Money Laundering: A Boon Yesterday, a Bane Today
By Masood H Kizilbash
Islamabad, Pakistan
The menace of money laundering by the rich and powerful elite practiced for decades was facilitated by the “Openness” policy dished out and imposed by the international community for free flow of goods, services and financial transactions.
In order to doubly benefit from the policy, a mechanism of off-shore havens was created by the developed world on their administered territories so that the financial flows of shady origin could also be funneled for investment on their main-lands. At the same time, the policy helped recycle some of the foreign loans and aid illegally acquired by the ruling elites in commissions and kick-backs on the public contracts, tax evasions and outright graft to find its way through the apparatus, ingeniously put in place.
The outflows of foreign exchange outstripping the inflows under the system created twin deficits on fiscal and current account in the Third World. In order to meet the crisis and run the economy, the ruling elites went all out to contract new loans from the international financial organizations and developed countries with harsh conditions attached. The conditions boiled down to submitting to their diktats to manage the economy in the interest of lenders. Some of the right-minded leaders raised their voice at various forums including the United Nations to invoke assistance of the developed world to help recover ill-gotten wealth escaping their countries.
As the system promoted corruption and money laundering in the Third World, some of the international organizations woke up to combat the menace. The United Nations Convention against Corruption was the first serious measure to come into effect on 14th December, 2005. The Convention, promoted by the UN office on Drugs and Crime, binds member countries to implement several anti- corruption measures including money laundering.Earlier, the Financial Action Task Force- an inter-governmental organization- was founded in 1989 to combat money-laundering and its scope was expanded in 2001 to include terrorism financing. The World Bank took various measures to fight corruption in the World-Bank financed projects and went on to start the Stolen Asset Recovery Initiative (STAR) in partnership with the UN office on Drugs and Crime (UNODC) on 17th September, 2007 to eliminate safe havens for corrupt funds, to prevent the laundering of the proceeds and to facilitate the return of stolen assets. The International Monetary Fund started taking similar steps from the year 2000 to expand its work in the area of money laundering and abuse of offshore financial centers. The burden of the implementation of these measures was placed on the Third World countries and not on the recipient countries.
The Panama Papers leaked on 4th April, 2016 from the database of the world’s fourth biggest offshore law firm, namely Mossack Fonseca in Panama, revealed the magnitude and extent of money laundering by the rich and powerful elite mopped up in bribes, commissions, kickbacks and tax evasion. At the same time, the leaks helped establish a direct link between the laundered money in the developed world and its use for the stepped -up terrorist activities in the West. The exposure awakened the international community to hold an anti-corruption summit in London in May, 2016. A 32- point Communique’ was issued on 12th May, 2016, declaring that “we need to face this challenge openly and frankly to fulfill our shared commitments under the 2030 Agenda for Sustainable Development” to substantially reduce corruption and bribery in all their forms and “strengthen the recovery and return of stolen assets.” Several commitments were made for implementation including the recommendations of the Financial Action Task Force on Transparency and Beneficial Ownership of Legal Persons and Arrangements, international standards on transparency, prevention of flow of illicit funds, scrutiny of public contracting including the government budgets, High Level Principles on Fiscal Transparency set out by the Global Initiative for Fiscal Transparency ( GIFT), the OECD Convention on the Bribery of Foreign Public Officials in International Business Transactions, etc.
The countries in the European Union have suffered the most from terrorism. Once a linkage of its financing source was established, the EU adopted new rules to prevent money laundering and terrorist financing. In July, 2016, the European Commission proposed further tightening of the framework following the Panama Papers revelations. The proposals aimed at tightening the EU rules to tackle money laundering, tax avoidance and terrorism financing and were put into effect on 26th June, 2017 after their approval by the parliament. Similarly, the government of UK passed the Criminal Finances Act 2017 which came into effect on 30th September, 2017. The Act empowers seizure of the property and assets of politically exposed persons from outside the European Economic Area or someone reasonably suspected of involvement in serious crime and cannot establish acquisition of asset from legal money.The Act also provides that the burden of proof for acquisition of the assets from legitimate sources of the funds will squarely lie on the accused.
The international community was trigger-happy with their “openness” policy for the benefit of the developed world for decades but came heavy on it when it started hurting them. Meanwhile, during the decades the ruling elites in the Third World kept on looting the wealth of their countries with impunity and stashed it in the developed world. It spawned poverty, deprivation and breakdown of law and order in the Third World. This gave birth to extremism and terrorism which crossed from national boundaries into boundaries of the developed world to create global instability. The lesson is that a policy which suits the North at one point of time is reversed at another point of time if it turns pernicious for the North.
(The writer is a former Joint Chief Economist, Planning Commission, Government of Pakistan, Islamabad. - masood _kizilbash@hotmail.com)
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