12 September 2007
A presidential ordinance passed in Pakistan this week to curb money laundering marks an important step forward in efforts to tackle black economy.
Though under discussion for about a year and originally meant to be passed into law through an act of parliament, the ordinance comes as the world commemorates the sixth anniversary of 9/11 attacks.
The New York terrorist attacks brought fresh international pressure, prompting the government in Islamabad to introduce tough measures against money laundering. The attacks not only forced Pakistan to squarely come around to joining the US-led war on terror, but also enforced at least a formal acceptance of tougher provisions against money laundering.
An obvious example of this trend was indeed the introduction of tighter provisions before a new bank account could be opened. Unlike the past when any ID could work for opening an account, the new requirements oblige clients to submit a copy of a new Pakistani national ID card.
Similarly, the government avoided a repeat of such controversial laws as the one in the 1990s when individuals could open foreign currency accounts at banks within the country, without ever having to disclose their source of wealth.
That provision in the foreign currency accounts exposed Pakistan to widespread criticism for having effectively legalised money laundering.
Today, Pakistan functions in a different regime where the country's conduct is not similarly up for such criticism.
But there are still many unresolved issues that effectively allow individuals to hide their ill-earned wealth without ever having to disclose their source of income.
The chief factor which still facilitates this process is indeed the reality of Pakistan's tax collection environment where tax evasion is indeed rampant. Less than one per cent of Pakistan's population of about 165 million pays an income tax.
This reality complicates the efforts to combat ill-gotten wealth. People with enormous wealth are still able to evade tax collectors and therefore mix wealth earned through criminal means with wealth earned legitimately.
To make matters worse, the new proposed law allows punishment for tax evasion in the form of jail terms which range between one to ten years. However, such a threat of a jail term is not an effective enough deterrent. For too long, Pakistanis involved in different types of criminalities have lived under the threat of harsh jail terms in other areas too. And yet, the threat of a jail term in itself has not worked as a strong enough deterrent to beat crime.
This is largely because the fundamentals of the law enforcement system in itself do not work to deter criminality. The policing and law enforcement systems are ridden with much corruption that only facilitates and allows criminals to go free.
In the ultimate analysis, such problems have much to do with the way the country is run. Today, Pakistan's military-led regime with General Pervez Musharraf firmly in charge, boasts much about its economic success. And yet, the truth is that much of the success story is confined to what could best be characterised as macro level realities such as rising liquid foreign currency reserves or indeed a significant jump in tax revenue collection.
But that revenue collection comes in good measure through increased tax being slapped upon those who are already taxpayers. The failure to widen the tax net is an example of a compelling reality where the idea to beat crimes such as money laundering are impossible to be pursued in a comprehensive way.
- The writer is a journalist based in Pakistan.
By Farhan Bokhari
Gulf News 2007. All rights reserved.
