statement by the Executive Director for Pakistan, IMF
Country Report No. 09/123 (April 13, 2009).
116
    ASIAN DEVELOPMENT BANK, supra note 7. See also BRIGITTE UNGER & DAAN VAN DER LINDE, RESEARCH
HANDBOOK ON MONEY LAUNDERING, 41 (2013).



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To end this disease from society, there are a few options—for instance,
legislation, the judicious implementation of laws, strengthening the rule of
law, the creation and collaboration of A.M.L. agencies at the national and
international levels, strict security at airports and borders, enhanced
accountability of politicians, and strict implementation of tax laws—that can
be utilized.




      3.2.1. INTERNATIONAL A.M.L. ORGANIZATIONS

There are several organizations that work to curb money laundering activities
at the international level. The most prominent among them are mentioned
below.




      3.2.1.1. FINANCIAL ACTION TASK FORCE (F.A.T.F.)

In 1989, the G7117 countries founded the F.A.T.F., headquartered in Paris,
France.118 At present, thirty-six countries are members of F.A.T.F.119 The main
purpose of F.A.T.F. is to devise an intergovernmental response for curbing
money laundering;120 however, in October 2001, after 9/11, it took on another
essential goal in order to accomplish the combating the financing of
terrorism.121 It creates policies and strategies and gives advice to the
governments for A.M.L. and Combating Financing Terrorism (hereinafter
C.F.T.) laws and policy reforms.122 It also monitors the government’s financial
activities to track any             misappropriation     related     to     money laundering
regulations and provides suggestions to the governments upon identifying any




117
    The USA, Canada, the UK, France, Germany, Italy, and Japan.
118
     See ERROL P. MENDES, GLOBAL GOVERNANCE, HUMAN RIGHTS AND INTERNATIONAL LAW: COMBATING THE
TRAGIC FLAW 213 (2014).
119
    Id. See also NORMAN MUGARURA, THE GLOBAL ANTI-MONEY LAUNDERING REGULATORY LANDSCAPE IN LESS
DEVELOPED COUNTRIES 80 (2nd ed. 2016).
120
    See ANTHONY PAYNE & NICOLA PHILIPS, HANDBOOK OF THE INTERNATIONAL POLITICAL ECONOMY OF
GOVERNANCE 171 (2014).
121
     See COMMONWEALTH SECRETARIAT, COMBATING MONEY LAUNDERING AND TERRORIST FINANCING: A
MODEL OF BEST PRACTICE FOR THE FINANCIAL SECTOR, THE PROFESSIONS AND OTHER DESIGNATED BUSINESSES
xi (2006).
122
     Cf. COMMONWEALTH SECRETARIAT, supra note 121, at xi.




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irregularities.123 It can also suggest financial sanctions against countries that do
not obey international regulations and policies. 124




      3.2.1.2. UNITED NATIONS OFFICE ON DRUGS AND CRIME

The United Nations Office on Drugs and Crime (hereinafter U.N.O.D.C.)
maintains up-to-date data related to drug trafficking, smuggling, money
laundering, and terrorism financing. 125 It was founded in 1997 to create a
combined mechanism to curb money laundering and the illegal trafficking of
drugs.126 It also offers technical and financial assistance to governments to
devise effective mechanisms for curbing money laundering. 127




      3.2.1.3. FINTRACA

FinTRACA, Financial Transactions and Reports Analysis Centre of Afghanistan,
was founded in 2004 as an A.M.L. agency.128 It is a semiprivate organization
that works within Da Afghanistan Bank.129 Its core function is to prevent access
to the Afghan financial system to money launderers and those who are
suspected of using the money to finance terrorism. 130 It works as a financial
intelligence unit (hereinafter F.I.U.), gathering information and performing
data analysis to track down the sources and destinations of money that come
to or leave the Afghan financial system. 131 Upon tracking the illegal origins or
destinations of money, it coordinates with security agencies and law




123
    See U.S. GOV'T ACCOUNTABILITY OFF.,GAO-09-794,COMBATING ILLICIT FINANCING 9 (2010). See also
MIGRATION AND DEVELOPMENT: PERSPECTIVES FROM SMALL STATES (Wonderful Hope Khonje ed. 2015).
124
    Id. See also FATF Documents on the Forty Recommendations (FATF, August 2006).
125
    See International Money Laundering Information Network (IMOLIN) Publications / References
(IMOLIN, 2013).
126
    See U.N. Secretary-General, Organization of the United Nations Office on Drugs and Crime, ¶1,
U.N. Doc. ST/SGB/2004/6 (March 15, 2004).
127
    Id.
128
    See CHRISTOPHER J. CUBBAGE & DAVID J. BROOKS, CORPORATE SECURITY IN THE ASIA-PACIFIC REGION:
CRISIS, CRIME, FRAUD AND MISCONDUCT 13 (2016).
129
    Central Bank of Afghanistan.
130
    CUBBAGE & BROOKS., supra note 128.
131
     CUBBAGE & BROOKS., supra note 128.




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enforcement departments to curb illegal financing activities and to investigate
whether the money is being used to finance terrorism. 132




      3.2.2. INTERNATIONAL A.M.L. STANDARDS

There are several standards that are followed by several countries worldwide to
form the basis of their policies to counter money laundering and the financing
of terrorism. Some of the most prominent ones are mentioned below.




      3.2.2.1. UNITED NATIONS CONVENTION AGAINST ILLICIT TRAFFIC IN NARCOTIC DRUGS AND

PSYCHOTROPIC SUBSTANCES

Originally passed in 1988–1989, this convention offers a legal mechanism to
combat drug trafficking at an international level. 133 The United Nations
implemented this policy mechanism in 1989 and made it compulsory for its
member states to follow this set of rules for combating drug manufacturing,
distribution, and trafficking, which join hands with money laundering. 134




      3.2.2.2. UNITED NATIONS CONVENTION AGAINST TRANSNATIONAL ORGANIZED CRIME

Presented in 2000, this multilateral treaty is focused on curbing transnational
organized crimes.135        136
                                  The General Assembly of the United Nations adopted
this treaty, also named the Palermo Convention, on November 15, 2000. 137 It
has three core purposes:138

          1. To thwart drug and human trafficking, particularly for women and
children.

132
     See IMF, Detailed Assessment Report on Anti-Money Laundering And Combating The Financing Of
Terrorism, IMF Country Report No. 16/43 (February, 2016).
133
    See US GOVERNMENT PRINTING OFFICE, UNITED NATIONS CONVENTION AGAINST ILLICIT TRAFFIC IN NARCOTIC DRUGS
AND PSYCHOTROPIC SUBSTANCES : MESSAGE FROM THE PRESIDENT OF THE UNITED STATES TRANSMITTING THE UNITED
NATIONS CONVENTION 1–27 (1989)
134
    Id.
135
    Crimes that are coordinated across borders and have global implications.
136
    United Nations Convention Against Transnational Organized Crime and The Protocols Thereto,
1 (U.N.O.D.C., 2004). [Hereinafter: U.N.O.D.C.].
137
    Id. See also JAMES M. SCOTT, RALPH G. CARTER & A. COOPER DRURY, IR - INTERNATIONAL RELATIONS 376
(2nd ed. 2015).
138
    UNODC, supra note 136.




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           2. To prevent the smuggling of migrants through all channels of
traveling, i.e., sea, air, and land.

           3. To prevent the illegal manufacturing of arms that might be used for
terrorist activities.

These three purposes have been defined according to the contemporary
international laws of money laundering and arms, drugs, and human
trafficking.139




      3.2.2.3. UNITED NATIONS CONVENTION AGAINST CORRUPTION

This convention contains seventy-one articles and eight chapters.140 It puts
emphasis on curbing corruption, bribery, the misappropriation of funds, and
money laundering.141 It also offers technical assistance, data exchange, and
asset recovery mechanisms to the governments.142




      3.2.2.4. F.A.T.F. RECOMMENDATIONS

The recommendations provided by the F.A.T.F. in 1989 have also been
considered the basis of the A.M.L. laws that have been enacted worldwide.143
The forty recommendations are related mainly to curbing organized crimes,
drug trafficking, money laundering, and smuggling.144




      3.2.3. CRITICISMS OF A.M.L. STANDARDS

The new regulations have also been criticized.145 For instance, Yehudah Barlev,
who has been a fraud investigator and is associated with an international


139
    See SCOTT ET AL. supra note 137.
140
    See UNODC’s Action against Corruption and Economic Crime (UNODC, 2016).
141
    Id.
142
    Id.
143
    See PIERRE HAUCK & SVEN PETERKE, INTERNATIONAL LAW AND TRANSNATIONAL ORGANIZED CRIME 244
(2016).
144
    See FRANK HOLDER, INTEGRITY IN BUSINESS: DEVELOPING ETHICAL BEHAVIOR ACROSS CULTURES AND
JURISDICTIONS 73 (CRC Press ed., 2nd ed. 2016). See also VALSAMIS MITSILEGAS, MONEY LAUNDERING
COUNTER-MEASURES IN THE EUROPEAN UNION: A NEW PARADIGM OF SECURITY GOVERNANCE VERSUS
FUNDAMENTAL LEGAL PRINCIPLES 48 (2003).
145
    For instance, the A.M.L. legislations in United States have been criticized a lot. For details, see




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agency, Barlev Investigative Accounting, considers the newly implemented
A.M.L. laws to be “short-sighted” and easily violable by money launderers.146
Moreover, criminals are still pursuing their activities by bypassing A.M.L.
regulations and they usually find new methods to violate A.M.L. laws.147 For
instance, ATMs provide safe opportunities for terrorists to withdraw funds that
are transferred to their accounts. Al-Qaeda members have been found to be
continually using this method.148

         In another instance, The Economist criticized the effectiveness of
A.M.L. and C.F.T. regulations as “costly failures” because, on the one hand,
they are causing huge costs for the implementation of A.M.L. and C.F.T. laws
and, on the other hand, they have failed to prevent terrorists from receiving
financing.149 The Economist estimates that A.M.L. efforts cost the European
Union and the United States. around $700 million in the year 2000 and this
cost reached $5 billion within three years.150

         Moreover, for what concerns providing training to employees of
financial institutions, the issue is that financial organizations will not provide
training as they consider it costly, as well as risky because the employees
might leave the organization if they find a better job. In such a case the firm
would get no benefit from training the employees. 151 Hence, the requirement to
train employees in a financial organization becomes null and void.




   3.3. NOTABLE INTERNATIONAL MONEY LAUNDERING CASES

In the past two to three decades, some cases of money laundering have
grabbed the attention of the media owing to the unexpected identified criminal




PETER REUTER & EDWIN M. TRUMAN, CHASING DIRTY MONEY: THE FIGHT AGAINST MONEY LAUNDERING 55
(2004).
146
     See Camilla Berens, Expert Spies a Hole in the Law: Criminals Will Easily Find a Way Round the
Regulations, 33 FIN. MGMT. J. 5 (2004).
147
    Id.
148
    Id.
149
    See Efforts to Combat the Financing of Terrorism are costly and ineffective, THE ECONOMIST (Oct. 20,
2005), http://www.economist.com/node/5056338?story_id=e1_vdvgppr.
150
    See Banks must fight money-laundering, but they need some help, THE ECONOMIST (Oct. 14, 2004),
http://www.economist.com/node/3292933.
151
    Berens, supra note 146.




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and the high volume of money laundering evidence found in these cases. Some
prominent cases are mentioned below.



Bank of New York

The incident of money laundering took place in the late 1990s, 152 when Russian
capital equivalent to U.S.$7.1 billion was laundered through bank accounts that
were in control of some executives of the Bank of New York. 153 Reportedly, one
of the vice presidents of the bank was identified as guilty of transferring
capital and was charged with offenses after a thorough investigation was
completed.154 Initially, the bank was not found guilty and the offense remained
toward the employee side of the bank; 155 however, after further investigations,
in 2005, the bank accepted its mistake of not following the recommended
procedure of A.M.L. regulations and paid $38 million in fines.156



Bank of Credit & Commerce International (B.C.C.I.)

B.C.C.I. was found guilty of laundering money for drug traffickers in the mid-
1980s.157 The estimated amount laundered was in the billions of dollars. 158 As a
penalty for such a huge contribution to the crime, the bank was forced to close
and was liquidated in 1991 upon the proving of the money laundering
charges.159




152
    See THOMAS W. GOLDEN, STEVEN L. SKALAK, MONA M. CLAYTON & JESSICA S. PILL, A GUIDE TO FORENSIC
ACCOUNTING INVESTIGATION 515 (2nd ed. 2015).
153
    See KRIS HINTERSEER, CRIMINAL FINANCE: THE POLITICAL ECONOMY OF MONEY LAUNDERING IN A
COMPARATIVE LEGAL CONTEXT 5-6 (2002).
154
    See supra note 145.
155
    See supra note 145.
156
    See MICHAEL PARENTI, DEMOCRACY FOR THE FEW 102 (Wadsworth Publishing ed., 9th ed. 2010).
157
    See John Kerry & Senator Hank Brown, The BCCI Affair: A Report to the Committee on Foreign
Relations, 202 (LULU.COM, 2011).
158
    See JAMES R. RICHARDS, TRANSNATIONAL CRIMINAL ORGANIZATIONS, CYBERCRIME, AND MONEY
LAUNDERING: A HANDBOOK FOR LAW ENFORCEMENT OFFICERS, AUDITORS, AND FINANCIAL INVESTIGATORS 92
(1998).
159
    See ROBERT E. GROSSE, DRUGS AND MONEY: LAUNDERING LATIN AMERICA’S COCAINE DOLLARS 95 (13th
ed. 2001).



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H.S.B.C.

H.S.B.C. was found to be involved in keeping laundered money and approving
the transactions of drug traffickers, banned Iranian organizations, and
terrorists from 2001 to 2010.160 It was penalized in 2012 and paid around $1.9
billion in fines.161




Standard Chartered Bank

Standard Chartered Bank was found guilty of laundering billions of dollars for
Iran for a decade in the 2000s.162 It facilitated around 60,000 transactions for
Iran and the total worth of these transactions was approximately $250
billion.163 The bank was fined $340 million for its involvement in laundering
money and facilitating illegal transactions.164



Liberty Reserves Bank

The Liberty Reserves bank of Costa Rica was found to be involved in laundering
around $6 billion.165 After the proving of the charge, the bank was suspended
and closed by U.S. federal authorities.166



Vatican Bank

The Vatican Bank in the Vatican City, known in Italian as Istituto per le Opere
di Religione (I.O.R.),167 was charged with facilitating monetary transactions
found to be linked with money laundering. 168 The bank was investigated by the


160
    See LOUISE I. SHELLEY, DIRTY ENTANGLEMENTS: CORRUPTION, CRIME, AND TERRORISM 196 (2014).
161
    See ORDE F. KITTRIE, LAWFARE: LAW AS A WEAPON OF WAR 159 (2016).
162
     For details, see: ORDE F. KITTRIE, LAWFARE: LAW AS A WEAPON OF WAR 144 (2016).
163
    See PHILIPPA X. GIRLING, OPERATIONAL RISK MANAGEMENT: A COMPLETE GUIDE TO A SUCCESSFUL
OPERATIONAL RISK FRAMEWORK (2013). See also RONALD J. BURKE & SUZY FOX, HUMAN FRAILTIES: WRONG
CHOICES ON THE DRIVE TO SUCCESS 77 (2016).
164
    See NIR KOSSOVSKY, MICHAEL D. GREENBERG & ROBERT C. BRANDEGEE, REPUTATION, STOCK PRICE, AND
YOU: WHY THE MARKET REWARDS SOME COMPANIES AND PUNISHES OTHERS 193 (2012).
165
    See JOHN A. ROTHCHILD, RESEARCH HANDBOOK ON ELECTRONIC COMMERCE LAW 54 (2016).
166
    See CLARE CHAMBERS-JONES & HENRY HILLMAN, FINANCIAL CRIME AND GAMBLING IN A VIRTUAL WORLD:
A NEW FRONTIER IN CYBERCRIME 160 (2014).
167
    Translated as the “Institute of the Works of Religion.”
168
    See FAUSTO MARTIN DE SANCTIS, CHURCHES, TEMPLES, AND FINANCIAL CRIMES: A JURIDICAL PERSPECTIVE
OF THE ABUSE OF FAITH 72-73 (2015).




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Italian authorities and $30 million were seized from the bank as a punishment
for facilitating the money laundering transactions. 169

           Previously, the Vatican Bank had also been found to be linked with a
monetary scandal of around $1.3 billion and the collapse of $3.5 billion
currency worth of the Banco Ambrosiano in 1982.170 The Vatican Bank did not
accept the charges, though it paid $250 million in fines for the embezzlement
of funds in the 1980s.171




      3.4 A.M.L. LEGISLATION IN DIFFERENT COUNTRIES

The international community has given particular attention to curbing money
laundering since 9/11. New laws, rules, and regulations have been made under
the International Convention for the Suppression of the Financing of
Terrorism.172 The F.A.T.F. in particular has played an effective role in
implementing its A.M.L. approach by intervening in international cases of
money laundering.173




      3.4.1. THE U.S.

The U.S. has been affected by money laundering to a very great extent. The
hilly terrain along the Mexico–U.S. border makes it difficult for U.S. border
security forces to keep watch over each part of the border. This unsafe border 174
has made it challenging for U.S. security agencies, particularly its southern
border surveillance agencies, to track and prevent drug lords and smugglers
from making their way to the United States. Smugglers also enter the Unites
States from Mexico by digging hidden tunnels and thus crossing the border




169
    See RACHEL DONADIO, Money-Laundering Inquiry Touches Vatican Bank, NYTIMES.COM (Sept. 20, 2010),
http://www.nytimes.com/2010/09/22/world/europe/22vatican.html.
170
    Id. See also: MAANOJ RAKHIT, SEED 8: BEWARE OF THIS AASURIC CULTURE 45 (2009).
171
    DONADIO, supra note 169.
172
    See ANA SALINAS DE FRÍAS, KATJA SAMUEL, AND NIGEL WHITE, COUNTER-TERRORISM: INTERNATIONAL LAW
AND PRACTICE 17 (2012).
173
    See BRIGITTE UNGER, IOANA DELEANU, JORAS FERWERDA & MELISSA VAN DEN BROEK, THE ECONOMIC AND
LEGAL EFFECTIVENESS OF THE EUROPEAN UNION’S ANTI-MONEY LAUNDERING POLICY 20 (2014).
174
    See JEROME ROBERT CORSI & JIM GILCHRIST, MINUTEMEN: THE BATTLE TO SECURE AMERICA’S BORDERS 162
(2006).



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furtively through the underground tunnels or mountains. 175 Recently, an 800
yard-long tunnel was discovered that connected the U.S. to Mexico across the
border and half a mile underneath California. 176 An estimated two tons of
cocaine were seized from the same tunnel. 177 As a result, money laundering and
drug trafficking activities have been prevailing in that border region; its effects
also reach the U.S., being felt more profoundly in particular regions, and have
caused a constant worry for U.S. law enforcement and financial regulatory
agencies.

          The United States has placed a high importance on money laundering
by regulating two areas: 1) preventive money laundering measures and 2)
criminal offenses measures.




      3.4.1.1. PREVENTIVE MONEY LAUNDERING MEASURES

The United States Congress has enacted various laws to prevent money
laundering activities. The first law, the Bank Secrecy Act (hereinafter B.S.A.),178
was passed in 1970, and since then a series of amendments as well as new Acts
have been proposed, debated, and implemented. These laws regulate the
activities of banks, brokers, and other financial institutions. These laws make
it compulsory for financial organizations and individuals to report any
suspicious money laundering activity to the U.S. Department of Treasury.179 The
FinCEN works as the U.S. F.I.U. and investigates these reports.180 Banks have
also been advised to provide training to their employees to identify and avoid
the money laundering and suspicious transactions, as regulated by the Money
Laundering and Financial Crimes Strategy Act of 1998.181



175
    See FELIA ALLUM & STAN GILMOUR, THE HANDBOOK OF THE TRANSNATIONAL ORGANIZED CRIME 194
(2012).
176
    See AZADEH ANSARI, US-Mexico drug tunnel spanned 800 yards, held 2 tons of cocaine, EDITION.CNN.COM
(Apr. 21, 2016), http://edition.cnn.com/2016/04/20/us/u-s-mexico-drug-tunnel.
177
    Id.
178
    GEE, supra note 44.
179
    GEE, supra note 44.
180
     See JOHN ROLLINS, INTERNATIONAL TERRORISM AND TRANSNATIONAL CRIME: SECURITY THREATS, U.S.
POLICY, AND CONSIDERATIONS FOR CONGRESS 36 (2010). See also : DAVID S. KERZNER AND DAVID W.
CHODIKOFF, INTERNATIONAL TAX EVASION IN THE GLOBAL INFORMATION AGE 365 (2016). See more details
about F.I.U. at: IMF, World Bank, Financial Intelligence Units: An Overview, IMF Publications (June
2004).
181
    See U.S. CONGRESS, PUBLIC LAW 105–310 (1998).




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However, attempts have also been made to violate this law. For instance,
transactions that exceed $10,000,182 must be reported,183 but offenders violate
this rule by breaking the total amount of cash transaction into amounts
smaller than $10,000 and then depositing, withdrawing, or transacting from
different locations. This is still considered a legal violation in the United States
because the actual amount of the transactions is kept hidden from the
government and no information is provided about the original source of the
money.184

          To keep a watchful eye on the transactions carried out by the customers
of financial institutions, the B.S.A. authorizes financial institutions, including
banks, to use the Know Your Customer (K.Y.C.) strategy.185 This strategy entails
adopting a thorough understanding of the nature of the customer’s financial
account, as well as their full name, address, and other details, and information
on the origin of money that reaches the customer’s account. 186 In the U.S., all
bank accounts are scrutinized by software to audit financial transactions and
flag any suspicious or misreported transactions.187 If any suspicious transaction
is found, it is included in a suspicious activity report, which is filed by the
financial institution to the Department of Treasury. 188

          In addition, the Department of Treasury devised a national money
laundering strategy, which allowed the creation of a special task force with the
name of High Intensity Financial Crime Area (hereinafter H.I.F.C.A.).189
H.I.F.C.A. inspects, tracks, and curbs money laundering activities at every level,




182
    The limit was originally $5000 but as a result of demands from large business and trading
companies, it was raised to $10,000 by the Bank Secrecy Act. For details, see: 2 GYEORGOS C.
HATONN, PRIVACY IN FISHBOWL 128 (1995).
183
    See 31 C.F.R. § 0-199 (2009) at 433.
184
    GEE, supra note 44.
      .



185
     See GILL PEELING & TIM PARKMAN, COUNTERING TERRORIST FINANCE: A TRAINING HANDBOOK FOR
FINANCIAL SERVICES 89 (2007).
186
     See, e.g., a case study related to the implementation of KYC Strategy: : Linah Ottichilo & Robert
Arasa, Determinants of Know Your Customer (KYC) Compliance among Commercial Banks in Kenya, 7 J.
ECON. & BEHAV. STUD. 163 (2015).
187
     See DOUGLAS GREENBURG, JOHN ROTH & SERENA WILLIE, Monograph on Terrorist Financing,
LIBRARY.UNT.EDU (Aug. 2004),
http://govinfo.library.unt.edu/911/staff_statements/911_TerrFin_Monograph.pdf, 54-56.
188
     Id.
189
    See WILLIAM C. MICHAELS, NO GREATER THREAT: AMERICA AFTER SEPTEMBER 11 AND THE RISE OF A
NATIONAL SECURITY STATE 91 (2007). See also JENNIFER E. LAKE, SOUTHWEST BORDER VIOLENCE: ISSUES IN
IDENTIFYING AND MEASURING SPILLOVER VIOLENCE 32 (2010).



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i.e., local, state, and federal.190 The Intelligence Reform & Terrorism Prevention
Act of 2004 relates to the prevention of terrorism financing by curbing money
laundering by transferring currency across the border. 191




      3.4.1.2. CRIMINAL OFFENSES MEASURES

As per the U.S. Money Laundering Control Act of 1986, money laundering is a
crime.192 The Act prohibits individuals from hiding the source of their financial
earnings as well as receiving money that has been earned through crime. 193
Moreover, any action of transferring money, whether or not any financial
institution is involved, is considered a financial transaction even if it is merely
passing a bag of money from one person to another. 194 If that transfer is
intended to conceal the source of the money, then it will be considered
unlawful.195



      3.4.1.3. IMPACTS OF A.M.L. LEGISLATION

Financial institutions that fail to conform to the rules devised by the B.S.A. are
fined and punished according to the severity level of their noncompliance. 196
For instance, Riggs Bank was prosecuted and then closed owing to its failure to
follow the B.S.A. for applying A.M.L. rules to the foreign financial transactions
that its customers were carrying out.197 A number of institutions, including the
Federal Reserve and the Office of Comptroller of the Currency, examine the
transactions of banks and of all other financial institutions. 198 The F.B.I. also

190
     See FINANCIAL CRIMES ENFORCEMENT NETWORK, U.S. DEP’T OF TREASURY, WHAT IS A HICFA? (2014)
191
    Id. See also ETHAN NADELMANN & PETER ANDREAS, POLICING THE GLOBE: CRIMINALISATION AND CRIME
CONTROL IN INTERNATIONAL RELATIONS 192 (2006).
192
    See RICHARD D. ATKINS, THE ALLEGED TRANSNATIONAL CRIMINAL: THE SECOND BIENNIAL INTERNATIONAL
CRIMINAL LAW SEMINAR 224 (1995). See also BENTON GUP, BANKING AND FINANCIAL INSTITUTIONS: A GUIDE
FOR DIRECTORS, INVESTORS, AND BORROWERS 238 (2011).
193
    See Stefan Cassella, Money Laundering Laws, U.S ATT'Y BULL., Sept. 2007, at 21-34
194
    Id.
195
    Id.
196
    See USA PATRIOT ACT: ADDITIONAL GUIDANCE COULD IMPROVE IMPLEMENTATION OF REGULATIONS
RELATED TO CUSTOMER IDENTIFICATION AND INFORMATION SHARING PROCEDURES: REPORT TO CONGRESSIONAL
REQUESTERS 53 (2005).
197
    See Lester Joseph & John Roth, Criminal Prosecution of Banks Under the Bank Secrecy Act, U.S ATT'Y
BULL., Sept. 2007
198
    See D. R. CARMICHAEL & LYFORD GRAHAM, ACCOUNTANTS’ HANDBOOK, SPECIAL INDUSTRIES AND SPECIAL
TOPICS (12th ed. 2012). See also : 1 CYNTHIA CLARK NORTHRUP, THE AMERICAN ECONOMY: A HISTORICAL
ENCYCLOPEDIA 591 (2003).



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becomes involved if it has to investigate the money laundering in relation to
another crime.199

           To prevent cross-border cash smuggling, the U.S. government has
criminalized any unreported transfer of cash exceeding $10,000 across the
border.200 To move such an amount for business or trade purposes, it has to
first be filed on an International Transportation of Currency or Monetary
Instruments Report (C.I.M.R.) or else it is considered money laundering.201
Similarly, businesses such as automobile dealerships, which have to transport
automobiles from one region to another and have to transfer a high amount of
cash from one dealership to another, are required to file Form 8300 with the
International Revenue Service202 to describe and confirm the source of the
cash.203




      3.4.2. THE U.K.

The United Kingdom has enacted new laws for curbing the roots of money
laundering from its territory. For instance, it passed three major laws
immediately after the 9/11 attacks.204 These include:

           - The Criminal Justice and Police Act 2001

           - The Anti-Terrorism, Crime and Security Act 2001

           - The Proceeds of Crime Act 2002

           - The Serious Organised Crime and Police Act 2005

           - The Money Laundering Regulations 2007

All of these Acts make it compulsory for the government to prevent money
laundering activities and arrest as well as penalize those found to be involved

199
    See JANINE KREMLING & LARRY K. GAINES, DRUGS, CRIME & JUSTICE: CONTEMPORARY PERSPECTIVES 343
(3rd ed. 2013). See also : 7 EDWARD V. LINDEN, FOCUS ON TERRORISM 116 (2007).
200
    See 31 C.F.R. § 0-199 (2009) at 433.
201
    U.S. SECURITIES & EXCHANGE COMMISSION, Anti-Money Laundering (AML) Source Tool for Broker-
Dealers, SEC.GOV (Jan. 11, 2017), https://www.sec.gov/about/offices/ocie/amlsourcetool.htm#8.
202
    Internal Revenue Service (I.R.S.).
203
    See Forms and Publications: DEPARTMENT OF THE TREASURY, Form 8300, IRS.GOV (Aug.
2014),https://www.irs.gov/pub/irs-pdf/f8300.pdf?_ga=1.129197324.1049031876.1480449123.
204
    See MARY MICHELLE GALLANT, MONEY LAUNDERING AND THE PROCEEDS OF CRIME: ECONOMIC CRIME AND
CIVIL REMEDIES, 21–22 (2005). See also : Antonio Vercher, The Alleged Transnational Criminal: The
Second Biennial International Criminal Law Seminar, 4 EUR. J. CRIME CRIM. L. & CRIM. JUST. 414 (1996).



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in money laundering.205 Provisions have also been added that highlight the
importance of providing training and knowledge to the general public.206 For
instance, the Proceeds of Crime Act 2002 makes it mandatory for financial
organizations to provide training and knowledge to their employees about
preventing money laundering and identifying any activity that may constitute
money laundering.207 If an organization or the relevant person in that
organization fails to report a suspicious money laundering activity, a
punishment          of     five      years’       imprisonment           is       levied          on        that
organization/person.208 The punishment for carrying out money laundering
offenses as an individual can amount to forteen years’ imprisonment.209 The
same punishment was added in the Money Laundering Regulations 2003, 210
which was amended and replaced by the new Money Laundering Regulations in
2007211 and enacted as per EU directives 91/308/EEC, 2001/97/EC, and
2005/60/EC.212

         Not only does the action of transferring cash from abroad constitute
money laundering, but tax evasion, hiding property liable to taxation,
misappropriating tax records, embezzling funds in a financial organization,
and helping someone perform money laundering are also included in the
clauses of A.M.L. Acts in the United Kingdom.213 The punishment for each case
is determined by the courts according to the severity of the violation and the
individual’s contribution to the crime.214


205
     For details, see: IMF, British Virgin Islands-Overseas Territory of the United Kingdom: Assessment of
the Supervision and Regulation of the Financial Sector Volume II-Detailed Assessment of Observance of
Standards and Codes, Part A, IMF Country Report No. 04/93 (April, 2004).
206
    Id.
207
    Proceeds of Crime Act 2002, §334.
208
    Id.
209
     See NICHOLAS LORD, REGULATING CORPORATE BRIBERY IN INTERNATIONAL BUSINESS: ANTI-CORRUPTION
IN THE UK AND GERMANY (2016).
210
    See BRIGITTE UNGER, DONATO MASCIANDARO & ELOD TAKATS, BLACK FINANCE: THE ECONOMICS OF MONEY
LAUNDERING 116 (2007).
211
    See MARK SUTHERLAND WILLIAMS & TREVOR MILLINGTON, MILLINGTON AND SUTHERLAND WILLIAMS ON
THE PROCEEDS OF CRIME, 544 (2010).
212
    PARKER HOOD, PRINCIPLES OF LENDER LIABILITY 116 (2016). For details about the directives, seeMARIA
BERGSTRÖM, THEODORE KONSTANDINIDES & VALSAMIS MITSILEGAS, RESEARCH HANDBOOK ON EU CRIMINAL
LAW 240 (2016).
213
     U.K. is a member of FATF, and the above-mentioned aspects are included in the
recommendations provided by the FATF. Therefore, as a member of FATF, U.K. has to comply with
FATF recommendations and consider these aspects into the categories of money laundering. For
details, see CHRISTOPHER WESTPHAL, DATA MINING FOR INTELLIGENCE, FRAUD & CRIMINAL DETECTION:
ADVANCED ANALYTICS & INFORMATION SHARING TECHNOLOGIES 144 (2008).
214
     See Postulate 51 in: Great Britain Parliament and Joint Committee on Human Rights, The UN




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The A.M.L. statutes and their amendments have played an essential role in
tracking the money launderers. After the A.M.L. Regulations of 2007–08, a
number of reports have been submitted to the U.K. government by financial
organizations regarding suspicious money laundering transactions. For
instance, in 2009, approximately 228,834 reports were submitted to the
government by organizations and employees. 215 This number increased in 2010,
when 240,582 reports were provided.216 The number increased again in 2011 to
over 250,000.217 Importantly, each year, 80% of the reports were provided by
banks and financial institutions. 218 This gives an indication of how seriously
financial organizations and individuals were reporting suspected money
laundering activities to the government.

        Although investigations were made and not all cases that were reported
were considered money laundering offenses, the high level of reporting
suggests that corporations, banks, and the general public have taken the need
to avoid money laundering seriously.




        4. MONEY LAUNDERING AND PAKISTAN

Money laundering has taken hold in Pakistan. 219 This crime has flourished over
the last three decades through black money, which the political and elite
classes possess alongside having political influence and power in the
country.220 Unfortunately, no government during this period has been
successful in effectively implementing laws to curb money laundering and its
precursor crimes, such as drug trafficking, smuggling, and corruption; 221


Convention Against Torture (UNCAT): Nineteenth Report of Session 2005-06, Ev 72 (THE
STATIONERY OFFICE, 2006). See also ALASTAIR R. MOWBRAY, CASES, MATERIALS, AND COMMENTARY ON THE
EUROPEAN CONVENTION ON HUMAN RIGHTS 337 (2012).
215
    THE SERIOUS ORGANISED CRIME AGENCY, THE SUSPICIOUS ACTIVITY REPORTS REGIME ANNUAL REPORT
(2010).
216
    Id.
217
    Id.
218
    Id.
219
    IMF, supra note 115, at 20.
220
     CHRISTOPH SCHREUER, FEDERICO ORTINO & PETER MUCHLINSKI, THE OXFORD HANDBOOK OF
INTERNATIONAL INVESTMENT LAW 586 (2008).
221
    MOEED W. YUSUF ET AL., PAKISTAN’S COUNTERTERRORISM CHALLENGE 165 (Moeed W. Yusuf ed., 2014).
[Hereinafter Yusuf].



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neither has the government devised any effective mechanisms to combat tax
evasion. People try to evade taxes as tax laws are not strict enough to make
them accountable for unpaid taxes. 222 Although new laws have aimed at curbing
money laundering, they have lost effectiveness as the government has never
discouraged the patterns in society that facilitate money laundering. 223




      4.1. CHANNELS OF MONEY LAUNDERING

Money laundering is carried out in Pakistan through different channels, as
explained below.




      4.1.1. DRUG TRAFFICKING

Pakistan is in the Golden Crescent region, 224 an area where opium and its
cultivation and trade are widespread,225 owing to its geographical location. Its
neighboring countries, Iran, Afghanistan, and India, have a high volume of
opium cultivation and trade origins.226 Drug trafficking within these countries,
as well as across their boundaries, takes place regularly because the borders,
especially the Afghanistan–Pakistan, Iran–Pakistan, and Iran–Afghanistan
borders, are not strictly protected and monitored. Drug traffickers move the
drugs across the border and get cash in return from the drug lords, who are
pursuing their activities furtively in Pakistan as well as in its neighboring
countries.227 The cash movement is usually unreported and is surreptitiously
carried out, which is in itself money laundering.

          Owing to the high prices of the drugs that are trafficked along the
borders of Pakistan, the amount of cash moved is usually very high, sometimes
in the hundreds of millions of Pakistani rupees. Thus, a high amount of
currency is laundered by the drug traffickers as “black money” or “dirty

222
    See M. ALI KEMAL, A FRESH ASSESSMENT OF THE UNDERGROUND ECONOMY AND TAX EVASION IN PAKISTAN:
CAUSES, CONSEQUENCES, AND LINKAGES WITH FORMAL ECONOMY 14 (2007).
223
    YUSUF ET AL., supra note 221.
224
    See VEENA KUKREJA, CONTEMPORARY PAKISTAN 193 (2003).
225
    See KUSHRO FARAMURZ RUSTAJMI ET AL., POLICING IN INDIA IN THE NEW MILLENNIUM 658 (P.J.
Alexander ed., 2002).
226
    See Drugs Sub-Directorate: Heroin (INTERPOL, 2007).
227
    See 1 BUREAU FOR INTERNATIONAL NARCOTICS AND LAW ENFORCEMENT, U.S. DEP’T OF STATE,
INTERNATIONAL NARCOTICS CONTROL STRATEGY REPORT 353 (2010) [Hereinafter: Brownfield].



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money” and stays unchecked, particularly if the drug traffickers have good
contacts within the establishment or government as they can give bribes to the
relevant authorities or can also use power to ensure their safe conduct.228

          Pakistan’s northwestern border with Afghanistan is too long to have
surveillance over and can be too costly for the government to keep a
continuous check over it, whether using manual or automated surveillance
systems.229 The absence of constant surveillance has assisted smugglers and
drug traffickers throughout history and they have been successful in
establishing their underground drugs and money laundering empire by
smuggling merchandize and drugs in both directions across the border, and by
moving cash in a similar fashion. 230 This has strengthened the money
laundering and untaxed trade, which has now emerged as a giant market that
has the capability to rival the local market economy in Pakistan’s North-West
Frontier Province.231




      4.1.2. SMUGGLING OF CASH

Cash is smuggled across the borders of Iran and Afghanistan, 232 as well as
through airports. For this, smugglers try to evade the security checks to
launder money and they also bribe authorities or someone in the surveillance
team to let them move the cash abroad.233




228
    See DAVID C. JORDAN, DRUG POLITICS AND DEMOCRACIES 152 (2016).
229
    See Addiction, Crime and Insurgency: The Transnational Threat of Afghan Opium, UNODC (Oct. 2009),
http://www.unodc.org/documents/data-and-
analysis/Afghanistan/Afghan_Opium_Trade_2009_web.pdf.
230
    Id. See also : 22 U.S.C. (2006), Suppl. 3, Volume 3, p. 42 (US GOVERNMENT PRINTING OFFICE, 2010).
See also : ARVIND GOSWAMI, 3D DECEIT, DUPLICITY & DISSIMULATION OF U.S. FOREIGN POLICY TOWARDS
INDIA, PAKISTAN & AFGHANISTAN 112 (2012).
231
    For instance, as per the estimates of the World Bank in 2001, the trade at the Pakistan–
Afghanistan border exceeded $1 billion. Since then, the yearly trade volume exceeds a billion
dollars. This is a huge amount for the economy of any country and cannot be neglected. For
details, see BARNETT R. RUBIN, AFGHANISTAN FROM THE COLD WAR THROUGH THE WAR ON TERROR 375
(2015).
232
    Brownfield, supra note 227.
233
    For instance, see DELILA AMIR ET AL., TRAFFICKING AND THE GLOBAL SEX INDUSTRY 67 (2006). See also
: ARTHUR CONAN DOYLE, THE ADVENTURES OF SHERLOCK HOLMES AND THE CABLEGATE FILES OF WIKILEAKS
40 (2011). See also ALEC DUBRO & DAVID KAPLAN, YAKUZA: JAPAN’S CRIMINAL UNDERWORLD 255 (2012).



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      4.1.3. CORRUPT POLITICIANS AND ADMINISTRATORS

Regrettably, corrupt politicians and administrators are paving the way for
major crimes to take hold in the country, for instance corruption, bribery,
money laundering, and “whitening” black money. 234 The corrupt officeholders
are promoting these crimes either by becoming directly involved in money
laundering,        making      offshore   properties,     drug    trafficking,            smuggling,
corruption, misappropriation of funds, bribery, etc. or by taking bribes from
those who are involved in such crimes.235 Reportedly, investigations have also
been launched against some politicians accused of having contact with
smugglers, money launderers, and drug lords.236

           In this regard, it is not only politicians but also personnel in the
administrative and anticorruption departments who have been found guilty of
taking bribes from money launderers, who have been allowed to take huge
amounts of cash out of the country and, in return, took bribes from them.
Employees in the antinarcotics squads and airport authorities have assisted
money launderers and drug traffickers in taking currency abroad. 237 There is a
need to keep a strict check on personnel, as well as on those who are working
in such departments, where money launderers can entice someone by giving
large bribes to allow their money laundering activities. 238




      4.1.4. REAL ESTATE BUSINESS

Some money launderers buy property using laundered or black money and then
sell the property quickly for someone to buy it and give them the money, which
will then be considered “legitimately earned.” This facilitates them in
whitening their black money and leads to the crime of money laundering. 239



234
    See IBP INC., PAKISTAN: DOING BUSINESS AND INVESTING IN PAKISTAN: STRATEGIC, PRACTICAL
INFORMATION, REGULATIONS, CONTRACTS 126 (2015). [Hereinafter: IBP].
235
    Id.
236
    Brownfield, supra note 227.
237
    For instance, see AFP, Report Unmasks Tax Evasion Among Pakistan Leaders. The Express Tribune
(Dec.     12,   2012),    http://tribune.com.pk/story/478812/report-unmasks-tax-evasion-among-
pakistan-leaders.
238
    IBP INC. supra note 234.
239
    See SHAHRAM HAQ, Property Market Befuddled by Tax Measures, THE EXPRESS TRIBUNE (Aug. 26,
2016), http://tribune.com.pk/story/1170097/property-market-befuddled-tax-measures.



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      4.1.5. TAX EVASION

Many elites in the country avoid paying taxes. 240 For this, they usually bribe the
tax office employees to either show their tax status as “paid” or to not notify
he tax authorities of the fact that the tax has not been paid. 241 Usually, the bribe
is a small chunk of the tax amount, which rich people never hesitate to give
and the worker who receives it considers very good, 242 because the salaries of
government workers are not sufficiently high to afford a fashionable lifestyle.
A large number of incidences of bribery have led Pakistan to have the highest
prevalence of bribery in South Asia.243

           Money launderers also bribe officials of the relevant A.M.L. authorities
to allow the transfer of large amounts of cash abroad and label the transfer as
“clean” without paying the applicable tax on it, by either reporting an
incorrect amount of transferred cash or not reporting it at all. 244 Hence, money
laundering proceeds in two ways, i.e., by evading taxes and by transferring
cash to foreign banks successfully for the sake of getting property abroad, and
the widespread culture of bribes plays an essential role in supporting this.




      4.1.6. HUNDI

Hundi has been a major channel of money laundering in India and Pakistan. 245
Through this method, overseas nationals send remittances to their relatives,
friends, family, etc.246 It works as a credit transfer or IOU and transfers money
without actually moving it from one region to another. 247 As a result, neither

240
     NICHOLAS GALASSO & RICARDO FUENTES-NIEVA, WORKING FOR THE FEW: POLITICAL CAPTURE AND
ECONOMIC INEQUALITY 15 (2014). See also : Tax in Developing Countries: Increasing Resources for
Development, Fourth Report of Session 2012–13 of House of Commons and Parliament of Great
Britain, Vol 1, Ev 14 (THE STATIONERY OFFICE, 2012).
241
     Bribery to avoid tax is among the major problems of Pakistan causing low tax revenue for it.
For details, see ANAS MALIK, POLITICAL SURVIVAL IN PAKISTAN: BEYOND IDEOLOGY 170 (2010).
242
    See WAHEED MUGHAL, BEYOND LONDON 162 (2010).
243
    See TEHREEM HUSSAIN, Bribery incidence in Pakistan much higher than rest of South Asia, THE EXPRESS
TRIBUNE (May 23, 2016), https://tribune.com.pk/story/1108179/illegal-behaviour-corruption-
anathema-society/.
244
    IBP INC. supra note 234.
245
     See PETER LILLEY, DIRTY DEALING: THE UNTOLD TRUTH ABOUT GLOBAL MONEY LAUNDERING,
INTERNATIONAL CRIME AND TERRORISM 142 (2003).
246
    See JOHN CHIBAYA MBUYA, THE PILLARS OF BANKING 116 (2008).
247
    The branch or representative person of Hundi in the foreign country takes the cash and asks the
representative in the other country to give an equal or smaller amount of cash to the concerned
person to whom the cash has to be sent.



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the government nor the economy notices the transfer, which directly makes it
a money laundering channel.

          Although the government of Pakistan has made this method of money
transfer illegal,248 there are still many Hundi operators working in the country
surreptitiously and it might also be possible that some foreign exchange
companies use this process to hide their taxable earnings from the
government.249 In addition, a study indicated that the total volume of annual
currency transfers through Hundi is around $15 billion, 250 which is a significant
amount and indicates the strength of the Hundi channel for laundering money.




      4.2. TERRORISM FINANCING

Terrorists require money to finance their activities. 251 The sponsorship is
provided by their patrons, who are usually found to be money launderers and
drug traffickers, and sometimes politicians and the elite of society, who
support them in a disguised manner. Nonetheless, funding from foreign anti-
state elements overshadows all other sources of terrorist funding, which
establishes the pathways of money laundering. 252 Terrorist organizations have
been found to be involved in money laundering.253 This has been found to be
true particularly in Pakistan,254 where foreign intelligence agencies, namely
RAW,255 Blackwater, and the CIA, 256 have been found to be involved with
terrorists and to have financed anti-state elements.257




248
    See ARIF HASAN & MANSOOR RAZA, MIGRATION AND SMALL TOWNS IN PAKISTAN 40 (2009).
249
    For instance, Human Rights Watch explains that each year the estimated remittances sent by
overseas nationals to Pakistan are not the exact amount of remittances, because these do not
include those remittances that are sent through informal channels, i.e., Hundi and Hawala. The
remittances sent through Hundi remain untracked. For details, see HUMAN RIGHTS WATCH, "BAD
DREAMS": EXPLOITATION AND ABUSE OF MIGRANT WORKERS IN SAUDI ARABIA 2004.
250
    SHAHID IQBAL, Annual Hundi, Hawala payments cross $15 billion, DAWN.COM (Dec. 31, 2015),
http://www.dawn.com/news/1229711.
251
    US CONGRESS, CONGRESSIONAL RECORD, VOLUME 151, Pt. 12, July 14 to July 22, 2005, 16983-84 (2005).
252
    ARUN KUMAR, THE BLACK ECONOMY IN INDIA, 261 (2002).
253
    Id.
254
    IMF, supra note 115, at 20.
255
    The Research and Analysis Wing (RAW) is an army intelligence agency of India.
256
    Blackwater and the Central Intelligence Agency (CIA) are the intelligence agencies of the US.
257
    ERIC DRAITSER, The Politics of Terrorism in Pakistan, NEO (Jul. 8, 2014), http://journal-
neo.org/2014/07/08/the-politics-of-terrorism-in-pakistan.



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For instance, the recent incident of arrest of an Indian Army intelligence
officer, Kalbhushan Yadav, who was found to be commanding a strong terrorist
network in Pakistan,258 is a clear instance of the Indian Army RAW’s
involvement in funding anti-state terrorist activities, which were pursued by
Kalbhushan Yadav’s network in different areas of Pakistan, particularly Quetta
and Karachi.259 The tarnished peaceful situation of Karachi is also a
consequence of that terrorist network’s surreptitious financing by either
foreign agencies or local people.260

          Now, in such cases, all the money that the terrorists receive is actually
“laundered” money, because it is kept hidden and neither its original source
nor its destination are revealed to the government by the financers. 261 Hiding
the source and channels of money is essential for the terrorists to continue
financing their activities without being traced by local law enforcement
agencies.     Hence,      money       laundering        goes    hand-in-hand              with terrorist
activities.262




      4.3. PAKISTAN AND INTERNATIONAL A.M.L. STANDARDS AND ORGANIZATIONS

Pakistan has never exercised a leading role in any of the A.M.L. international
standards or organizations,263 although Pakistan has been a member of them
and has actively participated in the meetings of these conventions and
organizations since their founding. Pakistan also gets support from the
U.N.O.D.C. in terms of technical and advisory assistance for curbing the drug
trade and money laundering through its northwestern border region. 264

258
     Kalbhushan Yadav has also confessed of managing and setting up terrorist networks in
Baluchistan and Karachi. For details, see : Govt Airs Video of Indian Spy Admitting Involvement In
Balochistan Insurgency, DAWN.COM (Mar. 29, 2016), https://www.dawn.com/news/1248669.
259
     SYED ALI SHAH, Arrested “RAW agent” trained separatists to target Pakistani ports: security official,
DAWN.COM (Mar. 27, 2016), http://www.dawn.com/news/1248254.
260
     APP, Transcript of RAW agent Kulbhushan’s confessional statement, DAWN.COM (Mar. 30, 2016),
http://www.dawn.com/news/1248786.
261
    See Financing of such a terrorist network also coincides with money laundering, for instance, as
explained by: PHILIP PURPURA, TERRORISM AND HOMELAND SECURITY: AN INTRODUCTION WITH
APPLICATIONS 147 (2011).
262
    See ALEX J. BELLAMY, RICHARD DEVETAK, ROLAND BLEIKER & SARA E. DAVIES, SECURITY AND THE WAR ON
TERROR 186 (2007).
263
    For instance, see : KIMYET TUNCA CLIYURT & SAMUEL O. IDOWU, EMERGING FRAUD: FRAUD CASES FROM
EMERGING ECONOMIES 94 (2012).
264
     Drugs & Precursors Identification Training for ANF & Pakistan Customs Officials, UNODOC (Jul. 28,
2016),     https://www.unodc.org/pakistan/en/drugs-and-precursors-identification-training-for-



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Moreover, Pakistan also has a cooperative relation with INTERPOL265 and can
approach it for the arrest of any serious criminal who has escaped its law
enforcement agencies but is pursuing criminal activities from a foreign land,
or conversely INTERPOL can also inform Pakistan of the activities of a
Pakistani person who is suspected to be involved in money laundering. 266

        As a result of legislation over the last ten years from Pakistan’s
parliament designed to combat money laundering, drug manufacturing and
trading, and corruption, the international A.M.L. organizations have taken
Pakistan off the list of countries that have a high prevalence of money
laundering and drug trafficking.267 This has also given rise to a chance of
establishing cooperation with international A.M.L. organizations with renewed
vigor to combat money laundering and related crimes.268




   4.4. PROMINENT CASES OF MONEY LAUNDERING IN PAKISTAN

Some prominent cases of money laundering have been reported over the last
decade, and those occurring in Pakistan are mentioned below.




   4.4.1. THE CASE OF THE KHANANI AND KALIA FOREIGN EXCHANGE COMPANY

The Khanani and Kalia Company, in Pakistan, operated foreign currency
exchange and was involved in money laundering.269 Javed Khanani and Munaf
Kalia were arrested and handed over to the F.I.A.270 Both were found guilty of




anf-and-pakistan-customs-officials.html.
265
     INTERPOL is an international organization that facilitates intergovernmental police
cooperation. For details, see: HOSSEIN BIDGOLI, HANDBOOK OF INFORMATION SECURITY, INFORMATION
WARFARE, SOCIAL, LEGAL, AND INTERNATIONAL ISSUES AND SECURITY FOUNDATIONS 205 ( 2006).
266
    For instance, INTERPOL informed Pakistan about Benazir Bhutto and Asif Zardari regarding
their alleged money laundering back in 2007. For details, see: NAFISA HOODBHOY, ABOARD THE
DEMOCRACY TRAIN: A JOURNEY THROUGH PAKISTAN'S LAST DECADE OF DEMOCRACY (2011).
267
    Pakistan has effective anti-money laundering laws: SBP, THE NEWS INTERNATIONAL (Nov. 16, 2009),
https://www.thenews.com.pk/print/15696-pakistan-has-effective-anti-money-laundering-
laws-sbp#.
268
    For instance, see: The UNODC and FIA stand committed to curb human trafficking and migrant
smuggling in extended partnership with police and civil society (UNODC, 2015).
269
     KHURRAM HUSSAIN, Khanani pleads guilty to money laundering in U.S. court, DAWN.COM (Nov. 7,
2016), http://www.dawn.com/news/1294812.
270
     Federal Investigation Agency, Pakistan.




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illegally transferring around $10 billion out of Pakistan 271 and were charged
according to the law by the F.I.A. upon the completion of investigations. 272 U.S.
authorities also charged both with involvement in money laundering in United
States and offshore regions.273




      4.4.2. THE CASH SMUGGLING CASE OF AYYAN ALI

The Pakistani model Ayyan Ali was arrested at Islamabad Airport when
U.S.$506,000 were found in her bag, which she was reported to be taking to
Dubai.274 This amount is far higher than the maximum cash limit allowed to be
taken out of Pakistan, which was set at $10,000 and $60,000 a year. 275 The
amount that Ali had was ten times higher than that.

          Legal action was taken against Ali, who was immediately sent to Adiala
jail. Investigations were also held; however, Ali was granted bail276 and was
released from jail after paying heavy fines of around 50.5 million 277 (5.5 crore)
Pakistani rupees278 for her violation of Pakistan’s A.M.L. laws. As a
punishment, her name was also added to the exit control list to prevent her
from traveling again outside the country.279




271
     FARAZ KHAN, Money Laundering Scam Worth $10 billion, DEFENCE.PK (Nov. 10, 2008),
http://defence.pk/threads/money-laundering-scam-worth-10bn.16074.
272
     ZAIB HUSSAIN, FIA Nominates Javed Khanani in Money Laundering Case, THE NEWS INTERNATIONAL
(Jan. 31, 2015), https://www.thenews.com.pk/print/21394-fia-nominates-javed-khanani-in-
money-laundering-case.
273
    ANWAR IQBAL, Khanani group launders billions of dollars: U.S. report, DAWN.COM (Mar. 4, 2017),
https://www.dawn.com/news/1318333.
274
     HASEEB BHATTI, Ayyan indicated in currency smuggling case, DAWN.COM (Nov. 21, 2015),
http://www.dawn.com/news/1220779 [Hereinafter: Bhatti].
275
    MASHHUD, Revised currency carrying limits: SBP seeks FBR’s help for assistance, CUSTOMNEWS.PK (Sept.
10, 2015), http://customnews.pk/2015/09/10/revised-currency-carrying-limits-sbp-seeks-fbrs-
help-for-assistance.
276
    BHATTI, supra note 274.
277
     Ayyan fined Rs. 50.5m by Customs Court, THE NEWS INTERNATIONAL (Apr. 6, 2016),
https://www.thenews.com.pk/print/110693-Ayyan-fined-Rs505m-by-Customs-Court.
278
    Customs court fines Ayyan Ali Rs. 5.5 crore, ARY NEWS (Apr. 5, 2016), http://arynews.tv/en/customs-
court-i-rs-5-5-crore.
279
    JAWAD SHOAIB, Ayyan Ali's Name Remains on Exit Control List Despite SHC’s order, GEO.TV (Feb. 20,
2017),        https://www.geo.tv/latest/131719-Ayyan-Alis-remains-on-Exit-Control-List-despite-
SHCs-order.



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      4.5. A.M.L. LEGISLATION IN PAKISTAN

Although a very thorough body of legislation has already been made for
curbing money laundering, its effectiveness is lost when law enforcement
authorities do not put behind bars those money launderers who have political
power or enough money to bribe law enforcement agencies’ officials. This
selective approach keeps the seed of corruption and money laundering alive.
Similarly, the government can implement A.M.L. laws strictly to punish its
opponents but it never repeats the same procedure against its own political
party members. Nonetheless, the most prominent legislation made so far
against money laundering includes the following:280

          - Anti-Money Laundering Ordinance 2007

          - Anti-Money Laundering Act 2010

          - Anti-Money Laundering Rules 2010

          - Anti-Money Laundering Regulations 2010

          - Amendments to the A.M.L. Act 2010

All of these pieces of legislation have criminalized money laundering and have
given the state the power to arrest and detain anyone who pursues this crime.
Jurisdictions and validations of Acts have also been defined, along with the
relevant procedures and conditions. In this regard, offenses by individuals, as
well as by organizations, have been added to the same category. 281




      4.6. EFFECTS OF A.M.L. LEGISLATION IN PAKISTAN

The effects have not been profound, though they have been enough to
demonstrate that law enforcement agencies have taken measures to curb
money laundering in Pakistan. For instance, the cases of Ayyan Ali, Dr. Asim,
etc. are considered to have been major cases of offenses under the A.M.L. Acts.

280
   For details, see Anti-Money Laundering Laws (EXECUTIVE UPDATING SERVICE, 2016).
281
    Id. For details, see the Anti-Money Laundering Act 2010 passed by the Senate of Pakistan, as
Amended up to February 2016, at:
http://www.senate.gov.pk/uploads/documents/1363266009_767.pdf; See also A Bill to amend
A.M.L.      Act      2010,    as   Passed   by    the    National    Assembly     of    Pakistan,
http://www.na.gov.pk/uploads/documents/1449207682_201.pdf. These statutes provide the basis
of criminalization of money laundering in Pakistan. Moreover, these laws also govern the relevant
law enforcement agencies in pursuing their A.M.L. activities.



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Recently, the Supreme Court of Pakistan has accepted the hearings against
Prime Minister Nawaz Sharif for the charges of buying offshore property with
laundered money. Such cases, if decided judiciously, can pave the way for the
strict implementation of A.M.L. laws in Pakistan, which are still deficient in
terms of their effective implementation.




        5. CONCLUSION

Money laundering has been recognized as a major crime at the international
level. Terrorists, drug traffickers, smugglers, black money owners, etc. use
different money laundering methods to finance their activities, to traffic drugs,
and    to   clean    their   illegitimately     earned     assets.Whichever              method           is
implemented, the three steps of money laundering—placement, layering, and
integration of funds—take place.282 Although A.M.L. organizations in all
countries have formulated certain mechanisms, rules, and policies for
preventing and curbing money laundering,283 these policies have been
insufficient, whose magnitude has increased to up to billions of U.S. dollars at
the international level.284

        Money laundering causes negative effects to the economy, such as
devaluing capital, lowering the growth rate, affecting interest rates and the
C.P.I., causing inflation, and defaming financial institutions, which leads to
curbing opportunities for domestic and foreign direct investment. 285 In
addition, the social costs of money laundering are of an adverse nature as it
can result in providing safe havens to criminals, i.e., the drug traffickers,
terrorists, and other criminals who are benefitting from laundering cash. 286 The
primary reasons for the social costs of money laundering is found in the fact


282
    Jerome Bjelopera & Kristin Finklea. Organized Crime: An Evolving Challenge for U.S. Law
Enforcement, 14 (CONGRESSIONAL RESEARCH SERVICE, 2010). JEROME BJELOPERA & KRISTIN FINKLEA, CONG.
RESEARCH SERV., R41547, ORGANIZED CRIME: AN EVOLVING CHALLENGE FOR U.S. LAW ENFORCEMENT 14
(2010).
283
    See LESLIE HOLMES, TERRORISM, ORGANISED CRIME AND CORRUPTION: NETWORKS AND LINKAGES (2007).
284
     JOSEPH J. NORTON & GEORGE WALKER, BANKS: FRAUD AND CRIME, 203 (2nd ed. 2013).
285
    BRENT BARTLETT, The Negative Effects of Money Laundering on Economic Development, ASIAN
DEVELOPMENT BANK (May, 2002), https://waleolusi.files.wordpress.com/2013/05/the-negative-
effects-of-money-laundering-on-econom.pdf.
286
    US FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL, BANK SECRECY ACT/ANTI- MONEY
LAUNDERING EXAMINATION MANUAL 8 (2014).
See also U.S. Department of Justice, supra note 107, at 8.



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that this crime is entwined with other serious crimes, i.e., tax evasion,
smuggling, whitening of black money, corruption, terrorist financing, and
trafficking of illicit drugs and arms. 287 All of these crimes can cause deep
adverse effects on the socioeconomic landscape of a society; furthermore, these
crimes are considered among the main channels of money laundering, both in
Pakistan and globally, as set out above. Therefore, it is essential for law
enforcement agencies to curb the crime of money laundering by foiling the
channels of money laundering and the tactics that criminals use for laundering
cash.

         For this purpose, law enforcement agencies need to devise effective
strategies and mechanisms to increase cooperation at the domestic, regional,
and international level to keep track of the activities that are directly or
indirectly linked to money laundering. A continual and strict security on
porous international borders and at airports will prevent smugglers and money
launderers from moving cash from one region to another. Furthermore, by
keeping a strict check on wire transfers and other methods of currency
transfers, financial institutions can also play their role in tracking laundered
money as well as the sources of the money, and consequently report any
suspicious money transfer to the security agencies.288

         In addition, tax authorities need to devise thorough and investigative
auditing strategies in order to keep track of elites’ incomes, so that no one can
launder cash to avoid taxes. For this purpose, tax revenue departments should
also be made independent and sufficiently powerful so that they may not be
bribed or influenced politically by any powerful elite. 289 Furthermore,
corruption      and     bribery     are    other    problems       that      accompany              money
laundering,290 because a corrupt person will prefer to hide money acquired


287
     Id.
288
    For instance, the Bank Secrecy Act in the U.S. makes it obligatory for financial institutions,
including all private- and public-sector banks, to keep track of all suspicious cash transactions in
order to trace down the sources of money laundering. For details, see: U.S. CONGRESS, PUBLIC LAW
105–310 (1998).
289
    The independence and strength of tax authorities are essential, otherwise elites can avoid taxes
by hiding their incomes and sources of their earnings, which leads to money laundering. For
details, see: Waber, supra note 14, at 21 . In addition, to know about the effects of weakness of tax
authorities on money laundering, see MARY ALICE YOUNG, BANKING SECRECY AND OFFSHORE FINANCIAL
CENTERS: MONEY LAUNDERING AND OFFSHORE BANKING 12 (2013).
290
    For a detailed impact of money laundering in promoting bribery and corruption, see BRIGITTE
UNGER & ELENA MADALINA BUSUIOC, THE SCALE AND IMPACTS OF MONEY LAUNDERING 148 (2007).



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from bribes or corruption to avoid being tracked and penalized by law
enforcement authorities.291




291
   For details, see BEARE, Supra note 95, at 37. To know more about the relationship between
corruption and money laundering, see BRUCE ZAGARIS, INTERNATIONAL WHITE COLLAR CRIME: CASES
AND MATERIALS 138 (2010). See also NORMAN MUGARURA, THE GLOBAL ANTI-MONEY LAUNDERING
REGULATORY LANDSCAPE IN LESS DEVELOPED COUNTRIES 124, 144 (2016).



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