Drug trafficking and the black economy

by Huzaima Bukhari and Dr Ikramul Haq

June 26 is the International Day against Drug Abuse and Illicit Trafficking. It is being marked since the United Nations General Assembly decided upon it in 1987 to raise awareness global about the dangers of drug abuse, to prevent its spread and to encourage efforts to combat the menace at international level.

Successive governments in Pakistan have been providing money-laundering schemes, termed as economic measures, to bring black money into the mainstream. These schemes have proved highly beneficial to tax evaders, drug barons, extortionists and corrupt businessmen-turned-politicians. Even today, if anybody brings any amount of money (earned from drug trade, tax evasion or any other criminal activity) in a bank account through remittance, the tax authorities cannot question its source.

The criminals just go to a money exchanger, give him money in Pakistani rupees, and he arranges “remittance” (sic) by charging a small premium. All the criminal needs is a fake CNIC (Computerised National Identity Card); we have 30 million such cards, as has been admitted before Supreme Court. In this way, millions of rupees are recycled as white money.

Section 111(4) of the Income Tax Ordinance, 2001, actually facilitates money launderers to remit their ill-gotten money through banking channels and surrender the foreign currency to the State Bank and receive Pakistani rupees in return. In this way they can escape not only taxation but also any query from the FBR. This scheme presumably aimed at bringing huge foreign currency to Pakistan has succeeded immensely as foreign remittances coming close to $11 billion this year. Although this scheme has greatly increased inflow of foreign currency (which is just recycled untaxed money) but our tax-to-GDP ratio has nosedived. The criminals say that in the presence of this lucrative scheme – where one can whiten money by just paying 2 percent premium – only a “stupid” person would pay income tax. Section 111(4) of the Income Tax Ordinance has been widely abused by tax dodgers, drug syndicates and other criminals,including terrorists.

Due to such schemes having complete State patronage, the parallel economy is growing at an alarming rate of 22.93 percent per annum. It is estimated that every fifth rupee transacted in Pakistan is “black.” The volume of black money generated in 2009-10 was estimated at Rs3 trillion. A conservative estimate is that between Rs2 to 3 trillion is generated every year by the parallel economy, the share of illicit drug and arms trade in it is not less than Rs400 to Rs500 billion.

At the economic level, Pakistan, in addition, to rehabilitating drug addicts, also needs to spend more on anti-narcotic drives and monitoring. In 1998, the Drug Abuse Control Master Plan (1998-2003) was launched with the assistance of the United Nations Office on Drugs and Crime (UNODC) at an expenditure of Rs2.8 billion, out of which Rs1,920 million were for law enforcement and Rs912 million for drug demand reduction. However, out of the total estimated budget, only Rs185.837 million were actually spent. As usual, the plan was only partially implemented and the objectives too could not be fully realised. A revised Drug Abuse Control Master Plan (2007-2011) is now underway with the assistance of the UNODC. The master plan has two components: law enforcement and drug demand reduction.

In 2010, Pakistan had 4.6 million drug addicts. Drug dealers and addicts are also involved in smuggling and prostitution. Black economy has resulted in organised crime, which is different from normal criminal activities. How much drug money is channelled through and kept in Pakistani banks is a question which has yet not drawn the attention of law-enforcement agencies, especially the military-controlled Anti-Narcotics Force (ANF). Drug money has clear linkage with terrorists, but so far no effort has been made by any intelligence apparatus to unearth such connections. In the United States and many Western countries, comprehensive studies have been made to determine the quantum of laundered money and stringent laws have been enforced by governments to check this menace.

John Reed of Citigroup, said in his testimony before the Senate: “I am John Reed, chairman and co-chief executive officer of Citigroup. I appear today with Todd Thomson, who became the head of our Private Bank about ten days ago, and Mark Musi, the head of the Private Bank’s Compliance and Control Department. Unfortunately, Shaukat Aziz, who ran the Private Bank for the last two years and under whose leadership many of the improvements in our Private Bank’s anti-money laundering programmes took place, cannot participate in these hearings. Mr Aziz would really have been the most appropriate witness today, given his experience and knowledge, but as you know, he was called home to serve his country, Pakistan, as minister of finance. He left the bank on Oct 29. He asked me to submit his statement for the record, and it is attached to my own all financial institutions...whether banks, securities firms, or other types of financial intermediaries are potentially vulnerable to money-laundering.

“Private banks are just one subset of the potentially vulnerable institutions. Our Private Bank, for example, is a very small part of Citigroup, accounting for about 2.5 percent of Citigroup’s business. Private banks in general are no more and no less vulnerable to abuse by the unscrupulous and the dishonest than the much larger parts of most financial institutions.”

Most of the offshore banks are laundering billions of black money. All the big banks specialising in international fund transfer are called money centre banks, some of the biggest process up to $1 trillion in wire transfers a day. The most recent estimates (2010) are that 60 offshore jurisdictions around the world licensed about 4,000 offshore banks that control approximately $65 trillion in assets.

Money laundering and drugs-for-arms trades are ground realities. We daily hear from the official quarters in the US and elsewhere tall claims about war against drugs and terrorism. This is all eyewash. In reality all the financial institutions and state structures are subservient to these billionaires, the ruthless drug barons and arms suppliers, who know how to move money from one part of the world to another, buy government functionaries, control politicians, law-enforcement officials and get the profits they want from the drug trade – deals of death for many innocent people around the world.

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The writers specialise in studying global heroin economy and authors of Pakistan: From Hash to Heroin and Pakistan: Drug-trap to Debt-trap.

Source: The News