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Coronavirus
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The Islamic Republic of Pakistan was created to protect Muslim people and Islamic interests in 1947. Since its foundation, the country and its people have both experienced a number of highlights and endured a number of low points, with one relatively recent low point (which is attracting international media interest) being the money laundering practices of senior government officials.

How is religion an integral element of a legal discussion? It’s simple; as a country that prides itself on Islam being a cornerstone of Pakistani life, it is surprising that there is a lack of initiative and investment in the country’s money laundering laws and regulations.

The concept of and reference to money laundering within Islam has existed since the revelation of the Holy Quran and is also mentioned in Sunnah. For example, verse 188 of Surat Al Baqarah makes clear the prohibition of illegal earning of money such as bribery and theft. Verse 29 of Surat Al Nisa promotes the generation of wealth through lawful business means and speaks against the unjust consumption of wealth belonging to another person.

Meanwhile, Prophet Mohammed (PBUH) foretold of corrupt consciousness and immorality caused by people caring little about whether the source of money and wealth is halal or haram.

What is money laundering?

Looking at the American and European definition of the term, it is referred to as the act of disguising the source of money obtained from illegal means. Put simply, it is the act of hiding money (this money is casually referred to as “dirty” money) resulting in it appearing to be from legitimate financial and business transactions.

The term is said to have come about from the activity of the famous Chicago crime boss Al Capone during the 1920s who owned a number of laundromats (laundrettes) to disguise the origin of money made from illegal alcohol sales. As a cash-intensive business, laundromats give scope for the comingling of legitimate business income and illegal source of funds.

Clearly, the act (and associated acts) of money laundering are contrary to the ethics and human values expected according to the Quran and Sunnah. In addition to Shariah law, money laundering has for some time been an identified criminal offence under man-made law.

As a conduit for legitimising ill-gotten gains arising from theft, smuggling, drug dealing, prostitution, counterfeiting, corruption, bribery and blackmail, anti-money laundering legislation has a pivotal role to play against world crime and maintaining integrity in the financial system.

Money laundering and Pakistan

On the global stage, Pakistan is currently viewed quite negatively when it comes to anti-corruption, anti-bribery, anti-money laundering and countering of terrorist financing initiatives. For example, Pakistan fell three spots in Transparency International’s Corruption Perceptions Index for 2020. On a scale of zero (highly corrupt) to 100 (very clean), Pakistan was assigned a score of just 32, well below the global average of 43. Corruption begets other crimes including money laundering and bribery.

Rather than Pakistan developing, improving and maturing its anti-money laundering and anti-corruption capabilities over time, we continue to see the dwindling of Pakistan’s credibility and reputation with respect to its efforts to tackle money laundering and corruption issues in the country.

This has not gone unnoticed abroad, with a number of metrics similar to the Corruption Perception’s Index identifying Pakistan as a highly corrupt jurisdiction with a money laundering problem.

This results in Pakistan being viewed as an unattractive location to do business in South Asia. The same cannot be said for our neighbour India which continues to display progress which is very much welcomed by its international trading partners.

Also read: Pakistan’s archaic approach to addressing FATF mandates

This is not just an anecdotal perspective. The global money laundering and terrorist financing watchdog, the Financial Action Task Force (FATF), has publicised the shortcomings of the Pakistan anti-money laundering regime. As an international inter-governmental body established to set international standards that aim to prevent money laundering and terrorist financing, FATF works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.

FATF country evaluations are unbiased, systematic and carry a lot of weight. According to its most recent mutual evaluation of Pakistan, it viewed the country as falling short in meeting international legal and regulatory standards when it comes to combating money laundering and terrorist financing resulting in Pakistan’s economy, business and financial sectors being more vulnerable to money laundering and its associated crimes, leading to the reluctance of foreign direct businesses investing in the country.

India, on the other hand, has been in receipt of more positive evaluations from FATF and this has certainly assisted it in attracting foreign direct investment and greatly helped India become a bigger and more influential global economic player with each passing year. When looking at the Pakistani situation, this is both surprising and disappointing given that both countries share a lot of the same history and traditions.

Dulled perceptions

While working as a barrister, I am often mistaken for being Indian which is understandable as my name, Khan, is both an Indian and Pakistani name, but when I clarify that I am of Pakistani heritage, you can tell instantly that the perception held of Pakistan is very different to the perception held of India.

This perception has nothing to do with culture or geography. It is rooted in the international reputation that Pakistan currently has as a country with corrupt officials and widespread money laundering practices.

Through working in Western Europe and in the area of international anti-money laundering, counter terrorist financing and sanctions compliance over a number of years, I have seen the good, the bad and the ugly of money laundering, corrupt practices and high risk jurisdictions. Based on this experience, for Pakistan to progress to its next stage of growth, we need to improve our reputation through enhanced anti-money laundering and anti-corruption laws and enforcement.

Related: Why it’s important for Pakistan to get out of the ‘grey list’

Only through this can we see the type of foreign direct investment (and reputation) that India enjoys. However, also from experience, it takes a long time for a country to shake off a negative reputation of corruption and money laundering.

Pakistan’s international trade story can be more than just about sending bright and hardworking Pakistanis abroad to better the economies of their newfound lands. In a similar way to what happens in India, we need these expat Pakistanis to come back to Pakistan and to use what they have learnt back for Pakistan’s betterment. This is what happened with India where Indian direct business opportunities, key contacts and foreign direct investment to their native country, thereby creating employment and improving the domestic economy.

This is trend that cannot begin or improve without help. There needs to be reputable law and order, particularly when it comes to the prevention of financial crime like money laundering, so as to give confidence to overseas investors and business people for this type of investment to take place. This is where Pakistan continually falls short.

The loopholes cannot remain

But why does Pakistan, as an open and proud Muslim country, have a legal and regulatory regime falls short in the areas of money laundering, bribery and corruption? This is a difficult question to answer.

Tune in to Pakistani news and you will no doubt see the daily soap opera and theatrics of political parties arguing and pointing blame at each other about the shortcomings of our money laundering and corruption laws. The spectacular failings of the legal and enforcement system has gained unwanted international fame and now serves as a warning for other countries on the result of an ineffective anti-money laundering and anti-corruption regime.

Despite the court cases and regular news reports giving money laundering and corruption unprecedented attention in Pakistan, this will amount to a missed opportunity where there is no follow up and improvement in the country’s anti-money laundering and anti-corruption regime.

The legal deficiencies that existed for convicted government officials and others to exploit cannot remain. It should not be that the time where we see the required changes in our anti-money laundering compliance regime is when Pakistan is put under the global microscope by international bodies such as FATF, the World Bank and International Monetary Fund. Our own shortcomings highlighted domestically should be more than enough to prompt the required change. If not, other countries will use it to their advantage.

For example, India was one of a few countries that lobbied FATF to put Pakistan on its grey list (a naughty list which highlights countries that have poor anti-money laundering laws and record). FATF duly obliged and placed Pakistan on the grey list during June 2018 and asked Islamabad to implement a plan of action to curb money laundering and terror financing by the end of 2019. This the deadline was extended for a variety of reasons including the coronavirus pandemic.

In a recent statement, FATF urged Pakistan to complete an internationally agreed action plan before February 2021. The reputation of being on the grey list has aided the international perception of Pakistan as being corrupt, unstable and high risk to continue. To progress, we need to leverage globalisation that goes beyond taking out of expensive loans from Internationally Monetary Fund/World Bank and being dictated on how the Pakistani economy is to be managed.

Whatever side of the political spectrum you support, robust anti-money laundering and counter terrorist financing measures need to be a strategic part of Pakistan’s future with a very high pay-off.

Valuable time is being currently spent on political accusations and counter accusations regarding the perpetrators of money laundering and corruption crimes already committed. The blame game will only gain so much credibility and is not winning any admirers overseas.

This political gesturing needs to be replaced with constructive steps to strengthen our legal and regulatory system to ably combat money laundering and corruption in a meaningful and demonstrable way so that its practice can lead to national trust and international credibility.

Only then can Pakistan attract foreign direct investment through new legitimate channels and become a real party to the benefits of globalisation rather than its people being a high value commodity as the exploits of international trade and finance.

Sana Farooq Khan

Sana Farooq Khan is a Barrister-at-Law (BL), CAMS, CAMS-RM, CIPP/E,CIPM,CIPP/US, Fellowship in Privacy, LLM, BCL, Dip Risk & Regulations, Dip in Gaelic,. She is also an author and Lecturer-in-law. She can be reached on LinkedIn.