he prevention of money laundering has become an international effort. Money laundering is the act of turning large amounts generated from criminal activities into lawful assets. The money from criminal activities is considered dirty; the laundering process makes it appear clean. Criminals deposit money in legitimate financial institutions to make it look as if it comes from legitimate sources.

Money laundering is the process of concealing the origin of money obtained from illicit activities like drug trafficking, bribery, embezzlement, corruption, fraud and gambling. It also involves disguising financial assets so that they can be used without detection of the illegal activities that produced them. Under Section 3 of the Anti-Money Laundering Act, 2010, money laundering means acquiring, converting, possessing, using or transferring property by a person knowing or having reason to believe that such property is the proceeds of crime. It also includes holding or possessing property on behalf of another person knowing or having reason to believe that such property is the proceeds of crime.

The purpose of money laundering is to introduce illicit funds into the financial system under the guise of clean money, allowing the criminal to use it without attracting undesirable attention from authorities. The transfer of money is made by the criminal through apparently legal sources. In the past, money laundering was confined to financial transactions related to organised crime. It now covers all financial transactions that generate assets as a result of illegal gain.

When money is not dirty, there is no need to launder it. Cash illegally earned from drug trafficking, tax evasion and false accounting is laundered through highly cash-intensive businesses such as restaurants and real estate, where illegal cash mingles with business cash before deposit, disguising the true origin of the wealth.

Most criminals use three stages for money laundering. In the first stage, the illegal funds are placed into the financial system directly or indirectly. The second stage is layering, which involves separating illicit money from its source and creating layers of transactions that confuse auditors. This is a complex stage as it involves multiple transactions. The third stage is integration, in which the criminal returns the illicit money to themselves in a way that appears clean. On successful completion of this stage, the funds become part of the legitimate financial system and can be used freely.

To combat money laundering, the Group of Seven (developed economies) formed an international committee called the Financial Action Task Force in 1989. Its objective is to implement measures for combating money laundering and choking the financial lifelines of terrorist organisations. It also protects the financial system from being misused by money launderers and terrorists.

The Anti-Money Laundering Act was promulgated in 2010 and the Mutual Legal Assistance (Criminal Acts) Act in 2020. These laws have several international controls to minimise the risk of money laundering and terrorism financing from Pakistan.

In Pakistan, the Anti-Money Laundering Act was promulgated in 2010 and the Mutual Legal Assistance (Criminal Acts) Act in 2020. These laws have preventive and international controls to reduce the risk of money laundering and terrorism financing from Pakistan. Section 4 of the Anti-Money Laundering Act 2010 provides for up to 10 years of punishment along with a fine of Rs 25 million and, in the case of legal persons, up to Rs 100 million for money laundering. Sections 8 and 9 of the Act provide a procedure for attachment and seizure of property acquired through money laundering after giving notice and opportunity of hearing to the person concerned. Under Section 9A of the Act, the investigating officer may, with the permission of the court, use techniques of undercover operation, interception, communication, assessing computer systems and controlled delivery of offences related to money laundering and financing of terrorism.

Under Section 20 of the Act, all offenses of money laundering are triable by a sessions judge. Under Section 21, all these offences are cognizable and non-bailable. Cognizance is taken upon a complaint made in writing by the investigating officer or any other officer of the federal or provincial government authorised in this behalf through an order in writing, with one exception provided by Section 33(1) of the Act, in which a complaint in writing shall be made by the Financial Monitoring Unit. Under Section 23, an appeal against the decision or order of the sessions judge lies before the High Court. The federal and provincial governments, local authorities and other reporting agencies shall assist the investigating agencies and the FMU in investigating money laundering, predicate offenses and financing of terrorism offences. Non-provision of assistance is punishable with imprisonment of up to 5 years and a Rs 10 million fine. The jurisdiction of other courts is barred in respect of offences of money laundering under Section 35 of the Act.

Despite the promulgation of the Anti-Money Laundering Act by the government in 2010, the Financial Action Task Force agency added Pakistan to it grey list in October 2018. However, following tireless efforts and effective legislation and implementation of the laws, in October 2022, Pakistan’s name was removed from the grey list. The grey list means that the country has committed to resolving the identified strategic deficiencies within an agreed time frame and is subject to enhanced monitoring. Being on the grey list means that the country does not entirely meet the FATF standards for fighting money laundering and terrorist financing but is trying to do so.

Money laundering has become harder to detect with the rise of the online banking. Anonymous online payment systems and transfers with mobile phones have made detecting the illegal transfer of money increasingly difficult. Money is also laundered through online auctions and sales and gambling websites, where ill-gotten money is converted into gaming currency and then back into untraced clean money. Due to the progressive development of technologies, criminals continue to find new ways to clean their money through cyber laundering, making it difficult for traditional detecting agencies to catch them.

Money laundering affects economic growth, widens the gap between the rich and the poor, undermines the trust of foreign investors, increases crime, fuels corruption, reduces efficiency in the economy and creates unpredictable changes in money demand. It also negatively affects monetary policy controls. Through it, criminals expand operations and transfer economic power from the government and citizens to the criminals. It also undermines governments, sparking political instability and eroding trust in governments and state institutions.

The writer is an advocate of the Supreme Court of Pakistan based in Peshawar. Ziaurrahmantajik123@gmail.com