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Assignment No:1

Subject:
​Pakistan Studies

Topic:
​ Money laundering

Submitted by:
Zonera Marriam
F20NENLT1M01121
BS English (1st semester)

Submitted to:
​Sir Faraz Shafique
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Table of contents:

SR no. Topic Page no.

1: Definition of money laundering 3

2: Money laundering variants 3

3: How money laundering is done 4

4: Crisis due to money laundering 7

5: How to prevent money laundering 8

6: Laws against money laundering in Pakistan 10

7: Conclusion 11
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Money laundering
Money laundering is the illegal process of concealing the origins of money
obtained illegally by passing it through a complex sequence of banking
transfers or commercial transactions. The overall scheme of this process
returns the "clean" money to the launderer in an obscure and indirect way.

Money laundering is the illegal process of making large amounts of money

generated by a criminal activity, such as drug trafficking or terrorist funding,robbery
,arm dealing , kidnapping appear to have come from a legitimate source. The money
from the criminal activity is considered dirty, and the process "launders" it to make it
look clean.

Money laundering is a serious financial crime that is employed by white collar and
street-level criminals alike.​ Most financial companies have anti-money-laundering
(AML) policies in place to detect and prevent this activity
.
Money laundering is essential for criminal organizations that wish to use illegally
obtained money effectively. Dealing in large amounts of illegal cash is inefficient and
dangerous. Criminals need a way to deposit the money in legitimate financial
institutions, yet they can only do so if it appears to come from legitimate
sources.Money laundering is occurring from old times by self transfer of money to
other countries as ​hawala and Hindi .

Money laundering variants:

● Smurfing
In smurfing the criminal breaks up large chunks of cash into multiple small
deposits, often spreading them over many different accounts, to avoid
detection.
● Currency exchange:
Sometimes they conceal their money by exchanging into foreign currencies‫۔‬
.They open their bank accounts in other countries which do not share
information with their country . In this way they save their lottery money.
● Shell companies:
Shell companies are those companies who are on paper only​. These
companies are not made for the purpose of business but for the purpose of
concealing money earned through illegal ways. These companies are shown
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to the government and taxes are paid but in actual these companies do not
do any type of business they are made for the purpose of money laundering.
A certain amount of money is paid as tax and the money lenders enjoy the
rest of illegal money as legal money.
● Electronic Money Laundering:
The Internet has put a new spin on the old crime. The rise of online banking
institutions, anonymous online payment services and peer-to-peer (P2P)
transfers with mobile phones have made detecting the illegal transfer of
money even more difficult. Moreover, the use of proxy servers and
anonymizing software makes the third component of money laundering,
integration, almost impossible to detect—money can be transferred or
withdrawn leaving little or no trace of an IP address.

Money can also be laundered through online auctions and sales, gambling
websites, and virtual gaming sites, where ill-gotten money is converted into
gaming currency, then back into real, usable, and untraceable "clean" money.

The newest frontier of money laundering involves ​cryptocurrencies​, such as

Bitcoin​. While not totally anonymous, they are increasingly being used in
blackmail schemes, the drug trade, and other criminal activities due to their
relative anonymity compared with more conventional forms of currency.

How money laundering is done:

Money laundering is done in three stages; placement, layering and integration.
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1:Placement:
This is the movement of cash from its source. On occasion the source can be
easily disguised or misrepresented. This is done placing money into
circulation through financial institutions, casinos, shops and other businesses,
both local and abroad.
The placement stage represents the initial entry of the "dirty" cash or
proceeds of crime into the financial system.

Generally, this stage serves two purposes:

(a) it relieves the criminal of holding and guarding large amounts of bulky of
cash; and
(b) it places the money into the legitimate financial system

It is during the placement stage that money launderers are the most
vulnerable to being caught. This is due to the fact that placing large amounts
of money into the legitimate financial system may raise suspicions of officials.

Ways to do placement:
Currency Smuggling
Bank Complicity Currency Exchange
Gambling
Asset purchasing
Loan Repayments
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2: Layering:
Layering is essentially the use of placement and extraction over and over
again, using varying amounts each time, to make tracing transactions as hard
as possible.
The layering stage is the most complex and often entails the international
movement of the funds.The primary purpose of this stage is to separate the
illicit money from its source.This is done by the sophisticated layering of
financial transactions that obscure the audit trail and sever the link with the
original crime.

During this stage, for example, the money launderers may begin by moving
funds electronically from one country to another, then divide them into
investments placed in advanced financial options or overseas markets;
constantly moving them to elude detection; each time, exploiting loopholes or
discrepancies in legislation and taking advantage of delays in judicial or police
cooperation. Usually they put money in those countries which do not share
information with their respective countries to hide the money trail. In this way if
a person is caught he money is secure because the country can not prove
him guilty because the country do not share information with that country

Methods of layering are:

Cash converted into money instruments.
Material assets bought with cash then sold.

3: Integration:

The final stage of the money laundering process is termed the integration
stage.
It is at the integration stage where the money is returned to the criminal from
what seem to be legitimate sources.Having been placed initially as cash and
layered through a number of financial transactions, the criminal proceeds are
now fully integrated into the financial system and can be used for any
purpose.

There are many different ways in which the laundered money can be
integrated back with the criminal; however, the major objective at this stage is
to reunite the money with the criminal in a manner that does not draw
attention and appears to result from a legitimate source.
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For example, the purchases of property, art work, jewelry, or high-end
automobiles are common ways for the launderer to enjoy their illegal profits
without necessarily drawing attention to themselves.

​ ethods of integration:
M
Property Dealing
Foreign bank complicity
False import/export

Crisis due to money laundering:

There is a large number of money laundering crises. Pakistan went to the IMF 6
billion dollars per year and the total amount of money laundered in one year is 10
billion dollars. If the money e which is laundered from Pakistan isn't laundered then
Pakistan didn't have to go to the IMF. IF we overcome money laundering the
financial insecurity of Pakistan is overcomed.

1:Economic Distortions:

Money laundering impairs the development of the legitimate private sector

through the supply of products priced below production cost, making it
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therefore difficult for legitimate activities to compete. Criminals may also turn
enterprises which were initially productive into sterile ones to launder their
funds leading ultimately to a decrease in the overall productivity of the
economy. Furthermore, the laundering of money can also cause
unpredictable changes in money demand as well as great volatility in
international capital flows and exchange rates.

2:Erosion of Financial Sector:

While the financial sector is an essential constituent in the financing of the

legitimate economy, it can be a low-cost vehicle for criminals wishing to
launder their funds. Consequently, the flows of large sums of laundered funds
poured in or out of financial institutions might undermine the stability of
financial markets. In addition, money laundering may damage the reputation
of financial institutions involved in the scheming resulting in a loss in trust and
goodwill with stakeholders. In worst case scenarios, money laundering may
also result in bank failures and financial crises.

3:Reduction in Government Revenue:

Money laundering also reduces tax revenue as it becomes difficult for the
government to collect revenue from related transactions which frequently take
place in the underground economy.

4:Socioeconomic Costs:

The socio-economic effects of money laundering are various because as dirty

money generated from criminal activities are laundered into legitimate funds;
they are used to expand existing criminal operations and finance new ones.
Further to that money laundering may lead to the transfer of economic power
from the market, the government and the citizens to criminals, abetting
therefore crimes and corruption.

How to prevent money laundering?

I don’t understand why in this age they have safe havens - why are we
protecting even rich countries, and why we protect these people who avoid
taxes and why there is so much greed. We are being plundered by these ruling
elites simply because there is nothing to stop them,”
(PM Imran khan)
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Governments around the globe have been very keen on their Anti-Money Laundering
regimes. Below are the AML measures that governments take to reduce money
laundering:
● Regulations regarding the report of cash transactions more than the minimum
threshold. Real-estate agents are supposed to report the transaction if the
person has made the transaction in cash and the amount is more than the
minimum threshold.
● Eliminate anonymous registrations of companies and trusts and bank
accounts - actual beneficial owners must be shown

● Extend requirements to check for money laundering from banks to all cash
transactions, including and especially real estate .
Prime minister Imran khan gave following suggestions to prevent money laundering
in UN general assembly :
● The stolen assets of developing countries, including proceeds of corruption,
bribery and other crimes, must be returned immediately

● The stories in haven destinations must impose criminal and financial penalties
on their financial institutions which receive and utilise such money and assets

● The enablers of corruption and bribery such as accountants, lawyers and

other intermediaries must be closely regulated, monitored and held
accountable

● The beneficial ownership of foreign companies must be revealed immediately

upon inquiry by the interested and affected governments

● Multinationals corporations must not be allowed to resort to profit-shifting to

low-tax jurisdictions for avoiding taxation. A global minimum corporate tax
could prevent this practice

● Revenues from digital transactions should be taxed where the revenues are
generated, not elsewhere

● Unequal investment treaties should be discarded or revised, and a fair system

for adjudication of investment disputes set up

● All official and non-official bodies set up to control and monitor illicit financial
flows must include all the interested countries
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● The UN should set up a mechanism to coordinate and supervise the work of
the various official and non-official bodies dealing with illicit financial flows to
ensure coherence, consistency and equity in their work.

Laws in Pakistan to counter money

laundering:
● Control of Narcotic Substances Act of 1997:
The Control of Narcotic Substances Act of 1997, which also requires the
reporting of suspicious transactions to the ANF, contains provisions for the
freezing and seizing of assets associated with narcotics trafficking, and
establishes special courts for offenses (including financing) involving illegal
narcotics.

● National Accountability Ordinance of 1999:

The National Accountability Ordinance of 1999, which requires financial
institutions to report suspicious transactions to the NAB and establishes
accountability courts.

● Anti-Terrorism Act of 2002:

The Anti-Terrorism Act of 2002, which defines the crimes of terrorist finance
and money laundering and establishes jurisdictions and punishments
(amended in October 2004 to increase maximum punishments).

● 2007 Pakistan enacted the AML Ordinance:

In 2007 Pakistan enacted the AML Ordinance, establishing regulations for
AML and combating the financing of terrorism and criminalizing money
laundering. Under the Ordinance, the Financial Monitoring Unit (EMU) is
created. The FMU serves as Pakistan's FIU and is in charge of handling
Suspicious Transaction Reports (STRs).

● Anti-Money Laundering Act:

In 2010, the SBP passed the Anti-Money Laundering Act, replacing the 2007
AML Ordinance
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Conclusion:
● Money laundering is the process of concealing money e obtained from illegal
sources through various processes.
● Now- a-days money laundering is the biggest problem in the way of financial
stability of developing countries. This makes poor countries more poor and
richer b ones more rich.
● Money laundering is the biggest hurdle in the way of stable economic
structure in Pakistan.If money laundering is stopped Pakistan will become
financially stable.
● Every country in the world should have Strict laws against money laundering
in order to stop it and the world have to co-corporate with each other to
eliminate this.And the world organisations have to take strict actions against
those countries which are protecting money launderers.