UK lists Pakistan among top three money launderers

The United Kingdom's National Crime Agency (NCA) has listed Pakistan among the top three sources for money laundering in the United Kingdom.

The other two countries are Nigeria and Russia. The NCA report says that the UK is a prime destination for foreign corrupt and politically exposed people to launder money and has identified trade misinvoicing as one of the key mechanisms used for such operations.

The Daily Times quotes the NCA as saying in its annual assessment of serious and organized crime, that, "Investment in UK property, particularly in London, continues to be an attractive mechanism to launder funds.As the UK moves towards exiting the EU in March 2019, UK-based businesses may look to increase the amount of trade they have with non-EU countries.We judge this will increase the likelihood that UK businesses will come into contact with corrupt markets, particularly in the developing world, raising the risk they will be drawn into corrupt practices."

Trade misinvoicing is the largest component of illicit financial outflows from developing countries as measured by New York-based Global Financial Integrity (GFI) which tracks such flows.

Some key excerpts of the NCA report titled 'National Strategic Assessment of Serious and Organized Crime 2018' are as follows:

1. The UK is a prime destination for foreign corrupt PEPs (politically exposed persons, a euphemism for politicians and their family member) to launder the proceeds of corruption. Investment in UK property, particularly in London, continues to be an attractive mechanism to launder funds. The true scale of PEPs investment in the UK is not known, however the source countries that are most commonly seen are Russia, Nigeria and Pakistan?.

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

The NCA report says there are 'professional enablers from the banking, accounting and legal world? who facilitate the legitimisation of criminal finances and are perpetuate the problem by refinancing further criminality.

In fact, there is an entire industry made up of lawyers and accountants that offers its services to help hide illicit wealth. Mossack Fonseca, the law firm that made headlines with ?Panama Leaks?, is just one example of companies in this industry.

Mossack Fonseca's 11.5 million leaked internal files contained information on more than 214,000 offshore entities tied to 12 current or former heads of state, 140 politicians, including the Sharif family.

The report says: 'Trade based money laundering (TBML) is a complex global issue and a key method of money laundering impacting on the UK'.

It is not just greey politicians, unscrupulous businessmen and corrupt officials in developing countries who rely on fraudulent manipulation of trade invoices; all kinds of drug traders, terrorists and criminals also use TBML (trade-based money laundering).

Global Financial Integrity (GFI) defines trade misinvoicing as 'fraudulently manipulating the price, quantity, or quality of a good or service on an invoice submitted to customs' to quickly move substantial sums of money across international borders.

Here is how it works: Let's say an exporter in Pakistan exports goods worth USD 1 million to a foreign country and invoices it at USD 500,000 through an offshore middleman. The middleman invoices and collects USD 1 million from the end customer, sends USD 500,000 to Pakistan and deposits $500,000 in an offshore account. The result: Pakistan is deprived of the USD 500,000 in foreign exchange.

Similarly, imports of goods worth USD 1 million to Pakistan are over-invoiced at USD 1.5 million through an offshore middleman and the difference is kept in an overseas account. The result: Pakistan loses another USD 500,000 in foreign exchange. Meanwhile, Pakistani traders and the officials facilitating misinvoicing together pocket USD 1 million or 50 percent on the two trades. Pakistan?s trade and current account deficits grow and the foreign exchange reserves are depleted, forcing Pakistan to go back to the International Monetary Fund (IMF) for yet another bailout with tough conditions.

The Daily Times quotes Raymond Baker, author of Capitalism's Achilles Heel, as saying, "The Pakistan government's largest source of revenues is customs duties, and therefore, evasion of duties is a national pastime."

London is sometimes regarded as the 'Money Laundering Capital of the World? where corrupt leaders from developing nations use wealth looted from their people to buy expensive real estate and other assets. The multi-trillion dollar massive net outflow of money from the poor to the rich countries has been documented by the US-based Global Financial Integrity (GFI). This flow of capital has been described as 'aid in reverse'. It has made big headlines in Pakistan and elsewhere since the release of the Panama Papers and the Paradise Leaks which revealed true owners of offshore assets held by anonymous shell companies.