EDITORIAL: An Asian Development Bank (ADB) report revealed that Pakistan’s monthly trade-based money laundering (TBML) related suspicious trade reports (STR) volume has increased, on average, by 398 percent from July 2023 to June 2024.
The data was provided by Pakistan’s Financial Monitoring Unit (FMU), with participation from 10 of the largest banks out of a total of around 40, under a pilot project conducted by ADB Trade and Supply Chain Finance Programme that introduced new data, training and collaboration in four other countries, including Bangladesh that registered a 143 percent increase.
The FMU identified five commodities linked to suspicious trade: solar panels, textiles, chemicals, rice and industrial equipment and concluded that the TBML could be used by criminals to move contraband such as illegal drugs across borders with the activity disguised as related to goods linked to legitimate trade.
It is relevant to note that the Financial Action Task Force (FATF) website identifies three main methods by which criminal organisations/terrorist financiers move money to disguise its origins and integrate it into the formal economy: (i) use of the financial system which was facilitated through extending immunity and allowing freedom to all Pakistani nationals to bring, hold, sell, transfer and take out foreign exchange within or out of Pakistan in any form without being required to make a foreign currency declaration; (ii) physical movement of money example through cash couriers that are not only part of our history but needless to add the outcome after the then Finance Minister decided to artificially control the rupee-dollar parity (late 2022 till the first half of 2023) was multiple exchange rates that prompted the Pakistani remitters to re-energise the illegal hundi-hawala system that had all but vanished during the Covid lockdown; and (iii) physical movement of good through trade system. The FATF acknowledges that it has focused on the first two in recent years but largely ignored the last one which no doubt is now a source of concern to the international community.
FATF further notes that trade-based money laundering “is defined as a process of disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimise their illicit origins.
In practice, this can be achieved through the misrepresentation of price, quantity or quality of imports or exports.
Moreover, trade-based money laundering techniques vary in complexity and are frequently in combination with other money laundering techniques to further obscure the money trail.“
International Finance Corporation website highlights the 8.7 trillion dollars gap between developing and advanced economies exports and imports declarations between 2008-17 (a study undertaken by think tank Global Financial Integrity) – a gap that provides an approximate extent of TBML in the global economy and indicates loss of tax and customs revenues to trade mis-invoicing and undermines private sector opportunities and public sector domestic revenue mobilisation.
And the World Bank website argues that “as the controls for preventing the traditional methods for money laundering and terrorism financing have become more effective, criminals have developed more complex and sophisticated schemes involving the use of the international trade system.”
The IMF has so far not uploaded any TBML-specific study or policy decision on its website yet it is fairly obvious that with the ongoing harmonization between FATF and all donor multilaterals as well as major Western countries failure to check the scale of TBML would surely become a loan condition for all multilaterals.
And, additionally, given Pakistan’s current economic impasse we can ill-afford loss of revenue through a flourishing TBML.
The time for action is now and one can only hope that this time around the country can take mitigating measures now instead of waiting for donor agencies and bilaterals to stipulate this as a condition for a loan.
Copyright Business Recorder, 2024
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