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MONEY
LAUNDERING
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MONEY LAUNDERING

• The word “laundry” literally means “cleaning”

• Metaphorically, money laundering refers to

“cleaning of money”

• Money laundering is recognized as a crime in

domestic law worldwide. It is also considered a
thought crime

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 MONEY
LAUNDERING
• ‘MONEY LAUNDERING‘ refers to any activity that
will transform illegally gained or untaxed funds
into legitimate capital.

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STATISTICS - MONEY LAUNDERING
• The International Monetary Fund and the World
Bank estimate that between $2 Trillion to $3 Trillion
is laundered around the world in each year.
• The United Nations recently estimated that the
criminal proceeds laundered annually amount to
between 2 and 5 percent of global GDP, or $1.6 to
$4 trillion a year.
• Government regulations and Law Enforcement
Agencies are able to detect and stop only $170
Million in money laundering activities annually, a
rate of less than 1 percent per annum.
STATISTICS - MONEY
LAUNDERING

• Pakistan: Estimate 10 billion $ money laundering

for each year.
• USA:$300 Billion.
• Brazil: $290 Billion.
• Chile: $270 Billion.
• Peru: $200 Billion.
• Mexico: $110 Billion.
• Ecuador: $70 Billion.
SOURCES OF ILLEGAL/BLACK
MONEY
Kidnapping
for Ransom Extortion
Fraud

Bribery
Smuggling & Corruption
Criminal
Activities

Robbery,
Prostitution Dacoity

Gambling & Counterfeiting

Speculation

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STAGES OF MONEY
LAUNDERING
 STAGES IN MONEY
LAUNDERING
1. Placement: Obtaining the money or introducing
it into the financial system in some way

2. Layering: Transferring or concealing the

source of the money through complex or
multiple transactions

3. Integration: Returning the money back into the

financial world so that it appears legitimate.
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CASE IN POINT

Mr.X is a dealer in
selling illegal He then trades into
firearms and has a
buyer who paid him
option from one of
in cash. these accounts and
Depositing huge cash from the proceeds
would be difficult for Layering he buys a property
him, so what can he , thereby
do? He sets up a real integrating the
estate company and He then transfers money and making
opens a bank account the money to it legitimate
to deposit small
amount of money so
many different
not to raise accounts in
suspicionsPlacemen various Integration
jurisdictions (
t with different
names).
WHAT IS THE AIM OF
THE ML?
Placemen
t Layerin
To push the
money
dirty into the
g Integratio
To disguise the
system through series
clean n
of small banking origin of funds To use the
for funding so the property, multiple money
transactions, legitimate
accounts in
to avoid (proceeds from options) for
different name set
suspicions conducting
up.
legitimate
Objective is to hide
transactions (buying
the audit trail of
a property)
the transactions
Hence, the aim of money launderer was to :
 To disguise the origin of the funds;
 To create a confusing audit trail so the authorities would find it hard to trace the
money ;and
 To use the money in an apparently legitimate transaction using apparently
legitimate funds.
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 CAUSES OF MONEY
LAUNDERING
• Absence of legislation

• Weak financial regulations

• Evasion of tax

• Bribery

• Corruption

• Failure of banks in detecting

laundered money 14
 CAUSES OF MONEY
LAUNDERING

• Increase in profits

• Nature of borders

• To make black money appear

white money

• Limited risks of exposure

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 ABSENCE OF LEGISLATION AGAINST
MONEY LAUNDERING

Absence of legislation against money laundering

give a free hand to criminals. Sometimes
governments itself is involved they do this to win
political rivals, to please their allies and to
strengthen their rule.

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 EVASION OF
TAX

Tax evaders launder money so that

they can lie about where money
and assets came from in order to
evade tax. And sometimes they
simply operate outside that part of
the economy where records are
kept.
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 EVASION OF
TAX
Laundered money is usually
untaxed, meaning the rest of us
ultimately have to make up the loss
in tax revenue. People who indulge
into money laundering do not
declare the funds to the tax
authorities. As a result taxes are not
paid for the ill-gotten funds. This
effectively reduces tax revenues for
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the governments and ends up
 INCREASE
PROFITS

When people have incentive

for more profit in any
particular area, such as in
production and trading of
drugs, arms, and across the
borders trade, they start
taking risk to earn higher
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profits.
 TO APPEAR BLACK MONEY LEGITIMATE
In money laundering, black
money usually becomes
legitimate after a series of
process. And less risk is
involved of being caught.
This doesn’t happen in other
economic crimes. So in order
to appear their money more
legitimate they go for money
laundering. 20
 LIMITED
RISKS

The availability of multiple

opportunities for personal
enrichment without the risk of
being exposed is another cause
of money laundering. Such
economic environments are
much more conducive to make
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black money.
 EFFECTS OF MONEY
LAUNDERING
The effects of money laundering are
socioeconomic in nature. Money laundering
affects the nation’s economy, as well as giving
rise to several social costs. It spoils the
strength of the economy by causing a
corrosive impact; on the other hand, it acts as
a social evil.
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 EFFECTS OF MONEY
LAUNDERING
• Economic impacts
• Vulnerable Emerging Markets

• Damage to the Private Sector

• Failure of Banks and Financial

Institutions

• Reputation

• Impact on Economic Policy

• Decline in Tax Revenues

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• Social impacts
 EFFECTS OF MONEY LAUNDERING
ON ECONOMY

Economic Distortion and

Instability:
Money launders "invest" their
funds in activities that are not
necessarily economically
beneficial to the country. They
redirect funds from sound
investments to low-quality
investments that hide their
proceeds, economic growth can 24
 MONEY LAUNDERING FACILITATES
CORRUPTION AND CRIME

Money laundering reduces

criminal’s cost of crime,
thereby increasing the
level of crime. Lax anti-
money- laundering
policies encourage the
criminal activities and 2/9/2017 25
 LOSS OF CONTROL ON
ECONOMIC POLICY

Some phases of money

laundering transactions are
"underground" or in the informal
sector of the economy, such
transactions do not appear in
official monetary and financial
statistics, thus giving misleading
information to policymakers and
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 UNDERMINING THE INTEGRITY OF
FINANCIAL MARKETS

Large sums of laundered money

may arrive at a financial institution
but then disappear suddenly,
without notice, This can result in
liquidity problems to financial
institutions. Indeed, criminal
activity has been associated with a
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number of bank failures around the
 EFFECTS OF MONEY
LAUNDERING ON SOCIETY

Increase In Criminal Activities:

Money Laundering allows drug
traffickers, smugglers, and other
criminals to expand their
operations. This drives up the cost
of government due to the need
for increased law enforcement
and health care expenditures (for
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example, for treatment of drug
CONCENTRATION OF POWER
TO CRIMINALS

• Among its other negative socioeconomic

effects, money laundering transfers economic
power from the market, government, and
citizens to criminals. As the economic power
is in the hands of criminals so they have a
corrupting effect on all elements of society. In
extreme cases, it can lead to the virtual take-
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over of legitimate government.
 UNDERMINES DEMOCRACY

The economic and political

influence of criminal
organizations can weaken
the social fabric, collective
ethical standards, and
ultimately the democratic
institutions of society.
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 EFFECTS OF MONEY
LAUNDERING ON BUSINESS
If funds from criminal activity can be easily
processed
through a particular business – either

because its employees or director shave

been bribed or because the institution turns

a blind eye to the criminal nature of such

funds – the institution could be drawn into

active complicity with criminals and

become part of the criminal network itself.

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Evidence of such complicity will have a 5
PAKISTAN’S POSITION REGARDING ANTI-
MONEY LAUNDERING
• Acts and Ordinances Passed of AML LawsLAWS
Uptil 2014

 The Control of Narcotic Substances Act of 1997

 National Accountability Ordinance of 1999

 Anti-Terrorism Act of 2002

 In 2010, the State Bank of Pakistan (SBP) passed the Anti-Money Laundering
Act. The Act thereby replaces the 2007 AML Ordinance.

 Oct 12 2013 Ordinance was passed (further amendments)

 The Financial Action Task Force (FATF) has given timeframe till June 2014 to
Pakistan to amend further the money laundering laws as well as Anti-
Terrorism Act to incorporate the content of the ordinance before the
February 2014 meetings.
 RECOMMENDAT
IONS
• Financial institutions should maintain, for at least five years, all
necessary records on transactions, both domestic or international, to
enable them to comply swiftly with information.

• Financial institutions should pay special attention to all complex,

unusual large transactions, and all unusual patterns of transactions,
which have no apparent economic or visible lawfulpurpose¨.

• If a financial institution suspects or has reasonable grounds to suspect

that funds are the proceeds of a criminal activity, or are related to
terrorist financing, it should be required, directly by law or regulation,
to report promptly its suspicions to the financial intelligence unit
(FIU). 33
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