By Dr. Ikram Ul Haq
In recent years, a disturbing trend has emerged in Pakistan’s fiscal enforcement landscape: routine tax matters are increasingly being escalated into allegations of money laundering. Additions made under the Income Tax Ordinance, 2001—particularly unexplained income under section 111—are being casually branded as “proceeds of crime”, inviting the coercive machinery of the Anti-Money Laundering Act, 2010 (AMLA). This approach is not only legally flawed but constitutionally dangerous.
Money laundering is not a free-standing offence. It is a derivative crime. Sections 2(q) and 3 of the Anti-Money Laundering Act make this abundantly clear. The offence presupposes the existence of “proceeds of crime”, meaning property derived directly or indirectly from a criminal activity. Without a crime, there can be no proceeds; without proceeds, there can be no laundering.
The Income Tax Ordinance, 2001, creates two distinct regimes: a civil fiscal regime for assessment, recovery, and penalties, and a limited criminal regime for specific prosecutable offences. Sections such as 111 (unexplained income), 122(5A) (amendment on the basis of concealment), and penalty provisions operate squarely within the civil domain. They are designed to protect revenue, not to criminalise conduct per se.
Criminality under the tax law arises only where the statute expressly provides for prosecution and punishment with imprisonment—such as under sections 192 and 194 relating to false statements and verifications. It is precisely these offences, and only these offences, that find their way into the Schedule to the Anti-Money Laundering Act as predicate crimes.
The Schedule to AMLA does not declare tax evasion in the abstract to be money laundering. It incorporates offences under the Income Tax Ordinance only to the extent they are criminal and punishable with imprisonment. Civil tax adjustments, however large, do not transform into criminal activity merely because revenue authorities are dissatisfied with an explanation.
The Supreme Court of Pakistan has repeatedly warned against such shortcuts. In Hasan Ali Khan v. Federation of Pakistan (PLD 2012 SC 553), the Court held that money laundering cannot exist in vacuum. The prosecution must first establish the predicate offence and then demonstrate a nexus between the alleged crime and the property said to be laundered.
Section 111 does not criminalise income; it merely treats unexplained amounts as taxable. Money laundering, on the other hand, requires deliberate acts of concealment, disguise, layering, or integration of criminal proceeds, coupled with knowledge or reason to believe that the property represents the fruits of crime.
Parallel proceedings under tax laws and AMLA are constitutionally permissible, but only where each operates within its own legal boundaries. Revenue recovery cannot be pursued through the backdoor of criminal law, nor can AMLA be deployed as a pressure tactic to enforce tax compliance.
Pakistan needs robust enforcement against genuine financial crime. But that enforcement must be lawful, proportionate, and principled. Stretching the Anti-Money Laundering Act to cover every case of alleged tax concealment weakens institutional credibility and the rule of law.
The legal position is simple: tax concealment becomes money laundering only when it results in proceeds derived from a prosecutable scheduled offence and is followed by intentional laundering activity.
Dr. Ikram Ul Haq, Advocate Supreme Court, Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE), holds LLD in tax laws. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He also served in the Civil Services of Pakistan from 1984 to 1996.