MONEY LAUNDERING

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 Money laundering

•The word “laundry”

literally means “cleaning”
•Metaphorically, money
laundering refers to
“cleaning on money”
Money laundering
• ‘MONEY LAUNDERING‘ refers to any activity that will
transform illegally gained or untaxed funds into
legitimate capital.
 Statistics - Money Laundering

• The International Monetary Fund and the World Bank

estimate that between $2 Trillion to $3 Trillion is laundered
around the world in each year.

• The United Nations recently estimated that the criminal

proceeds laundered annually amount to between 2 and 5
percent of global GDP, or $1.6 to $4 trillion a year.
Statistics - Money Laundering

Pakistan: Estimate 10-15 billion $ money laundering

for each year.
USA:$300 Billion.
Brazil: $290 Billion.
Chile: $270 Billion.
Peru: $200 Billion.
Mexico: $110 Billion.
Ecuador: $70 Billion.
 Statistics - Money Laundering

• Government regulations and Law Enforcement Agencies

are able to detect and stop only $170 Million in money
laundering activities annually, a rate of less than 1 percent
per annum.
PROCESS OF MONEY LAUNDERING

Placement Layering Integration

 Stages in Money Laundering

1. Placement: Obtaining the money or introducing it

into the financial system in some way

2. Layering: Transferring or concealing the source

of the money through complex or multiple
transactions

3. Integration: Returning the money back into the

financial world so that it appears legitimate.
Stages of Money Laundering
 PLACEMENT
Placement refers to the physical disposal of
bulk cash proceeds derived from illegal activity.
This is the first step of the money-laundering
process and the ultimate aim of this phase is to
remove the cash from the location of acquisition
so as to avoid detection from the authorities.
 LAYERING
Layering is the movement of funds from
institution to hide their origin.
It consists of putting funds, which have entered the
financial system, through series of financial operations
to mislead potential investigators and to give the funds
the appearance of having legal origins.
Launderers may purchase expensive items such as
jewelry, property, or cars in order to change the
money's form.
 INTEGRATION
Integration refers to the reinsertion of the
laundered proceeds back into the economy in such a
way that they re-enter the financial system as normal
business funds.
The funds may be reintroduced in the economy
through, for instance, the purchase of luxury items
or through investment in assets such as shares in a
company or real estate.
Case in point

Mr.X is a dealer in
selling illegal firearms He then trades into
and has a buyer who
paid him in cash.
option from one of
Depositing huge cash these accounts and
would be difficult for from the proceeds
him, so what can he Layering he buys a property ,
do? He sets up a real thereby integrating
estate company and the money and
opens a bank account He then transfers making it legitimate
to deposit small the money to many
amount of money so
not to raise suspicions
different accounts
in various
Placement jurisdictions ( with Integration
different names).
What is the aim of the ML?

the aim of money launderer is to :

 To disguise the origin of the funds;
 To create a confusing audit trail so the authorities would find
it hard to trace the money ; and
 To use the money in an apparently legitimate transaction
using apparently legitimate funds.
 OBJECTIVES OF MONEY
LAUNDERING

 The main objectives of money launderers are thus to

place their funds in the financial system without
arousing suspicion, to move them around, often after a
series of complex transactions crossing multiple
jurisdictions so that it becomes difficult to identify their
original sources, and finally to move the funds back
into the financial and business systems so that they
appear legitimate.
 OBJECTIVES OF MONEY
LAUNDERING

 Money laundering is performed systematically and in

secret, making it difficult to identify exactly how much
money is involved, what methods are employed and
what the magnitude of the problem is.
 Sources of illegal/Black Money

Kidnapping
for Ransom Extortion
Fraud

Bribery
Smuggling & Corruption
Criminal
Activities

Robbery,
Prostitution Dacoity

Gambling & Counterfeiting

Speculation
CAUSES OF MONEY LAUNDERING
 CAUSES OF MONEY LAUNDERING

 Absence of legislation
 Evasion of tax
 Increase in profits
 To make black money
appear white money
 Limited risks of
exposure
Absence of legislation against money laundering:

 Absence of legislation against

money laundering give a free
hand to criminals. sometimes
governments itself is involved
they do this to win political
rivals, to please their allies and
to strengthen their rule.
Evasion of tax:

 Laundered money is usually untaxed, meaning the loss in

tax revenue. People who indulge into money laundering
do not declare the funds to the tax authorities. As a result
taxes are not paid for the ill-gotten funds. This effectively
reduces tax revenues for the governments and ends up
damaging economic development.
Increase profits:
When people have incentive for more profit in
any particular area, such as in production and trading
of drugs, arms, and across the borders trade, they
start taking risk to earn higher profits.
 To Appear black money legitimate:

 In money laundering,
black money usually
becomes legitimate after
a series of process. And
less risk is involved of
being caught. So in order
to appear their money
more legitimate they go
for money laundering.
 Limited risks:

The availability of multiple

opportunities for personal
enrichment without the risk of
being exposed is another cause of
money laundering. Such economic
environments are much more
conducive to make black money.
EFFECTS OF MONEY LAUNDERING
ON ECONOMY
Economic Distortion and Instability:

 Money launders "invest" their

funds in activities that are not
necessarily economically
beneficial to the country. They
redirect funds from sound
investments to low-quality
investments that hide their
proceeds, economic growth
can suffer.
Undermining the integrity of financial markets

 Large sums of laundered money may arrive at a

financial institution but then disappear suddenly,
without notice, This can result in liquidity problems
to financial institutions.
Indeed, criminal activity has been associated with a
number of bank failures around the globe.
 Reputation at stake:

 The reputation of country and its financial institutions

can be tarnished by an association with money laundering.
The negative reputation that results from these activities
diminishes legitimate global opportunities and sustainable
growth while attracting international criminal
organizations with undesirable reputations and short-term
goals. This can result in diminished development and
economic growth.
Money Laundering In Pakistan
Pakistan’s Position Regarding Anti-Money
Laundering Laws
Acts and Ordinances Passed of AML Laws

 The Control of Narcotic Substances Act of 1997

 National Accountability Ordinance of 1999

 Anti-Terrorism Act of 2002

 In 2010, the State Bank of Pakistan (SBP) passed the Anti-Money Laundering Act.
The Act thereby replaces the 2007 AML Ordinance.

 Oct 12 2013 Ordinance was passed (further amendments)

 The Financial Action Task Force (FATF) has given timeframe till June 2014 to
Pakistan to amend further the money laundering laws as well as Anti-Terrorism Act
to incorporate the content of the ordinance before the February 2014 meetings.

 Pressure by FATF to Convert Ordinance in to Permanent legislation through

the parliamentary process.
PROMINENT CASES OF MONEY
LAUNDERING IN PAKISTAN
The Sharif brothers (Hudaibiya Paper Mill)

 Nawaz sharif and Shahbaz sharif were accused of laundering money

worth $35 million. This case was initiated after the military coup in
1999.
 This revelation was given by the Sharif brothers’ close associate
Ishaq dar.
 Ishaq dar gave a 43 page confessional statement before the District
Magistrate Lahore on 25th April 2000.Dar was produced before the
court by FIA.
 Dar, in his statement had admitted that he had been handling the
money matters of the Sharif family and he also alleged that Mian
Nawaz Sharif and Mian Shahbaz Sharif were involved in money
laundering worth at least $14.886 million.
 Interestingly, Ishaq Dar also implicated himself by confessing in the
court that he along with his friends Kamal Qureshi and Naeem
Mehmood had opened fake foreign currency accounts in different
international banks.
 Continued…..

 He said that the entire amount in these banks finally landed in

the accounts of Hudaibiya Paper Mills Limited.

 Senator Ishaq Dar was the main witness against Nawaz and Shahbaz

Sharif in the case.( Waada ma’af gawah)

 The statement by Senator Ishaq Dar is irrevocable as it was recorded

under section 164 of the Criminal Procedure Code (CrPC).

 The Hudaibiya Paper Mills case is still pending

in the National Accountability Bureau.

 Case references

Panama Leaks
(Nawaz Sharif & his family)
London Flats(Avenfield Apartments) in Park Lanes
Nescol U.K
Nielsen U.K
Gulf Steel U.A.E
Capital FZE (Iqama) U.A.E
Jeddah Steel Mill K.S.A
Hill Metal Steel K.S.A
Azizia Steel K.S.A
Asif Ali Zardari-Money Laundering Case:

Mr. 10%
 In 2003, a Swiss investigative magistrate decided he had evidence of Zardari

and Bhutto after pursuing a money trail from offshore companies in the
Caribbean to banks in Geneva to a jewelry shop here.

 In his 2003 verdict, the Swiss judge connected Zardari to a chain of

corruption that began with two Swiss companies, Cotecna and SGS.
(Container inspection equipment)

 As part of a secret deal, the judge found, the Swiss contractors funneled

$11.9 million in bribes into three offshore firms in the British Virgin Islands
and ultimately into bank accounts in Geneva.

 The judge found that Zardari owned the third company, Bomer Finance,

which received about $8 million, and that “Bhutto shares with her
husband the assets” and “has power of disposition” over the company,
according to the documents.
 Zardari is accused of using illicit funds to acquire the 365-acre
Rockwood estate, a $6.5-million property featuring a Tudor-
style mansion and two adjoining farms in the Surrey district.
 In 1995, a leading French military contractor, Dassault Aviation,
agreed to pay Mr. Zardari and a Pakistani partner $200 million
for a $4 billion jet fighter deal that fell apart only when Ms.
Bhutto’s Government was dismissed.
 In the largest single payment investigators have discovered, a
gold bullion dealer in the Middle East was shown to have
deposited at least $10 million into an account controlled by Mr.
Zardari after the Bhutto Government gave him a monopoly on
gold imports that sustained Pakistan’s jewelry industry.
 In 1994 and 1995, he used a Swiss bank account and an
American Express card to buy jewelry worth $660,000 —
including $246,000 at Cartier Inc. and Bulgari Corp. in Beverly
Hills, Calif., in barely a month.
 Fake Bank Account Case:

The case was initially registered in 2015 against former Pakistan

Stock Exchange (PSE) chairman Hussain Lawai, who is widely
believed to be close to former president Zardari.

Besides the ex-president and his sister, real estate tycoon Malik
Riaz’s son-in-law Zain Malik and 14 other bankers and
businessmen have been booked in the case pertaining to alleged
laundering of Rs4.14 billion through 29 ‘fake’ bank accounts,
while Hussain Lawai, Taha Raza, Anvar Majeed and Abdul Ghani
Majeed have been detained for their alleged involvement in
facilitating the transactions.
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. Javed Khanani and Munaf Kalia were
arrested and handed over to the F.I.A.
Both were found guilty of illegally transferring around $10 billion out of Pakistan
and were charged according to the law by the F.I.A. upon the completion of
investigations
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. 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. The amount
that Ali had was ten times higher than that.
 Recommendations

• Centralized reporting system from all Banks

• One regulatory authority for all Banks, Non Banks & DFI’s
• Monitoring of auditors, lawyers & legal advisors
• Mandatory anti money laundering training for banks employees
including international training and seminars.
• Decision making should be decentralized instead of one man
show in financial institutions.
• Employees and officers of the financial institution should be
legally protected.
Recommendations
 Financial institutions should maintain, for at least five years,
all necessary records on transactions, both domestic or
international, to enable them to comply swiftly with
information
 Financial institutions should pay special attention to all
complex, unusual large transactions, and all unusual patterns
of transactions, which have no apparent economic or visible
lawful purpose
 If a financial institution suspects or has reasonable grounds
to suspect that funds are the proceeds of a criminal activity,
or are related to terrorist financing, it should be required,
directly by law or regulation, to report promptly its
suspicions to the financial intelligence unit (FIU).