June
26 is being observed as the International Day against Drug Abuse and
Illicit Trafficking as decided by the UN General Assembly in 1987. The
theme set for three years (2007, 2008 and 2009) is: “Do drugs control
your life? Your life and your community: No place for drugs.” The successive governments in Pakistan provided money laundering schemes to the black economy, including proceeds from heinous drug trade in the name of ‘good economic measures’ to ‘boost industrial progress’. Our drug barons hardly need any international channels for money laundering. If anybody brings money (earned from drug trade) in Pakistan through normal banking channels or otherwise, the tax authorities cannot pose any question about the ‘source’. In the Finance Bill 2008, approved by the National Assembly on June 22, 2008, a further relaxation is given that now all kinds of black money can be whitened by just paying two percent to the government. In other parts of the world, governments through asset seizure legislation confiscate such money and punish the offenders. Black economy remits millions of rupees into the country every year from bank accounts maintained in various countries in fictitious names. This black economy is making life harder and harder for those who earn from legitimate sources.
In the Income Tax Ordinance 2001, promulgated on the dictates of the International Monetary Fund (IMF) on September 13, 2001, a special provision (section 111(4)) has been inserted facilitating the money launderers to remit (laundered is more appropriate term) their ill-gotten money through banking channels and surrender the foreign currency to the State Bank and get Pakistani rupees as encashment. In this way they can escape not only taxation but any query from the Central Board of Revenue (CBR). This scheme aimed at bringing foreign funds to Pakistani economy succeeded immensely as foreign reserves of Pakistan crossed the $ 15 billion mark in the wake of this facility during Shaukat Aziz regime. However, nobody realised that this scheme has been used cleverly by drug syndicates and tax dodgers to launder their money through state patronage. In the presence of this law can anybody take Pakistan seriously in its so-called announcement of combating money laundering?
In the pat schemes to convert black economy into documented one, included Bearer National Fund Bonds and Foreign Exchange Bearer Bonds, Special Bearer Bonds, US Dollar Bonds and Certificates and a host of such other instruments. The objective of these instruments was to mop up black money (believed to have been earned mainly through illicit transactions) and to bring it out in the open so that instead of remaining concealed and idle, such money may become available for augmenting resources of the state and for the utilisation of social and economic planning. The said schemes, however, proved counter-productive. The bearer bonds were converted into alternate currency and exchanged hands at a premium.
The Special Bearer Bonds carried a premium in the market and an increase in the premium was witnessed as the date of maturity of these bonds came closer. Under the scheme anyone could buy the bonds, present them to the government and claim refund along with a specified interest.
The source of investment in their purchase could not be questioned; whether it was white or black money. Thus, the drug barons could get their money and assets legalised with no questions asked about the source of such ‘income’.
Since the General Zia era, Pakistani black economy hardly needed any international channel for money laundering. Even today, if anybody brings money (earned from illicit means) in Pakistan through normal banking channels, the State Bank and tax authorities pose no question about its source. On the contrary, there is provision in the Narcotics Act that all the suspicious transactions should be reported by the bankers. We have self-contradictory laws and practice of the State Bank and revenue authority amounts to abetment in laundering operations of drug barons. It is serious matter and needs the attention of the government lest the UN and other bodies charge us on this issue as well.
According to figures released by various quarters, the parallel economy is growing at an alarming rate of 22.93 percent per annum. It is estimated that every fifth rupee transacted in Pakistan is black. The volume of black money generated in the financial year 2006-07 was estimated at Rs 800 billion. A conservative estimate is that Rs 1,000 billion is generated every year by the parallel economy, the share of illicit drug trade in it is not less than Rs 300 billion to Rs 500 billion.
At the economic level, Pakistan, in addition to rehabilitating drug addicts, also needs to spend more on anti narcotic drives and administration. A Drug Abuse Control Master Plan (1998-2003) was launched with the assistance of UNODC at a total expenditure of Rs 2.8 billion out of which Rs.1920 million were for law enforcement and Rs 912 million were for drug demand reduction. However, out of the total estimated budget only Rs 185.837 million were spent as admitted in Pakistan Economic Survey 2006-07.
In 2006, Pakistan had 4.6 million drug addicts and the number increased to over five million in 2007 and to 5.2 million in the first half of 2008. Drug dealers and addicts are also involved in smuggling and prostitution. Black economy generated from these heinous activities has resulted in organised crime, which is different from the normal criminal activities.
Our drug barons are well-connected with international drug syndicates and private banks provide them every facility to launder drug money. In these operations the Western and American banks are equally involved as revealed by the former private banker, Antonio Geraldi, in a testimony before the US Senate Sub-committee, projecting significant growth in the US bank laundering. “The forecasters also predict the amounts laundered in trillions of dollars and growing disproportionately to legitimate funds.
Unfortunately, Shaukat Aziz, who ran the private bank for the last two years and under whose leadership many of the improvements in our private bank’s anti-money laundering programmes took place, cannot participate in these hearings. Shaukat would really have been the most appropriate witness today, given his experience and knowledge but as you know, he was called home to serve his country, Pakistan, as Minister of Finance. He left the bank on October 29. He asked me to submit his statement for the record, and it is attached to my own all financial institutions. Whether banks, securities firms, or other types of financial intermediaries are potentially vulnerable to money laundering. Private banks are just one subset of the potentially vulnerable institutions. Our private bank, for example, is a very small part of Citigroup, accounting for about 2.5 percent of Citigroup’s business. Private banks in general are no more and no less vulnerable to abuse by the unscrupulous and the dishonest than the much larger parts of most financial institutions.” This statement shows the expertise of our former prime minister (also holding portfolio of finance minister) in ‘anti-money laundering’ areas, none of which was introduced in Pakistan during his tenure. On the contrary, laws promoting money laundering were passed.
Today, all big US banks have established multiple correspondent relationships throughout the world so they may engage in international financial transactions for themselves and their clients in places where they do have a physical presence. Many of the largest US and European banks located in the financial centres of the world serve as correspondents for thousands of other banks. Most of the offshore banks are laundering billions of black money. All big banks specialising in international fund transfer are called money centre banks, some of the biggest process up to $ 1 trillion in wire transfers a day. The most recent estimates (2007) are that 60 offshore jurisdictions around the world licensed about 4,000 offshore banks that control approximately $ 5 trillion in assets.
This is the situation on ground whereas we daily hear in media that the official quarters in Pakistan, the US and elsewhere making big claims about war against drugs and terrorism. This is all eyewash. In reality all the financial institutions and state structures are subservient to these billionaires, the ruthless drug barons, who know how to move money from one part of the world to another, buy government functionaries, control politicians, law enforcement officials and get the profits they want from the drug trade – a deal of death for many innocent people around the world.
The writer specialises in studying global heroin economy. He is author of internationally acclaimed books, Pakistan: From hash to heroin and its sequel Pakistan: From drug-trap to debt-trap
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