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The selective criteria of the Financial Action Task Force (FATF) in listing countries with strategic deficiencies are the main hurdles in curtailing the movement of illegal flow of funds.

The jurisdictions that absorb the higher share of ill-gotten money are the key members of the FATF. The Financial Secrecy Index 2020 listed the top 10 major financial secrecy destinations. The top three secrecy havens are the Cayman Islands, United States (US), and Switzerland. The US is a founding member of FATF. As per the Index’, “US overtakes Switzerland in the global ranking of financial secrecy hotbeds, Cayman leaps over to the top of the index”.

The Index further highlights that the Cayman Islands increased its financial secrecy by 24% and moved it to the top on the list in 2020 as compared to the rating of 2018. Similarly, the US has maintained its position whereas Switzerland now ranks third on the Index.

The United Kingdom (UK), another founding member of FATF, has increased financial secrecy as compared to any other country. Similarly, other major secrecy jurisdictions are Hong Kong, Singapore, Luxembourg, Japan, the Netherland, the British Virgin Islands (BVI) and the United Arab Emirates (UAE).

The painful fact is that despite being known as offshore havens to facilitate those having questionable wealth, these countries have never been subjected to the strict scrutiny or listed as countries with strategic deficiencies.

The quantum of illicit money injected in these countries in different sectors is greater than even the annual budget of most countries.

Canada, another founding member of FATF, is also struggling to fight against the movement of illicit funds. The International Narcotics Strategy Report (INCSR 2019) highlights that illegal drug trafficking, fraud, corruption, counterfeiting, piracy, tobacco smuggling, and human trafficking as the main sources of money laundering in Canada. The INCSR 2019 further highlights that the Canadian drug market is the largest criminal market and money launderers use cash smuggling, currency exchanges and money services businesses (MSBs), casinos, real estate, wire transfers, offshore corporations, credit cards, foreign accounts, funnel accounts, hawala/hundi networks, and digital currency to transport their illegal proceeds.

Similarly, Better Dwelling in their report referring to the Global Financial Integrity (GFI) data, states that from 2015 to 2020 the Canadians have approximately laundered US$ 626.3 million in cash to buy real estate.

The GFI further reports about the US that more than US$2.3 billion has been laundered through its real estate market, including millions more through other alternate assets like art, jewelry, and yachts.

National Crimes Agency (NCA) estimates that the volume of money laundering in the UK is around £150bn every year. The major chunk includes property purchased by offshore companies. The Guardian claims that the NCA has expanded its use of unexplained wealth orders to freeze several multimillion-pound homes in the capital while it investigates how the money used to buy them was obtained.

In one case, NCA seized a £50m worth house overlooking Hyde Park from a Pakistani. Transparency International (TI) insisted that UAE “need to clean up its real estate sector in Dubai”. Moreover, as offshore haven with strict secrecy laws, shell companies treat Hong Kong as the easiest place to launder their funds. South China Morning Post (SCMP), in a story, highlighted that more than 20 shell companies laundered HK$880 million (US$113.5 million) in 11 months.

The Organized Crime and Corruption Reporting Project (OCCRP) in their report, quoting the Federal Money Laundering Reporting Department of Switzerland (MROS) figures, reported in its annual report for 2020 that an amount of CHF12.9 billion (US$13.2 billion) originated from suspected fraud and corruption offenses—around 60% of this belonged to people from abroad.

Now keeping in view Panama Papers or Pandora Leaks, the secrecy jurisdictions accommodating wealthy individuals without disclosing their information are Panama, Cayman Islands, BVI, US, and Switzerland. Bloomberg in their story reported that roughly US$5 trillion to US$32 trillion are parked in offshore havens. Due to strict secrecy laws, the process of seeking information about individuals involved in money laundering-related activities is complicated.

The process of Mutual Legal Assistance is always compromised due to secrecy provisions. Moreover, these requests are entertained based on credible evidence of money laundering (ML) and terrorist financing (TF). Similarly, Swiss law provides legal remedies to affected persons if they are aggrieved with the treatment of their assets. Most countries with strict secrecy laws seek court order to provide access to any person with questionable wealth. Therefore, to approach the authorities to seek information about any individual named in money laundering must be supported with credible evidence.

Recently Pandora Leaks and earlier Panama Papers disclose the names of Pakistan’s wealthy individuals. There have been more than 700 politicians, businessmen, media house owners, bureaucrats, and former army personnel from Pakistan, who are allegedly maintaining offshore establishments.

Pandora Leaks has unveiled the hypocritical face of Pakistan’s political and military establishments that have always been preaching accountability, transparency, and stresses the importance of paying taxes—however, now caught red-handed in an alleged attempt to avoid taxes.

In the above scenario, the question is that despite disclosure of the names in these leaks, whether Pakistan’s law enforcement agencies (LEAs) are serious about the return of money parked offshore by these powerful individuals. Are Pakistan’s agencies competent enough to figure out individuals named in the leaks who have made their fortune through corrupt practices? Are the decisions of the courts in Pakistan worthy enough to convince foreign jurisdictions for their co-operation?

(To be continued tomorrow)

(Huzaima Bukhari and Dr Ikramul Haq, lawyers and partners of Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS), members Advisory Board and Visiting Senior Fellows of Pakistan Institute of Development Economics (PIDE). Abdul Rauf Shakoori is a corporate lawyer based in the USA and an expert in ‘White Collar Crimes and Sanctions Compliance’. They have recently coauthored a book, Pakistan Tackling FATF: Challenges and Solutions)

Copyright Business Recorder, 2021

Abdul Rauf Shakoori

The writer is a corporate lawyer based in the USA and an expert in White Collar Crimes and Sanctions Compliance. He has written several books on corporate and taxation law in Pakistan. He can be reached at [email protected]


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