South Asian Insider
Money laundering causes distortion in the economic statistics
The money laundering industry thrives on the art of trickery. Money launderers make it difficult to detect the origin of illegitimate money. The risks of money laundering go beyond the financial sector and impact the economy in its entirety. It is difficult to assess the exact monetary impact of money laundering activities on a country's economy. However understanding the direct and indirect impact on law-abiding citizens, various sectors and country, is the first step towards shaping stronger anti money laundering policies.Law violators spend or invest the illegitimate money not to gain profit but to conceal the source. They are fully capable of investing in a loss-making business. On the contrary, any businessman with legitimate money invests to earn profit. When the products of two types of business models compete in the market, certainly the business with the illegitimate money would survive and flourish but the law-abiding citizen will likely fail. This concept is explained by Gresham's Law: "bad money drives out the good money".Once that money has been legitimised or cleansed, it would not be able to compete in business due to thriving black money in the country. This results in capital flight from the country as the money launderers then move that white money to countries or jurisdictions with stronger anti money laundering laws - because white money can compete with white money only. Countries having lax anti money laundering laws attract illegitimate money from foreign jurisdictions. Such countries face a high risk of losing their reputation internationally. Financially, these countries may be evaluated and tagged as high risk nations and, therefore, loans to those countries will come at a higher rate of interest. The Financial Action Task Force (FATF) does a mutual evaluation of most countries at regular intervals (India's mutual evaluation is due in 2020). Countries found with lax anti money laundering law can be put on the list of "Non-cooperative Countries and Territories" (NCCT), leading to international shaming and financial problems for them. Recently, FATF found Pakistan lax in implementing anti money laundering and anti terror financing laws and put it on the grey list of NCCT. Pakistan is facing the music from international financial institutions and has been asked by FATF to improve itself.
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