FeaturedInternationalVOLUME 16 ISSUE # 19

Will FATF help poor countries get back stolen money?

The UK government has added Pakistan to a list of 21 high-risk countries with unsatisfactory money-laundering and terror financing controls. Pakistan is already on the Financial Action Task Force (FATF)’s grey list for its “poor anti-money laundering prosecution. Ironically, poor countries, like Pakistan face action for ineffective anti-money laundering laws but action is not taken against rich countries, which benefit from the wealth.

Over 400 Pakistanis were named in the Panama Leaks, including former Prime Minister Nawaz Sharif, but rich countries refused to provide information about their offshore properties to the Pakistani government, so they could not be prosecuted and remained unpunished. The same is the case with Swiss accounts of Pakistanis. Poor countries remain poor because rich countries welcome and protect corrupt people, tax evaders and money launderers from countries, like Pakistan. Recently, Prime Minister Imran Khan called upon the international community to take steps to check illicit flows of money and return stolen money to developing countries, so that they could provide basic amenities to their people.

Undoubtedly, his demand will fall on deaf ears as rich countries fiercely protect the secrecy of people who launder money from poor countries to benefit their own people and economy. According to the UN High Level Panel on International Financial Accountability, Transparency and Integrity (FACTI Panel), poor countries around the world are robbed of billions of dollars through broad leakages in the balance of payments, fake trade invoicing, and dubious financial transfers every year. The money is stashed in tax havens of developed countries, which compounds the problems of poor people and leaves them at the mercy of heavy taxes, corruption and financial crime. The UN report says that more than $7 trillion in private wealth is hidden in haven countries and about 10pc of world GDP is held offshore. Governments lose $500 billion each year due to profit-shifting enterprises.

According to estimates, money laundering amounts to around $1.6 trillion per year, or 2.7pc of the global GDP. The UN panel includes former heads of state and government, central bank governors, business and civil society leaders and prominent academics from around all over the world. The panel called on governments to accelerate efforts to address tax abuse and corruption in global finance. “Corruption and tax avoidance are rampant. Too many banks are in cahoots and too many governments are stuck in the past,” says Dalia Grybauskaite, co-chair of the High-Level Panel on International Financial Accountability, Transparency and Integrity to Achieve the 2030 Development Agenda. The former President of Lithuania says: “We’re all being robbed, especially the world’s poor.”

According to a New York Times report, the Bahamas, the Cayman Islands, the Cook Islands, Dominica, Israel, Lebanon, Liechtenstein, the Marshall Islands, Nauru, Niue, Panama, the Philippines, Russia, St. Kitts and Nevis and St. Vincent and the Grenadines are potential havens for ill-gotten wealth. The list is the culmination of a decade-long effort to act against money-laundering centers. It was issued after United States and European officials grew concerned that bank secrecy and weak regulation in some nations contributed to the devastating financial turmoil in Asia and Latin America in the late 1990’s. Governments decided to pressure laundering centers in part because the sheer volume of transactions by drug cartels, mafias and corrupt officials has expanded dramatically, to at least $600 billion a year, United States officials said.

In a 2016 report, a Washington-based think tank estimated that since 1980, developing countries around the world had lost US$16.3 trillion through broad leakages in the balance of payments, fake trade invoicing, and dubious financial transfers. The study, jointly conducted by Global Financial Integrity (GFI) and Research Council of Norway, said developing countries had, over the course of more than three decades, served as net-creditors to the rest of the world as tax havens in developed countries played a key role in the transfer of unrecorded capital. The report estimated tax haven holdings believed to be from the developing world stood at US$4.4 trillion that in 2011. The figure has now risen to US$7 trillion. The tax havens are responsible for exacerbated inequality in developing regions around the world and also undermined good governance and economic growth, thereby paving the way for the rise of authoritarian regimes in some countries. The tax havens are directly responsible for stashing the wealth of criminals and money launderers.

Recently, journalists at Buzzfeed and the International Consortium of Investigative Journalists (ICIJ), which broke the Panama Leaks, unveiled a trove of secret government documents, showing many of the world’s largest banks and other financial institutions are moving trillions of dollars’ worth of suspicious transactions on behalf of drug cartels, money launderers and terrorist groups. They announced they had obtained a large cache of financial records that showed some of the biggest banks in the world have been hosting Ponzi schemes, moving money around for billionaire friends of Vladimir Putin, and providing services to known terrorist financiers and arms traffickers. “Thousands of secret suspicious activity reports offer a never-before-seen picture of corruption and complicity – and how the government lets it flourish,” observe the journalists who assessed and curated the leaked files. The files were reports collected from banks by the Financial Crimes Enforcement Network (FinCEN), the arm of the U.S. Treasury tasked with keeping tabs on and combating money laundering. One of the many examples shows how Standard Chartered Bank moved money on behalf of a Dubai-based business that was laundering cash on behalf of the Taliban, while another reveals how several major US banks, including JP Morgan Chase, Citibank and Bank of America helped process millions of dollars’ worth of transactions on behalf of a former city mayor in Kazakhstan who was wanted for arrest by Interpol for fraud and bribe.

The report also named 44 Indian banks and financial institutions, with hundreds of transactions flagged as “top-secret suspicious-activity-reports (SARs)” for money laundering, terrorism financing and financial fraud. The Indian banks figure in SARs linked to over 2,000 transactions valued at over $1billion between 2011 and 2017. The banks included: state-owned Punjab National Bank (290 transactions); State Bank of India (102); Bank of Baroda (93); Union Bank of India (99) and Canara Bank (190). Among private banks which figure in the SARs are HDFC Bank (253 transactions); ICICI Bank (57); Kotak Mahindra Bank (268); Axis Bank (41) and IndusInd Bank (117). The foreign banks that have filed the SARs include Deutsche Bank Trust Company Americas (DBTCA), BNY Mellon, Citibank, Standard Chartered and JP Morgan Chase. Foreign branches of Indian banks were used by clients for the transactions.

On the other hand, six Pakistani banks were identified for suspicious transactions for close to $2.5 million. About 29 suspicious transactions of Pakistani banks took place between 2011 and 2012. It is ironic that Pakistan is on the Financial Action Task Force’s grey list because of India’s lobbying. Its $2.5 million suspicious transactions are negligible as compared to India’s over $1billion. It shows the double standard of the world powers and institutions. Besides taking action against Pakistan, the FATF should also provide information about Pakistanis, who laundered money from the country, and help it get back the ill-gotten money from rich countries.

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