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Cross-border illegal currency movement

Huzaima Bukhari, Dr. Ikramul Haq & Abdul Rauf Shakoori

Good Governance plays an important role in setting the direction of any country. It ensures transparency and develops a sense of responsibility through accountability. Besides, it also contributes towards strengthening democracy, improving law and order and curtailing corruption. Since compliance with the constitution, other laws and regulations designed to govern the country are basic ingredients for good governance, deviation from these by individuals or institutions can lead to anarchy. In order to establish a sound working system, a much stronger accountability scheme is required to counter such an eventuality.

Pakistan is blessed with a written constitution, laws framed thereunder, rules and regulations to support the subordinate legislation, and a number of state institutions to run the country. But unfortunately, it lacks an effective accountability control to enforce them. People in Pakistan are broadly divided into two categories—the privileged or the elite class comprising a handful that is untouchable and considered most powerful, and the vast majority of less privileged. While overwhelming problems of the country are due to the continuous intervention and incompetence of elites in state matters, the rest of the nation is condemned to suffer as a result of the outcomes of their decisions in its struggle to meet basic needs of life. 

The endless stream of interference of the privileged few in the executive’s affairs is negatively affecting the performance of those institutions that are responsible for ensuring good governance.  The recent ranking of the rule of law index issued by the World Justice Project placed Pakistan at 129 out of 140 countries, whereas the corruption perception index rated it at 140 out of 180. These rankings testify that our governance system is compromised, and our institutions have failed to perform their assigned roles. Pakistan is currently passing through the worst economic phase of its existence and independent experts are continuously warning about the risk of default.

Foreign exchange reserves of Pakistan are reduced to their lowest level, whereas inflation, according to official sources, is hovering over 23 percent though in reality it is much higher, especially in rural areas. Being an import-based country, we are dependent on the dollar rate.

In the last few years, the rupee has devalued by over 100 percent. Though we opted for an open market where the demand for dollars is very high but the regulator i.e. the State Bank of Pakistan (SBP) has remained unsuccessful in stopping inter-bank manipulation of the exchange rate.

Although the government has implemented additional requirements for documenting purchase of dollars, the gap between interbank and the open market rate is widening and actually has given rise to yet another grey market where the American dollar is traded at a premium of almost 10 percent the official interbank rate and that too without any legal formalities of furnishing of particulars and biometric etc.

Weak border controls, particularly with respect to Afghan-Transit Trade (ATT), is another major factor that has added to our economic woes. Vested interests in connivance with law enforcement agencies, and their reluctance to tighten monitoring of cross-border movement of items such as currency, urea, wheat, sugar, and other household goods has resulted in Pakistan paying a huge price for these self-created lapses. For cracking down on this proliferation of smuggling, the Federal Finance Minister (FM), Muhammad Ishaq Dar, assigned the task to Tariq Mahmood Pasha, Special Assistant to Prime Minister on Revenue. He, according to a news report, revealed that the volume of these smuggled goods to Afghanistan was to a tune of one to two billion dollars.

Sharing its porous and unmanned borders with Iran and Afghanistan, Pakistan since its inception has always faced a daunting challenge in controlling the illegal operations of smugglers who take advantage of unregulated trade in cigarettes, livestock, and food items, including wildlife and petroleum products in addition to currency. The absence of a comprehensive and potent policy to prevent this illegality, failure to not only equip border security agencies with modern combat weapons but also sufficient moral incentives has led to accumulation of illicit wealth parked in safe havens for the traffickers. It has ripped apart the country’s economic fabric. Unlicensed operators in Pakistan play a major role in facilitating movement of criminal proceeds generated through fraudulent invoicing and other means. According to media reports, the volume of the hundi and hawala business alone crossed US$15 billion in 2015.

In its report, Bringing Finance to Pakistan’s poor Access to Finance for Small Enterprises and the Underserved, the World Bank mentions that the average Pakistani household remains outside the formal financial system, saving at home and borrowing from family or friends in cases of dire need. 14 percent of Pakistanis are using a financial product or service of a formal financial institution (including savings, credit, insurance, payments, and remittance services). When informal financial access is taken into account, 50.5 percent Pakistanis can obtain money through indigenous means (committees, shopkeepers, moneylenders, hawala/hundi money transfers, family and friends etc.).

Despite having the resources, Pakistan’s failure to put an end to currency and goods smuggling is alarming. Our inability in tackling with criminals is costing us heavily. Although the FM Ishaq Dar promised to bring the dollar back to its original value (under PKR 200) he attributes his failure to currency smuggling. He believes that at the time of the regime change in Afghanistan, we were supposed to tighten our border security to stop illegal movement of cash and goods but our passive approach in dealing with this sensitive matter not only created a shortage of the dollar in the country but also devalued our currency, increasing debt and inflation.

Instead of shifting responsibility of his failure on smuggling of currency, FM Ishaq Dar needs to apprise us about the efforts he made during more than two months in office as Head of Q-Block. Though we have a cash declaration requirement at the borders, however, as yet no clear guidelines are available to curtail currency smuggling.  Would he share the number of cases so far identified where people were caught transporting cash using traditional means such as personal baggage, vehicles, and accompanied freight, cargo, and mail?  

Ishaq Dar should also tell us about his ministry’s efforts to educate the public regarding common methods for currency smuggling, and the denomination of notes being used to move cash in and outside the country. The FM should also share with us the exact figures about the role of politically-exposed persons in facilitating currency smuggling as well as evading regulatory regimes and breaking audit trails by criminals as these cannot be possible without the support of powerful figures.

We are recently removed from the grey list of the Financial Action Task Force (FATF) after more than four years of painful ordeal, though our performance on technical compliance has improved significantly but effectiveness remains poor. The country cannot afford our rulers’ laid-back attitude in controlling smuggling of currency and other products that has gained momentum over time. Implementation of recommendation 32 of FATF can solve our currency transporting-related problems if implemented diligently.

The country should be the top priority for all. Thus, our law enforcement agencies, as well as customs authorities, should act proactively to hunt bulk cash smuggling and cash carriers/couriers. The government should also focus on overcoming staffing issues at the borders and offer them advanced training to identify and detect different methods of physical transportation of currency by natural persons, cargo, both containerized as well as mailing of currency, etc. The sooner we streamline these issues the better it will be—failing which the country will have to pay a very heavy price.


Huzaima Bukhari & Dr. Ikramul Haq, lawyers and partners of Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS), members Advisory Board and Visiting Senior Fellows of Pakistan Institute of Development Economics (PIDE).

Abdul Rauf Shakoori is a corporate lawyer based in the USA and an expert in ‘White Collar Crimes and Sanctions Compliance’. They have coauthored a book, Pakistan Tackling FATF: Challenges and Solutions

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