Dr. Ikramul Haq
In Pakistan’s current enforcement climate, the line between fiscal regulation and criminal prosecution is increasingly being blurred. Ordinary tax disputes are being rhetorically elevated into allegations of money laundering, with serious consequences for due process, investor confidence, and the rule of law. This drift demands a careful return to first principles—statutory text, constitutional limits, and settled judicial doctrine.
The question whether concealment under the Income Tax Ordinance, 2001 can lawfully sustain a conviction under the Anti-Money Laundering Act, 2010 (AMLA) is no longer merely academic. Enforcement agencies increasingly assert that tax evasion itself constitutes money laundering. A careful examination of Pakistan’s legal record, however, reveals a far more nuanced—and restrictive—position.
A plain reading of sections 2(q) and 3 of the Anti-Money Laundering Act, 2010, read with the Schedule thereto, establishes that only property derived from a scheduled offence can constitute “proceeds of crime”. Offences under the Income Tax Ordinance, 2001 qualify as predicate offences only where they are punishable with imprisonment and prosecuted as such. Civil additions, penalties, or unexplained income under section 111 do not, by themselves, generate proceeds of crime. In the absence of a proven predicate offence, mens rea, and independent laundering activity, invocation of the Anti-Money Laundering Act amounts to a jurisdictional error.
Rare instance of a tax-based AML conviction
The only publicly documented instance where a money laundering conviction has been secured on the basis of tax offences relates to Mr. Habibullah, proprietor of M/s Rai Trading Company, Bajaur, Khyber Pakhtunkhwa.
According to official press releases issued by the Federal Board of Revenue and contemporaneous press reporting, the case originated from financial intelligence indicating that the scale of cash and banking transactions undertaken by the business bore no reasonable nexus with its declared income and business profile.
Investigations reportedly uncovered six undisclosed bank accounts with aggregate transactions exceeding Rs 2.09 billion, while the tax paid for the relevant year was less than Rs 200,000.
On the basis of this material, proceedings were initiated not only under the Income Tax Ordinance, 2001 but also under the Anti-Money Laundering Act, 2010, with provisional attachment of accounts under section 8 of AMLA.
The trial concluded on 30 November 2021, resulting in the accused’s conviction under section 4 of the Anti-Money Laundering Act, 2010, carrying a sentence of two years’ rigorous imprisonment and a fine of Rs 500,000, alongside a separate conviction under section 192A of the Income Tax Ordinance, 2001, with one year’s imprisonment and fine.
The court also ordered forfeiture of assets reported to be proceeds of crime. Importantly, the conviction was not founded on a mere tax addition or unexplained income under section 111, but on a prosecutable tax offence punishable with imprisonment, coupled with findings suggestive of deliberate concealment and movement of funds.
It must nevertheless be noted, for the sake of legal accuracy, that the reasoned judgment of the trial court has not entered the body of reported case law and the matter is known primarily through official press releases rather than a published decision.
The conviction, as publicly reported, was thus not founded on a mere tax addition or unexplained income under section 111, but on a prosecutable tax offence punishable with imprisonment, coupled with findings suggestive of deliberate concealment of the source and movement of funds. Notably, however, the detailed reasoning of the trial court has not entered the body of reported case law, and the matter is known primarily through official press releases rather than a published judgment.
According to official statements and contemporaneous reporting, the accused was convicted under section 4 of the Anti-Money Laundering Act, 2010, and separately convicted under section 192A of the Income Tax Ordinance, 2001 (false statements punishable with imprisonment). The case has also been cited in international AML typology material as an example of a tax-crime-based money laundering conviction from Pakistan.
It is, however, critical to state with precision what this case does—and does not—establish. The conviction was not based on a mere tax addition or unexplained income under section 111. It was founded on a prosecutable tax offence expressly punishable with imprisonment, qualifying as a scheduled offence under the Schedule to AMLA.
Despite the significance attached to the case in official narratives, the reported judgment itself is not available in reported law journals. What exists in the public domain are press releases and summaries, not a reasoned reported judgment. As a matter of legal method, therefore, the case stands as an example of enforcement practice rather than binding precedent.
Decisions of superior courts
By contrast, what is firmly settled in reported jurisprudence is the principle governing the relationship between tax offences and money laundering. The Supreme Court in Hasan Ali Khan v. Federation of Pakistan (PLD 2012 SC 553) laid down the controlling doctrine: money laundering is a derivative offence that cannot exist in vacuum.
The prosecution must first establish the predicate offence and then demonstrate that the property in question represents proceeds of that crime.
High Courts have consistently applied the reasoning in tax-linked AML matters. Without proper initiation and prosecution of scheduled tax offences under the Income Tax Ordinance, AML proceedings are legally unsustainable. AMLA cannot be invoked merely because tax liabilities are disputed, assessed, or even evaded.
Most recently, the Sindh High Court at Karachi has reaffirmed that without proper initiation and prosecution of scheduled tax offences under the Income Tax Ordinance, AML proceedings are legally unsustainable.
The decision explains that a predicate offence is a sine qua non for money laundering under the Anti-Money Laundering Act, 2010, and that offences under sections 192 and 192A of the Income Tax Ordinance, 2001 are included in Schedule-I as predicate offences for AMLA purposes.
The Court has underscored that AMLA cannot be invoked merely because tax liabilities are disputed, assessed, or even evaded. This decision makes one point abundantly clear: civil tax concealment, assessment, or penalty proceedings do not generate “proceeds of crime” for the purposes of AMLA.
Legal Line not to be crossed
The Schedule to the Anti-Money Laundering Act does not criminalise “tax evasion” in the abstract. It incorporates only those offences under the Income Tax Ordinance that are punishable with imprisonment. Even then, AML liability arises only when:
- The scheduled tax offence is properly prosecuted,
- The income or assets are shown to be derived from that offence, and
- There is independent laundering conduct—concealment, disguise, layering, or integration—coupled with knowledge or reason to believe.
The lone reported tax-based AML conviction illustrates a narrow gateway rather than expanding it. It confirms that only exceptional cases, involving prosecutable tax fraud and deliberate laundering activity, can cross the threshold from fiscal enforcement into criminal laundering.
Conclusion
The blurring of lines between fiscal enforcement and criminal prosecution ultimately weakens both. Tax laws lose credibility when enforced through coercive criminal shortcuts, and anti-money laundering regimes lose legitimacy when stretched beyond their statutory design.
A disciplined return to first principles—clear statutory thresholds, proven predicate offences, and demonstrable laundering conduct—is therefore not a concession to tax evaders but a constitutional necessity. Only by respecting these boundaries can Pakistan strengthen compliance, protect due process, and preserve the rule of law.
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Dr. Ikramul 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 Civil Services of Pakistan from 1984 to 1996.