Money laundering or fiscal terrorism — II

by Ismat Sabir

The SBP has admitted that exchange companies have made transaction of over $ 5 billion from January to September 2008, including the sale of $ 1 billion to banks and some $1.423 billion inward remittances and $ 1.675 billion remittances sent abroad and $ 1.754 billion brought back through the export of ‘Kutchra’. The SBP said it was continuously monitoring exchange companies and it has also taken some specific actions against companies on account of violations of foreign exchange rules and regulations during the last two years.

Prime Minister’s Advisor on Interior Rehman Malik said, “We got information that a huge sum of money was sent to Afghanistan four weeks ago. A probe was launched, which led to the interception of $ 32 million at the Lahore airport. Such detections were also made in Peshawar and Karachi. We want to take action but the State Bank governor stopped us as she contented that the forex dealers were having the license for transacting the business in any amount. After a thorough deliberation, the government had to scramble its cyber crimes wing to lay hand on this business that was ruining the economy and taking the precious foreign exchange away from the country away.

Clarifying its position, the SBP said that with the transformation of Authorised Money Changers (AMCs) into formal exchange companies, a large number of undocumented transactions have come under the fold of formal framework, which require proper documentation, record keeping and adherence to internationally accepted Know Your Customer Norms. It also enabled the SBP to narrow the gap between inter bank and kerb market rates, which plays an important role in improving the flow of home remittances.

The SBP said that at present there are certain contradictory provisions in the legislations relating to foreign exchange transactions. For instance, Foreign Exchange Regulation Act (FERA), 1947 is the main legislation which provides regulatory powers to the SBP for making rules and regulations to govern the foreign exchange and remittance business. At the same time, Protection of Economic Reforms Act (PERA), 1992 provides complete freedom to individuals to bring, hold, sell, transfer and take out foreign exchange within or outside Pakistan. Though the freedom was curtailed to a certain extent by making an amendment in 1999, still an ample freedom is available in terms of Pera 1992. It has a clause which categorically states that PERA 1992 has an overriding effect over FERA 1947. Therefore, the same limits the effectiveness of the Central Bank to effectively monitor and supervise foreign exchange activities, the central bank explained.

Similarly, since FERA 1947 is lacking in empowering SBP to directly impose monetary penalties on violation of foreign exchange rules and regulations. The SBP has, however, been constantly flagging the issue and proposed related amendments in FERA, 1947 and PERA, 1992 to enable the SBP to effectively and promptly deal with the violations and illegal foreign exchange activities. The SBP also stated that only 10 exchange companies were issued explanation letters on the findings of Special Inspection/Routine Inspection on the violations of Foreign Exchange Rules & Regulations during last two years. The licenses of two exchange companies of ‘B’ category were suspended on violations, besides permission for export of FCY to a company was suspended.

In order to improve documentation of foreign currency flows and introduce necessary checks on export of foreign currency notes other than dollars by the exchange companies, a joint booth of the SBP and Customs was established at Karachi and Lahore airports.

It further said since the SBP is not a law enforcement agency, in order to curb illegal operators it has to request the concerned agencies for initiation of action. Accordingly, the SBP has been initiating a special campaign and took necessary steps, which include identification of such operators through its field offices and enhanced coordination with LEAs. A number of cases were referred to law enforcement agencies for requisite actions. According to officials figures, there are 24 full-fledged exchange companies with 162 branches/booths and 570 arrangements with third parties. Similarly, there are 30 exchange companies of ‘B’ category with 237 branches forming a total network of 969 business locations in the country for over the counter exchange and remittance business.

The Money Changers’ Association said it has 365 members of them only five companies had established offices. The members of the racket of the currency black market pay Rs 1,000 per month to the local office of the federal intelligence agency, who informed the dealers beforehand about the possible raid. Lahore FIA arrested Javed Khanani and two employees on November 5. However, the FIR has many weak points. Later on a case was also registered in Karachi. Khanani and Kalia carried out about 40 percent of all money exchange transactions in the country. It has 24 branches and nine franchises across the country.

In search for evidence to prove the exchange company guilty, it was found in one computer data that an illegal transaction of Rs 39 billion took place. The FIA has found that some of the accused had transferred at least $ 500 million abroad from their personal accounts during the last 10 months. The franchise of Khanani and Kalia International, Duniya Enterprise, in Gujranwala has been involved in ‘physical’ transfer of foreign currency from Pakistan, besides running ‘hawala or hundi business’ illegally. The confiscated Gujranwala office computers have a website through which data was deleted, but the cyber crime wing of the FIA managed to retrieve it.

The FIA also conducted raids in different districts of the NWFP, arresting four people. It also raided the Haripur franchise of Bismillah Money Changers and arrested two persons. Bismillah Money Changers was operating despite cancellation of their license by the State Bank. FIA had been monitoring KK for two months where its franchise in Gujranwala had a special counter for hawala transfers.

KKI offices in the Karachi Stock Exchange, and New Challi were raided and arrested Munaf Kalia, a director of the firm, lodged FIR on the directives of higher authorities, also arrested many employees. The government has sealed offices of the company all over the country and posted the FIA staff outside them. Malik Bostan, representative of the Forex Association of Pakistan, said the association would turn in anyone found involved in illegal transfers. The FAP collects $7 billion foreign exchange annually and gives it to the government, of which the share of KK is about $ 4 billion. He warned, “If we are targeted and harassed, this money will not be received”.

Malik Bostan said a similar crackdown was initiated in 1998 by the Nawaz government. However, it was stopped on the request of the FAP and the dollar was brought down from Rs 67 to Rs 50. He said if any complaint will be received against any money changer, the association will itself hand over such a person to the FIA.

Rehman Malik revealed that the money changers involved in establishing a parallel banking system for transacting money had links with the drug money since bad money and black business do have commonalities among themselves. Actually this is ‘fiscal terrorism. He dispelled the impression that the action has created a wedge in the ties of the Muttahida Qaumi Movement (MQM) and the ruling Pakistan People’s Party (PPP).

Munaf Kalia, in police custody, said that FIA did not have the right to seal the office or property of any money changer. According to rules FIA should report to the State Bank and, SBP could serve show cause notice on which money changer could be investigated. The SBP is the authority to serve notice and on finding evidence it is the State Bank that has the right of sealing the money changer company. The FIA team has also arrested eight officials of Nadra who are accused of issuing fake CNICs on which the illegal transfer of dollars was made.

Moreover, the FIA arrested four men at the Karachi Airport who were carrying dollars, pounds and travellers cheques worth about $ 1 million. Both the KK directors are being interrogated to extract important information and names of politicians, bureaucrats, as to how bureaucrats, politicians, businessmen and other influential people transferred money to their children for education and as installments for expensive property abroad.

The Financial Monitoring Unit (FMU) of the State Bank of Pakistan established under Anti-Money Laundering Ordinance 2007 has unearthed its first-ever case of suspicious business transactions worth Rs 50 million and asked the National Accountability Bureau (NAB) to initiate investigation against two companies. These companies are suspected of involvement in Rs 50 million fraud, as they obtained rebates on the cheques issued from the government treasury and deposited in their accounts. The NAB was given green signal to launch inquiry against three foreign exchange companies into allegations regarding illegal business, transfer of dollar and money laundering and approved investigation against A. R. Enterprises, Ahsan Enterprises and Tianshi International Pakistan.

Rehman Malik advised the people not to transfer money through ‘hawala’ or ‘hundi’, for transaction use banking system. Such activity abroad is known as money-laundering. Turkey’s second major source of income is foreign exchange business; but not the way, it is being done in Pakistan. However, this system might not end because it is more convenient to the immigrants to send their money through money changer companies as they deliver money to their doorstep within 24 hours. As against this banks take seven to 15 days to transfer money.

(Concluded)

The writer is a senior journalist and researcher

Source: The Post