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Implications of money laundering

Implications of money laundering

According to a report released by International Narcotics Control Strategy of the US State Department, money laundering is a global phenomenon in which corrupt elements are involved not only from developed but also developing countries. It says that hundreds of billions of dollars are sneaked out of various countries every year through trade-based money laundering schemes and the illicit practice is especially rampant in China, Russia, Mexico and India. The four countries have emerged as the top sources of illicit financial outflows in the world. The illegal money is mostly generated by avoidance of taxes, bribery and smuggling of narcotics and other contraband items. Pakistan also loses over $10 billion a year in trade based money laundering. At least 33 percent of the country’s population lives below the poverty line but various mafias have sprung up to collect money through illegal means and invest the same in offshore companies. Taking advantage of the situation, many countries offer lucrative business and invest opportunities for corrupt elements one of which is United Arab Emirates where Indian and Pakistani officials and businessmen have invested billions of dollars in real estate sector.

The report reveals that trade-based money laundering is the latest method which is being used to whiten the black money. The trade and the currency mafia are there to offer services to the corrupt elements to safely transfer and stash money abroad by dodging the cumbersome legal procedures and government agencies. It is the dilemma of some developing countries that the governments have failed to set up financial institutions to regulate the money in a proper manner. India has emerged as the fourth largest source of illicit money in the world where the rural sector lacks formal financial institutions. This resulted in the emergence of informal financing networks. A study by the Global Financial Integrity reveals that China loses $139 billion, Russia $104 billion, Mexico $52 billion, India $51 billion and Pakistan $10 billion annually. Despite the presence of US forces on the Afghan soil, the country is known as the largest opium producer and exporter in the world where corruption is not a myth but reality. Due to lack of the writ of the Kabul government in various parts of the country, insurgency simmers, cash smuggling is easy and production and export of narcotics are a routine affair.

With regard to Pakistan, which is an emerging economy, the government should introduce investment policies to stop capital flight. Keeping in view the situation of China, Russia and other countries, where the governments have made tough laws to curb illegal practices, it is a lesson for Pakistan to provide legal ground to corrupt elements to keep their money within the country. Otherwise, it is difficult to stop capital flight.