**Last week, a SAARC seminar on drug trafficking was held in Dhaka. The nexus between money laundering and drug trafficking is only too well-known. These events serve to bring the continuing global and regional concerns about money laundering to sharper focus.
THROUGH his blithe remarks. the cartoon, character Dennis the Menace scatters gems of home truths once in a while* "The nice part about day." he quipped, "is that you can see what you are doing. The bad part Is that so can everybody else.” Thus it Is that some people prefer to do business in secret — opting, in fact, to become denizens of the dark. Drug traffickers, arms dealers, smugglers — you name them. These are the people who choose to operate behind veils of secrecy. They do not wish everybody to see what they are doing.
Business dealings of drug traffickers, arms traders, smugglers, and their likes, generate massive funds globally — experts say more than $500 billion every year. Yet. of what use is money unless it can be spent freely and openly; The answer is .to launder the money so that it takes on the appearance ef being clean. It is the process of . whitening black money. Corruption and kickbacks too gen--erate funds which need laundering. particularly when recipients prefer not to keep the money in the home country.
The craft of money laundering draws it mead from moving the stuff from place to place world over, turning it around until it acquires a clean gloss, flowing as if. from legitimate transactions. And to gain an aura of respectability, the money has to pass through staid" financial institutions, preferably banks. So. money laundering entails the use of banks. Some drug barons are even known to have owned banks to ease the process of money laundering.
The topic of money laundering comes to mind in the context of seminars and sympo-
slums held In recent weeks, which had a direct bearing on the subject. Earlier in the month, a symposium was held in Kuala Lumpur about money laundering in Asia. This symposium was Jointly arranged by the Financial Action Task Force (FATF). the Paris-based OECD — Organisation for Economic Cooperation and Development — the forum of the world's rich nations and the Commonwealth Secretariat. The FATF. it bears ^recalling. was set up by the
Group of Seven (G-7) leading industrial countries In 1989 to study ways of curbing money ’laundering. The Kuala Lumpur symposium was attended by delegates from 34 countries, including Bangladesh, and experts from concerned International agencies.
Last week, a SAARC seminar on drug trafficking was held In Dhaka. 'The nexus between money laundering and drug trafficking is only too well-known. These events serve to bring the continuing global and regional concerns about money laundering to sharper focus. Then again, a section of the press reported early in the month that the government has approved changes in banking laws to allow for confiscation of deposits of funds earned through illegal means, including frauds, drug trafficking and smuggling. This initiative also looks like a focussed move at national level to deter the use of the banking system for the purpose of money laundering.
Smuggling has long been a prime source of generation of money which needs laundering. At the Kuala Lumpur sympo-
sium. so say news media accounts of the proceedings, the Bangladesh delegation identified the pervasive hundi system as a major money laundering hazard faced by this country. A
/-coded chit, hundi is really a -non-bank sight draft for effecting cross-border transfer of funds, particularly favoured in the subcontinent for moving money outside official channels. You might also like hundi to a pay order — the difference is, it is a more efficient medium for transfer of funds than the banks’ instrument. Best of all for drug dealers and smugglers, the hundi leaves no trace. It de-
fles interception. Smuggling and drug trafficking interwind in this respect. Drugs are not brought openly across borders. These are smuggled in and out 4>f a country. Smuggling abets drug trafficking. And hundt is used of course for underhand transfer of capital. In the subcontinent at least, the mechanism is also used widely for effecting remittances outside official channels from abroad, particularly of maigrant workers' earnings.
Transfer of fuAds through hundt does not. by itselfv amount to money laundering. Money has only moved. True, some of it can be put to legitimate use openly, for instance, in consumption expenditure. However, the scope for such spending is limited. The bulk of the money would flow Into the parallel economy, still to be laundered. All the same, an essential first step for laundering the money has been taken — the funds have been moved. To be laundered, the money would now seek entry into the legal financial system. Called variously as 'dirty money', ’tainted money' or plain 'black money’, it will remain so. till It passes through the financial system and comes out clean.
Governments, on their part, put up barriers to deny the money access to the formal fi- nancial system. It used to be said that a banker need not concern himself with the colour . of the money he takes in as deposits. Governments these days try hard to make the bankers get over such notions. Laws designed to counter money laundering usually require that bankers report suspicious transactions. Normally, it is left to the banks and other financial institutions to decide which case smacks of money laundering. However, governments do issue guidelines to help matters along. The authorities also de-mand that banks deal with customers they know and monitor potentially suspicious transactions. z Then again, in an increasingly cashless society of the West, any heavy cash movement is automatically suspect. The US law, for instance, requires banks invariably to report any cash transaction above a certain ($10,000. If I got it right) limit.
Most such countries also have laws on bank secrecy designed to protect the sanctity of banker-customer relationship. Such legislation have long been deemed a necessity In the advanced countries to secure peoples confidence in dealing with bankers. Requiring bankers to divulge details of customers' accounts to facilitate investigations in money laundering charges, often brings conflicts with the bank secrecy provi- , slons of the law. Governments usually resolve the conflict "through a policy-mix of persuasion and coercion. Laws relating to money laundering would specifically authorise banks to report suspicious transactions of their clients to the concerned authorities. This way. banks are absolved of the risk of coming under the mischief of secrecy provisions. However, the bankers 'option' to report such transactions turns into an obligation, since failure to do so would be regarded as negligence. The bank then would bear responsibility for the -"client's misdemeanour and would be liable to punishment.
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Reverting to matters at home, it is encouraging to note that the SAARC seminar stressed the importance of Cooperation oq regional basis to combat drug trafficking. The region s increasing vulnerability to drug trafficking arises from its proximity to the centres of drug trade. To the east, lies the Golden Triangle — straddling Myanmar. Thailand and Laos. To the West, the Golden Crescent is there covering the border areas of Pakistan. Afghanistan and Iran. And the region itself holds the Golden Wedge’, along parts of Bhutan, Nepal and Bihar of India, which renders Bangladesh particularly prone to use as a transit country for drug trafficking. All the sanft, cooperation In tackling drug trafficking alone will not bring the desired dividends unless efforts are tirade at regional level to combat smuggling also. Smuggling is endemic in the subcontinent. Drug trafficking has added a sinister edge to the illegal cross-border trade. Smuggling and drug trade draw sustenance from each other. The proclivity to use gold to settle cross-border transactions adds another twist to the game. Gold is not laundered the way money is. However, it can be melted to yield Jewellery and ornaments, which find too ready a market in the region.
The most effective way to eliminate smuggling is to remove all controls that breed corss-border illegal trade in the region. This is easier said than done. For one thing, it would call for regional realignment of trade, tariff, exchange rate regimes and of course, open cross-border trade. As of now. ' such a convergence seems far off. Nonetheless, meaningful regional cooperation to strike at the root of smuggling, drug trafficking and money laundering could hasten the process. The aim should be to create an environment in the region in which people feel more encouraged to-do business in open daylight.