Pakistan has recently passed the Benami Transactions (Prohibition) Act, 2017 to promote transparency and accountability.

While the new legislation may help counter trade-based financial crime in terms of tougher requirements to disclose beneficial ownership, the strengthening of legislation to counter what has been an easy way to launder money may push criminals towards trade-based money laundering (TBML).

Family affair

In a benami transaction, a person holds asset titles for the benefit of another person – routinely a criminal – allowing that criminal to enjoy the proceeds of crimes without being noticed by tax and counter terrorism authorities, anti-corruption establishments, anti-narcotics forces and other law enforcement agencies.

Criminals often choose close relatives, loyal friends or trustworthy servants to be their benamidars or nominees. Assets procured through ill-gotten money are kept in these people’s names to avoid the criminal being detected.

Benami schemes also offer protection against forfeiture of assets if the criminal faces punishment.

Negative impact

Moreover, in the absence of any law prohibiting benami transactions until recently, it was an attractive and simple way for white-collar criminals to launder money.

Tougher restrictions on this hitherto easy way to launder money may push money launderers towards adopting more sophisticated mechanisms such as TBML or the formation of shell or offshore corporations.

Positive effect

But the new benami act may also make positive contributions towards efforts to curb trade-based financial crime in Pakistan because benami relationships are often relied upon in TBML schemes.

Misinvoicing schemes for example often feature familial or other close connections because the parties to this type of crime need to implicitly trust one another to make the scheme work.

Categories: Trade Based Financial crimes News