Dr. Ikramul Haq & Abdul Rauf Shakoori
Illicit Financial Flows (IFFs) have become a persistent impediment to Pakistan’s economic stability and growth. Despite the government’s recent strides in economic reforms, including the ‘Uraan Pakistan’ [Flight Pakistan] plan to transform the country into a trillion-dollar economy by 2035, structural deficiencies continue to undermine its development goals. These illicit flows, comprising activities such as corruption, tax evasion, and money laundering, deprive Pakistan of resources vital for its progress, exacerbate inequality, and erode governance.
Pakistan’s ranking on the Corruption Perceptions Index (CPI) by Transparency International reflects the gravity of the issue. Scoring 29/100 in 2023 and ranking 133 out of 180 countries, the country remains vulnerable to high levels of corruption and weak governance. This dismal ranking continues to place Pakistan among high-risk countries, preventing foreign direct investment (FDI) and complicating cross-border financial transactions.
Unfortunately, Pakistan till today has been struggling unsuccessfully in implementing Sustainable Development Goal (SDG) target 16.4, which focuses on significantly reducing IFFs and enhancing transparency by 2030. These global commitments are crucial for improving Pakistan’s economic standing and fostering international confidence.
Globally, IFFs are estimated to cause billions of dollars in annual losses. Comparatively, countries like Bangladesh report annual outward IFFs of US$480.7 million from drug trafficking alone, while Nigeria identifies significant profit shifting in its petroleum sector.
Pakistan, with its massive informal economy, unregulated trade practices, and weak tax enforcement, suffers from similar challenges. For instance, tax evasion and trade-based money laundering are pervasive, depriving the nation of critical revenues needed for public sector development. The absence of robust monitoring mechanisms allows businesses and individuals to exploit loopholes, further compounding the problem.
IFFs undermine Pakistan’s ability to finance essential services, such as healthcare, education, and infrastructure development. These flows drain resources both as outflows, depriving the country of capital, and as inflows, fueling corruption and destabilizing governance structures. Pakistan’s debt-driven growth further exacerbates these challenges, as resources diverted through IFFs increase the financial burden on the government.
The national external debt standing at over US$125 billion in 2024 reflects the severity of the situation, leaving little fiscal space for development initiatives. The internal debt is now consuming 75% of revenues by way of debt servicing! Making the things worse, violence linked to political protests and organized crimes, with huge economic cost, undermines the rule of law, further complicating efforts to address IFFs.
The media and political elite in Pakistan have often glorified or justified violent actions under the pretext of political dissent, undermining the state’s credibility. Such actions, coupled with a lack of accountability for individuals involved in violent protests, erode trust in the institutions.
This behaviour not only tarnishes Pakistan’s global reputation but also discourages international collaboration, a critical component in curbing IFFs. International investors often cite instability and weak governance as barriers to investment, a challenge that further hinders economic progress. Similarly, Pakistan’s legal framework to combat IFFs remains inadequate.
The implementation of laws addressing corruption, money laundering, and tax evasion lacks consistency and robustness. While institutions like the Federal Board of Revenue (FBR) and the Financial Monitoring Unit (FMU) are tasked with regulating financial activities, weak coordination among agencies hampers effective enforcement.
The prosecution rate for financial crimes also remains pathetically low, with influential people often escaping justice due to structural and capacity issues, systemic corruption and political interference. This lack of accountability sends an alarming signal, emboldening perpetrators and eroding public trust in the justice system.
Unlike countries such as Ghana, Namibia, and Zambia, which have actively participated in international projects to measure and mitigate IFFs, Pakistan’s progress has been slow. These nations, under the guidance of United Nations Conference on Trade and Development (UNCTAD) and United Nations Office on Drugs and Crime (UNODC), established technical working groups and adopted comprehensive methodologies to address IFFs.
Ghana has implemented measures to monitor trade-based money laundering, while Zambia has focused on identifying tax evasion in its mining sector. Pakistan, on the other hand, has yet to fully utilize international frameworks and technical support to enhance its capacity in combating IFFs. The lack of political will and bureaucratic ineptitude have further delayed progress.
In order to effectively combat IFFs and align with SDG 16.4, Pakistan must adopt a multi-faceted approach which includes strengthening laws targeting money laundering, tax evasion, and corruption, ensuring their alignment with international standards and robust implementation. Institutions like the FBR and FMU require modernization, technical training, and enhanced resources, along with inter-agency coordination to ensure a unified approach.
Accurate data on IFFs is of utmost importance, in fact essential, for informed policymaking. Pakistan should adopt methodologies developed by UNCTAD and UNODC to leverage international expertise. Introducing stricter penalties for financial crimes and ensuring impartial prosecution are critical to deterring illicit activities. Public awareness about the economic consequences of IFFs can foster societal pressure for reforms and compliance.
International models demonstrate the potential for progress when nations prioritize combating IFFs. Colombia’s efforts to measure cocaine trafficking-related IFFs, estimated at US$1.2–$8.6 billion annually, have informed targeted policies to address drug-related money laundering. Similarly, Burkina Faso’s identification of illicit gold transactions has led to enhanced oversight in its mining sector. These examples highlight the importance of accurate data and international collaboration in tackling complex financial crimes.
In Pakistan, the economic cost of inaction is staggering. The country loses an estimated US$10 billion funds annually to corruption and tax evasion, highlighted in an article, Hunt for black money by Dr. Ikramul Haq and Huzaima Bukhari [The News, March 29, 2015]. These funds could have otherwise been allocated to social development programmes. This financial drain exacerbates poverty, with over 30% of the population living below the poverty line. The education and healthcare sectors are particularly affected, as limited resources hinder improvements in literacy rate and access to medical services. Addressing IFFs is not merely a financial imperative but a moral one, as it directly impacts the lives of millions of citizens.
The legal and institutional shortcomings in Pakistan are enormous and constitute major obstacles. While the Anti-Money Laundering Act 2010, as amended in 2020, and the National Accountability Bureau (NAB) Ordinance are poorly drafted, these are invariably abused for political gains, besides their implementation remains inconsistent.
The National Accountability Bureau (NAB), in particular, has faced criticism for perceived political bias and inefficiency. Strengthening these institutions requires depoliticization, enhanced transparency, accountability, and greater independence. Furthermore, Pakistan’s Financial Action Task Force (FATF) compliance journey underscores the need for sustained commitment. Although Pakistan was removed from the FATF gray list in 2022, maintaining compliance requires continuous vigilance and improvement.
For combatting IFFs effectively, Pakistan must also address the root causes of financial crimes. The irrational tax policies, coupled with weak enforcement, and an underperforming informal economy contribute to revenue leaks. Broadening the tax base, simplifying tax compliance procedures, and incentivizing formalization are critical steps to counter leakages. The enhancing of cross-border cooperation can also help track and recover illicit funds. Bilateral agreements with countries like Switzerland, United Arab Emirate, Cayman Island etc., major destinations for Pakistani wealth, can facilitate the repatriation of stolen assets.
Public-private partnerships can also play a vital role in strengthening financial governance. Banks and financial institutions must be equipped with advanced tools to detect suspicious transactions and report them to authorities.
Training programmes for compliance officers and stricter regulations for shell companies are vital, as these will further enhance controls and transparency. Leveraging technology, such as blockchain and artificial intelligence, can also improve monitoring and detection capabilities, making it harder for illicit transactions to go unnoticed.
Illicit Financial Flows are not merely an economic issue but a governance challenge that threatens Pakistan’s aspirations for sustainable growth. By failing to address systemic corruption, tax evasion, and money laundering, Pakistan risks exacerbating its financial woes and missing development targets. The government must prioritize reforming country’s legal framework, strengthening institutions, and embracing international cooperation to curb IFFs. Only by addressing these foundational issues can Pakistan achieve economic stability, attract investment, and pave the way for a prosperous future.
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Dr. Ikramul Haq, Advocate Supreme Court, specializes in constitutional, corporate, media and cyber laws, ML/CFT, IT, intellectual property, arbitration and international taxation. He holds LLD in tax laws with specialization in transfer pricing. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He served Civil Services of Pakistan from 1984 to 1996. He established Huzaima & Ikram in 1996 and is presently its chief partner.
He studied journalism, English literature and law. He is Chief Editor of Taxation. He is country editor and correspondent of International Bureau of Fiscal Documentation (IBFD) and member of International Fiscal Association (IFA). He is Visiting Faculty at Lahore University of Management Sciences (LUMS) and member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE).
He has coauthored with Huzaima Bukhari many books that include Tax Reforms in Pakistan: Historic & Critical Review, Towards Flat, Low-rate, Broad and Predictable Taxes (revised & Expanded Edition, Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020), Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary and Master Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).
He is author of Commentary on Avoidance of Double Taxation Agreements, Pakistan: From Hash to Heroin, and its sequel Pakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax. Two books of poetry are Phull Kikkaran De (Punjabi 2023) and Nai Ufaq (Urdu 1979 with Siraj Munir and Shahid Jamal). He regularly writes columns for many Pakistani newspapers and international journals and has contributed over 2500 articles on a variety of issues of public interest, printed in various journals, magazines and newspapers at home and abroad.
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Abdul Rauf Shakoori, Advocate High Court, is a subject-matter expert on AML-CFT, Compliance, Cyber Crime, and Risk Management. He has been providing AML-CFT advisory and training services to financial institutions (banks, DNFBPs, Investment companies, Money Service Businesses, insurance companies, and securities), government institutions including law enforcement agencies located in North America (USA & CANADA), Middle East and Pakistan. His areas of expertise include legal, strategic planning, and cross-border transactions including but not limited to joint ventures (JVs), mergers & acquisitions (M&A), takeovers, privatizations, overseas expansions, USA Patriot Act, Banking Secrecy Act, Office of Foreign Assets Control (OFAC).
Over his career, he has demonstrated excellent leadership, communication, analytical, and problem-solving skills and has also developed and delivered training courses in the areas of AML/CFT, Compliance, Fraud & Financial Crime Risk Management, Bank Secrecy, Cyber Crimes & Internet Threats against Banks, E–Channels Fraud Prevention, Security and Investigation of Financial Crimes. The courses have been delivered as practical workshops with case study-driven scenarios and exams to ensure knowledge transfer.
His notable publications are Rauf’s Compilation of Corporate Laws of Pakistan, Rauf’s Company Law and Practice of Pakistan Rauf’s Research on Labour Laws and Income Tax, and others.
His articles include Revenue Collection: Contemporary Targets vs. orthodox approach, It is time to say goodbye to Our Past, US Double Standards, Was Due Process Flouted While Convicting Nawaz Sharif?, FATF and unjustly grey listed Pakistan, Corruption is No Excuse for Incompetence, Next step for Pakistan, Pakistan’s compliance with FATF mandates, a work in progress, Pakistan’s strategy to address FATF Mandates was Inadequate, Pakistan’s Evolving FATF Compliance, Transparency Curtails Corruption, Pakistan’s Long Road towards FATF Compliance, Pakistan’s Archaic Approach to Addressing FATF Mandates, FATF: Challenges for June deadline, Pakistan: Combating the illicit flow of money, Regulating Crypto: An uphill task for Pakistan. Pakistan’s economy – Chicanery of numbers. Pakistan: Reclaiming its space on FATF whitelist. Sacred Games: Kulbhushan Jadhav Case. National FATF Secretariat and Financial Monitoring Unit. The FATF challenge. Pakistan: Crucial FATF hearing. Pakistan: Dissecting FATF Failure, Environmental crimes: An emerging challenge,.
The recent publication, coauthored with Huzaima Bukhari, is
Pakistan Tackling FATF: Challenges & Solutions
available at:
https://aacp.com.pk/book-detail/pakistan-tackling-fatf-challenges-and-solutions-35
https://www.amazon.com/dp/B08RXH8W46