Money Laundering Current Affairs - 2020

Pakistan named among top 3 sources for money laundering in UK

United Kingdom’s National Crime Agency (NCA) in its report has listed Pakistan among top three sources for money laundering in the country. The other two countries are Nigeria and Russia. The NCA is non-ministerial UK government law enforcement agency.

Key Highlights of NCA report

UK is prime destination for foreign corrupt and politically exposed people (PEPs) to launder money. It has identified trade misinvoicing as one of the key mechanisms used for such operations. Investment in UK property, particularly in London, continues to be attractive mechanism to launder funds.

The true scale of PEPs’ investment in UK is not known, however source countries that are most commonly seen are Russia, Nigeria and Pakistan. Small number of UK-based professional enablers, such as accountants, solicitors, estate agents and trust and company service providers, assist such corrupt individuals in laundering their money.

The overseas jurisdictions that have most enduring impact on UK across majority of different money laundering threats are Russia, China, Hong Kong, Pakistan, and United Arab Emirates (UAE). Some of these jurisdictions have large financial sectors which also make them attractive as destinations or transit points for proceeds of crime.

There may be also increase in Brexit-related spike in corrupt activities between UK and countries outside European Union (EU). Due to this, UK businesses will come into contact with corrupt markets, particularly in developing world, raising risk they will be drawn into corrupt practices.

Trade misinvoicing

It is a form of trade-based money laundering.  It is deliberately misreporting value of commercial transaction on invoice submitted to customs officials. This practice is adopted by traders to transfer money illicitly to foreign countries or in other words to keep their money in foreign accounts. It is largest component of illicit financial outflows measured by Global Financial Integrity.

Pakistan admits being added grey list of FATF

Pakistan has confirmed that it will be added on ‘grey list’ of the Financial Action Task Force (FATF) in June 2018, once an action plan is mutually negotiated. But it has disputed claims of being put on ‘black list’ from ‘grey list’, which are mainly non-cooperative countries. Earlier, Pakistan was on the FATF grey-list from 2012 to 2015.

Background

In February 2018 plenary session of FATF, US, UK, Germany and France had pushed for putting Pakistan on grey list for its ineffectiveness to deal Islamist terrorists especially Haqqani Network and its facilitators. FATF had decided to put Pakistan back on “grey list,” subjecting it to direct monitoring and intense scrutiny by the International Co-operation Review Group (ICRG) on terror financing, pending further review in June 2018. The FATF decision was by consensus, after days of closed-door discussions within the 37-member group.

Impact of Grey-listing

It will endanger Pakistan’s handful of remaining banking links to t outside world, causing real financial pain to the economy. It will squeeze Pakistan’s economy and make it harder to meet its mounting foreign financing needs, including potential future borrowings from International Monetary Fund (IMF). It will lead to downgrading of Pakistan’s debt ratings by international banking and credit rating agencies, making it more difficult to tap funds from international bond markets. It will also suspend international funds and aid to Pakistan such as Coalition Support Funds (CSF), money which US owes to Pakistan for military operations.

Financial Action Task Force (FATF)

FATF is an inter‐governmental policy making body that aims to establish international standards for combating money laundering and terrorist financing. It was established in 1989 during the G7 Summit in Paris (France) to combat the growing problem of money laundering.

It comprises over 39 member countries including India. FATF Secretariat is housed at the headquarters of the OECD in Paris. Initially, FATF was only dealing with developing policies to combat money laundering. But in 2001 its purpose was expanded to act against terrorism financing.

Mandate

FATF set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to integrity of international financial system.

Functions

  • Set international standards to combat money laundering and terrorist financing.
  • Assess and monitor compliance with the FATF standards.
  • Conduct studies of money laundering and terrorist financing methods, trends and techniques.
  • Respond to new and emerging threats, such as proliferation financing used for promoting proliferation of nuclear, chemical and biological weapons.