economic crime damaging government and …...tax evasion, smuggling and money laundering have become...

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RESOURCE MATERIAL SERIES No. 55 REPORTS OF THE COURSE

GROUP 1

ECONOMIC CRIME DAMAGING GOVERNMENT ANDTHE NATIONAL ECONOMY

Chairperson Mr. M. S. Bali (India)Co-Chairperson Mr. Jeshop Remember Shabangu (South Africa)Rapporteur Mr. Kedar Paudel (Nepal)Co-Rapporteur Mr. Takahiro Maeda (Japan)Members Mr. Mao Borin (Cambodia)

Ms. Wang Yabin (China)Mr. Shinji Iwayama (Japan)Mr. Masahiko Motoyoshi (Japan)Mr. Atsushi Tohyama (Japan)Mr. Wasana Sisaykeo (Laos)

Advisers Professor Hiroshi Iitsuka (UNAFEI)Professor Shinya Watanabe (UNAFEI)Professor Shoji Imafuku (UNAFEI)

I. INTRODUCTION

Economic crime has become the crimeof choice; it is a crime of low risk and highgain. After economic crime becameinternational, it has been necessary forcriminals to legitimize the fruits of crime,and accordingly, the mushrooming of off-shore banking and bank secrecy legislationhas taken place. Tax evasion, smugglingand money laundering have become thetools of economic criminals, with corruptionplaying the part of lubricant for the smoothrunning of the crime machine. The SouthPacific and the Caribbean, far flung fromthe international financial centers of theworld, have developed off-shore bankinginto an art form, where invariably, thefinancial institutions are knowingly orunknowingly used, directly or indirectly, forthe purpose of concealing the source andexistence of the proceeds of crime. In manyinstances, the laws have been designed tomake inaccessible the information requiredby investigating agencies and defraudedvictims. According to one estimate, the sizeof the global underground economy in the

region was a staggering US $ 5.8 Trillionin 1993.

In areas such as evasion of taxes andbreaches of exchange control regulations,views appear to be changing in theinternational community. It was, and is, abasic tenet of international law that onenation is not obliged to enforce the fiscalpolicy of another nation. Accordingly, fiscaloffences were not normally extraditable,and international co-operation was rarelyextended to the investigation of suchcrimes. More recently, policy makers inmany jurisdictions are questioning therationale behind this principle. However,within the conflicting priorities, a commonconscience has also begun to emergeamongst the nations of the world, forcingthem to make joint efforts to fight themenace of economic crime.

Keeping in view the above, the groupstudied economic crime, particularly in theparticipating countries, with a view toassessing its volume; impact on thegovernment and the economy of the

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country concerned; the difficultiesencountered in i ts invest igat ion;prosecution and trial; and possiblec o u n t e r m e a s u r e s w h i c h c a n b eimplimented complimentary to individualpolitical, social, economic and legal systemsand the state of their development.

II. CORRUPTION

Economic crime is invariably associatedwith corruption, which of course representsan even more direct attack on the integrityof the State and its institutions.Corruption, illegal gratification, andconsiderations which are not due, involvehuge amounts of money and valuables.Their transactions not only breed blackmoney, but also potential grounds forvested interests for the commission andexpansion of activities directed towardseconomic offences.

Corruption in public and corporate lifehas assumed serious dimensions.Corruption in the global context hasadversely affected the societies of bothdeveloped as well as developing countries.Corruption on a practical level has variousaspects. The legal definition of corruptiondiffers from country to country. Accordingto one view, corruption at the lowest levelsof administration, where money or someother consideration is paid on a small scaleto speed up the process of decision-making(Grease), does not affect the economy of acountry and therefore should not be treatedas an economic crime. At the same time,an opposite view exists that smallcorruption leads to bigger, and thecredibility of the government apparatus isdamaged by all kinds of corruption, asultimately conditions favourable foreconomic crime are created. Therefore, noattempt has been made to give a legalisticinterpretation of corruption in this report.However, the group considered thefollowing major areas in the field of

corruption:• Corruption by means of bribery (as

differentiated from ‘Grease’)• Abuse of authority• Political corruption• Embezzlement of public money

A. Actual SituationBangladesh

Corruption is perceived as a diseaseimpairing the vital elements of society.This, in turn, has ramifications in limitingthe socio-economic development of thecountry. According to the statistics of theBangladesh Bureau of Anti-Corruption,from 1995 to August 1997, a total of 1378petitions were lodged by the Bureau indifferent courts. Due to the lengthyinvestigation procedure, a large number ofcorruption cases are pending investigation.

CambodiaLike other developing countries,

Cambodia is also suffering from theproblem of corruption. Most vulnerableareas in the Cambodian administration arehigh-ranking public servants (both politicaland bureaucratic), departments ofCustoms, Economic police, Immigration,and the judiciary. Laws and regulationsare not effectively implemented in thecountry because of corruption, whichresults in other economic crimes such assmuggling, tax evasion, drug traffickingetc. The fight against corruption has notreceived the seriousness it deserves inCambodia, and corruption has become aculture amongst public officials.

ChinaCorruption accounts for almost 50% of

economic crime. During the formation oft h e s o c i a l i s t m a r k e t e c o n o m y,imperfections in the economic orderprovided loopholes for some types ofeconomic crime. Besides, the policy ofopening up to the world has exposed theChinese people to external influences and

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inducements. Advances in science andtechnology, as well as administrationmethodology, has brought benefits to theChinese people. At the same time, somenegative elements have contributed to newcrimes, especially corruption. The criminallaw of China describes public servants asthose who work in government agencies,State owned companies, enterprises,institutions or peoples’ associations. Alsothose public servants that are assigned towork in non-State owned companies,enterprises, institutions, or peoples’associations are covered by the anti-corruption law. The law further stipulatesthat public servants who illegally takeadvantage of their office, steal orfraudulently appropriate public property,are guilty of a crime. Further a publicservant who misappropriates large sumsof public funds for profitable business, ormisappropriates large public funds withoutreturn over three months, is guilty of thecrime of embezzlement. Anti-corruptionagencies in China have been filing largenumbers of anti-corruption cases and thecourts have also disposed of most of thesecases.

IndiaFrom the early eighties, political

corruption has been on the increase. Manyleading political figures in India and manypolitical parties have been accused ofaccepting illegal monetary contributionsfrom the business world in the matter ofarms contracts, power and fertilizercontracts etc. Liaison agents, both ofleading Indian and foreign firms have beenoperating this system in conjunction withcorrupt politicians and bureaucrats.

There has been a steady trend in theincidence of cases registered under thePrevention of Corruption Act by theCentral Bureau of Investigation (CBI)during the years 1992 to 1996. During1996, the CBI has taken 304 persons under

custody for various offences under the Act.Enforcement by the States/Unionterritories on this account shows asignificant increase in the number ofpersons arrested in the cases registeredunder the Act during 1995 to1996.

During 1996, the CBI made a recordseizure to the tune of Rs. 143 million. TheState/ Union territory Vigilance Officialsseized property to the tune of Rs. 262million in various cases of corruption. Inthe cases investigated by the CBI in 1996,departmental action was taken against 544of f i c ia ls , whereas in the States ,departmental action was taken onlyagainst 168 persons. The punishmentawarded to various public servants in thecases handled by the CBI included 42dismissals, 20 removals, 148 major and 228minor punishments in 1996. In StateVigilance cases, 168 persons were referredfor departmental action in 1996. Therewere 9 dismissals, 2 removals from service,27 minor and 97 major punishmentsawarded to the public servants during thisyear. An analysis of the profile of the publicservants proceeded against by variousagencies in India on the charges ofcorruption shows that:

(a) The number of politicians and seniorbureaucrats proceeded against isvery minor.

(b) Almost 2/3rd of the public servantscharged for corruption are at thelower levels of administration.

(c) Action taken by the State / Unionterritory anti-corruption agencies isvery small as compared to the CBI.

JapanAnalysis shows that 40 percent of

corruption cases in Japan pertain tom a l a f i d e d e a l s b e t w e e n p r i v a t econstruction companies and local publicbodies involving big enterprise on one side,and politicians or bureaucrats on the other.

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Recently, a serious case of corruption inwhich heads of several self-governingbodies and major construction companieswere involved, was detected in 1993. Suchcorrupt deals have been the source of illegalprofit to private firms, and illegal collusionbetween the contractors has made pricesunfair by interfering with healthycompetition. The companies have beenable to keep large amounts of unaccountedfunds, which have been used in corruptdeals.

There is no special legislation to dealwith the corruption cases in Japan, butvarious penal regulations have beenenshrined in the Criminal Code and otherlaws. In Japan, basically the policeinvestigate corruption cases. There is aspecial investigation division thatinvestigates economic crimes includingcorruption at the police headquarters ofeach prefecture. Police and publicprosecutors regard cooperation betweent h e m a s t h e k e y f o r s u c c e s s f u linvestigation. Public prosecutors alsoinvestigate special corruption cases inwhich high-ranking politicians andbureaucrats are involved. SpecialInvestigation Departments have beenorganized in the District Public ProsecutorsOffice of Tokyo, Osaka and Nagoya. TheseSpecial Investigation Departmentsinvestigate the corruption cases of thecategory mentioned above. These SpecialInvestigation Departments have beengetting good results by conductinginvestigations independently, without anypolitical influence.

KoreaKorea, in the recent past, has been jolted

by serious cases of corruption. In 1995, theCentral Investigation Departmentinvestigated bribery charges involving theformer President Mr. Roh Toe Woo, inw h i c h h e w a s a w a r d e d a h e a v ypunishment. In 1993, Regulations for

Enforcement of Emergency PresidentialO r d e r o n R e a l N a m e F i n a n c i a lTr a n s a c t i o n s a n d P r o t e c t i o n o fConfidentiality was enacted. As a result,bank accounts cannot be opened insomebody else’s or false names. This hasproved to be a deterrent to the corrupt andhas helped investigators in trackingcriminals and their assets in cases wherea banking channel is used by the corruptin their deals.

LaosTo g e t h e r w i t h s o c i o - e c o n o m i c

development, Laos has been facingproblems of various types of economiccrime. Corruption is not a serious problemin the country, but it is still significantenough to be taken serious note of.Involvement of government officials invarious corrupt activities is damagingsocio-economic development and resultingin the loss of the confidence and faith ofthe people. Corruption in Laos has beenendemic in middle and high-rankingofficials of the government working in thefields of finance, tax, customs, immigrationpolice, banks etc. Lack of moral values,poor living conditions and low salary aresome of the causes of corruption amongstpublic servants in Laos. The present lawsand regulations are not effective enoughto combat corruption in the country.

NepalThere is a general realisation in Nepal

that there is corruption in both thegovernment and private sectors thatinvolves the whole spectrum of society. Adeveloping country like Nepal loses acolossal percentage of its developmentexpenditure by way of corruption.R e a s o n a b l e i n v e s t m e n t t o w a r d sdevelopment activities is allocated, but theoutput in terms of benefits is worsening.In 1996/97 the Commission for theInvestigation of Abuse of Authority (CIAA)started investigation of 1320 cases of

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corruption, and completed investigation in629 cases. Out of the completed cases, 11cases were filed in the court in which 1Minister, 3 Secretaries and various otherpublic officials were prosecuted. The CIAAalso forwarded the recommendation fordepartmental and other actions againstmore than 32 public officials. Likewise in1997/98, besides 6 cases filed in court, theCommission recommended departmentaland other action against more than 30public officials. The departmental actiontaken in the cases investigated by theSpecial Police Department in the fiscalyears 1993/ 94, 1994/ 95 and 1995/ 96 hasbeen against 82, 73, and 30 officialsrespectively.

A system based on law has been set forthto combat corruption in the country. Theconstitution of the Kingdom of Nepal 1990,the Commission for the Investigation ofAbuse of Authority Act 1991, thePrevention of Corruption Act 1960, containlegal provisions in this field. TheConstitution has made provision forcomplete independence and neutrality forthe investigation and trial of corruptioncases. As the rule of law is the basic featureof the Constitution and political system, theindependence of the judiciary, as well asthe Constitutional Commission for theInvestigation of Cases of Corruption, hasbeen ensured.

The Constitution has made the provisionfor the establishment of the Commissionfor the Investigation of Abuse of Authority(CIAA). The Commission investigatescases of abuse of authority in terms ofcorruption or improper conduct (mal-administration) by any person holding apublic office. The CIAA functions as anOmbudsman institution as well as an Anti-corruption institution. It has been giventhe power to admonish such public servantsor forward recommendations to theconcerned authorities for departmental or

any other necessary action, if it finds oninquiry or investigation that they havemisused their authority by improperconduct. In cases of corruption, CIAA maybring, or cause to be brought, an actionagainst such public servants or any otherperson involved therein in a court havingjurisdiction in accordance with law. ThePrime Minister, Ministers, Speaker of theHouse of Representatives, members ofParliament, and all public officials areincluded within its jurisdiction. CIAA isthe sole body, which looks after cases ofcorruption and all other anti-corruptioninstitutions of the government functionunder the delegated power of theCommission.

PakistanCorruption is a serious problem and

permeates all stratas of society in Pakistan.The last three governments were dismissedon charges of corruption. Recently thegovernment has enacted new legislationcalled the ‘Ehtsab’ Act (Accountability Act)to weed out corruption in the higherechelons of bureaucracy/politics. Thisenactment has produced positive results sofar.

PhilippinesCorruption amongst public servants has

been a problem in the Philippines. A toughAnti-corruption law was enacted in 1991as a result of corruption under formerPresident Marcos, who allegedly plunderedbillions of dollars from the governmentcoffers. The Anti-Graft and CorruptPractices Act and Anti-Malversation(Embezzlement) Revised Penal Code havealso been enacted to deal with variousaspects of corruption in the country. In thelatter law, a presumption of malversation(embezzlement) has been created whichshifts the burden of proof to the accused,on their failure to account for public funds/property in their charge.

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South AfricaAchieving good governance, and

overcoming the practices of profligacy andcorruption inherited from the apartheidgovernment and its economy, are two of themost important challenges facing SouthAfrica. Corruption is also rife in SouthAfrica’s private and public institutions.The apartheid era was structurallyconducive to corruption as its culture ofsecrecy resulted in a lack of a transparentand accountable system.

In South Africa, corruption in thecriminal justice system is pervasive.Particularly disturbing is the theft and/orsale of police dockets, the destruction orcontamination of exhibits, the withdrawalof criminal cases etc, with prosecutors,court interpreters and police officials ofteninvolved. A member of the provinciallegislature (deputy speaker) has beenremoved and is facing criminal charges ofcorruption.

The current legislation to combatcorruption is inadequate and there is noprovision for the presumption of guilt.There are various institutions involved inthe investigation of corruption. Thesestructures are inadequate and work inisolation. The Anti-Corruption Unitinvestigates cases of corruption within theSouth African Police Service, the Office forSerious Economic Offences (OSEO)investigates allegations of serious economicoffences that include corruption on a largescale. The Commercial Crime Unit, theD’Olivera Task Unit, the Presidential TaskUnit, the Public Protector, the IndependentComplaints Directorate, the HealthCommission, the National IntelligenceAgency and other intra-departmental unitsare involved in the investigation of specifictypes of corruption in the country. Thereis growing public support for coordinatedaction to be taken against corruption inSouth Africa.

B. Contributory Factors forCorruption

Some of the factors which contribute increating an environment for corruptionidentified during the discussion are asfollows:

(i) Political Commitment: There seemsreluctance on the part of some of thepolitical parties and governments toseriously combat corruption. As aresult, the attitude of the governmentsbecomes lackadaisical in combattingcorruption.

(ii) Lack Of Transparency in theAdministration and Management: Lackof transparency in framing policies andin taking administrative decisions ofthe government in the matter of theallocation of contracts, procurement ofgoods and supplies, appointment andtransfer of officers etc, createsconditions where corruption thrives.The climate of secrecy in governmentwork provides opportunity for thecorrupt to often go undetected.

(iii) Internal Auditing and Control Systems:Lack of efficient internal auditing andcontrol systems in the governmentalset-up makes a favorable environmentfor corruption. More often than not, theaudit has become a formality and lackseffectiveness.

(iv) Lack of Ethical Standards and Non-Adherence to Code of Conduct: In somecountries, a low level of ethicalstandards in the society in general, anda low regard of conduct rules amongstpublic servants in particular, breeds aculture of corruption and cynicalacceptance of the same amongst thepublic.

(v) Lack of Professionalism: Professionalexperts such as Chartered Accountants,

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Income-Tax Attorneys etc go againsttheir professional ethics and help thecorrupt in legitimizing their ill-gottengains. This has in turn made the taskof the investigating agencies so muchmore difficult.

(vi) Inadequate Pay Structure: In somecountries, the abnormally low paystructures for public officials has alsoled to a perverted justification ofcorrupt practices on the part of somepublic servants.

(vii)Poverty and Shortage of EssentialSupplies and Lack of Awareness: Insome countries, the vicious circle ofpoverty, and shortage or lack of propereducation amongst the populacecreates an environment for corruptionand lowers the capacity of the public toresist the same.

C. Problems in investigation,Prosecution and Trial

This basically involves action by oneorgan of the government, i.e. the criminaljustice system, against its counterparts inother organs of the government, often farmore powerful than the former. Thesituation becomes even more exasperatingwhen the criminal justice system is infectedwith corruption. The fight againstcorruption is a fight against well-entrenched vested-interests.

During the group discussion on thesubject, it was clear that whereas some ofthe problems and possible solutions areidentical for different countries, others arenot uniformly applicable due to differencesin their political, social, economic systemsand the state of their development.

(i) Independence and Neutrality ofInvestigating and Prosecuting Agencies:In some of the countries it seems thatinvestigating agencies have been

hesitant to proceed against highlyplaced public servants. This has beennoticed particularly when high politicaland bureaucratic persons are suspect.In some cases, even the judiciary hasbeen pressurised by the vestedinterests. This has highlighted theneed to insulate the investigating/prosecuting agencies in such countriesfrom the political/ bureaucraticexecutive, so that they can carry outtheir task without fear or favour.

(ii) D i f f i c u l t y i n O b t a i n i n g t h eInformation/Clues for StartingInvestigation: Due to the ‘white-collar’nature of the crime, information is ofteneither not forthcoming or is imprecise.Complicated financial transactionshave enabled the corrupt to disguisetheir illegal incomes as legal assets. Incases of highly placed public servants,informants are often reluctant to comeforward with information out of fear ofretribution.

(iii) Lack of Resources Including Training:Lack of human and other physicalresources also limits the reach andefficiency of the investigating agencies.Sometimes vested interests in thegovernment deliberately do not allowthe enforcement agencies to becomestrong and capable of effectiveinvestigation. In some countries wherethe number of corruption cases is verylarge, it has been felt that investigatorsare overburdened, resulting in delays,as well as poor quality of investigation.It has also been felt that investigationand trial of corruption cases requiresspecial skills and knowledge inaccounting, tax and company laws etcon the part of investigators andprosecutors, which they often lack.

(iv) Provision of Prior-Sanction: In somecountries, prior-sanction of the

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government is required before startinginvestigation of a case against a seniorpublic servant. This leads to motivateddelays and sometimes even leakage ofinformation to the advantage of thecorrupt.

(v) Shortage of Courts: In some countries,the number of special courts to trycorruption cases are not sufficient, andin others, such cases are tried in theordinary courts which are alreadyoverburdened and also lack theexpertise to try such cases. Due tothese reasons, a long time, sometimesextending to a number of years, is takenin anti-corruption trials. Due to this,the witnesses, and sometimes even thecomplainants, become hostile in thecourt, leading to many unsuccessfulprosecutions.

(vi) Delays In-Built in the Legal System: Acorrupt accused, due to their resources,is able to make use of various provisionsof the legal system, like appeals andrevisions, to delay the prosecution,thereby affecting its ultimate result.

(vii)Burden of Proof: The prosecution hasto prove the case beyond all reasonabledoubt. In most cases where a corruptpublic servant has been legitimizingassets by a series of financial operationsover a period of time, the degree of proofrequired in law for successfulprosecution becomes difficult to collect.

(viii)High Non-Guilty Judgements: Due tothe variety of factors discussed above,the rate of not guilty judgements isusually high, resulting in the lowmorale of investigators and the spreadof cynicism in society about theeffectiveness of anti-corruption efforts.This in turn demotivates people tolodge information against corruption.

D. Countermeasures in the Field ofCriminal Justice

Corruption can definitely be controlled,if not eradicated altogether. With the bestof efforts, the criminal justice system canonly minimize it. Keeping in view this fact,the group came to the conclusion that tocombat corruption, preventive measures,as well as curative measures, are necessary.Based on the problems analyzed above, thefollowing are some of the countermeasures,which can be used to combat corruption inso far as they are acceptable in theindividual systems of the participatingcountries.

(i) Independent and Neutral InvestigatingAgencies: In order to ensure a free handto the enforcement agencies in thisfield, personnel should be givensecurity against abrupt transfers andother forms of retributive action on thepart of politicians and senior publicservants. Prescribing fixed tenures anda strict and impartial procedure for theinduction/appointment, as well astransfer/removal, of personnel workingin these agencies can go a long way inensuring the independence andneutrality of these agencies.

(ii) Protection of the Complainants andWitnesses: In order to encouragecomplainants to come forward withinformation, and to allow the witnessto depose freely, Witness ProtectionPrograms should be introduced.Invariably, the offenders in seriouscases of corruption are highly placedpoliticians and/or bureaucrats, andvery often there is a collusion betweenthese two kinds of public servants.Under any system of government, suchpersons wield a lot of power. Informersand witnesses are extremely reluctantto depose against such powerfulpersons for fear of retribution. It istherefore, either difficult to start

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investigation or it is virtuallyimpossible to conduct a successfulinvestigation and trial. Countries haveto consider this problem in their ownperspective and determine exactlywhat kind of protection is to be offeredto the informers, complainants andwitnesses.

(iii) Adequate Number of Well-TrainedInvestigators: Besides increasing thenumber of investigators in the anti-corruption agencies, special trainingprogrammes should be organised forthem in the fields of accounting, tax andcompany law, including practicalt r a i n i n g u n d e r e x p e r i e n c e dinvestigators.

(iv) Removal of Prior Sanction System: Theprovision of prior sanction beforeinitiating an inquiry or investigation,prevailing in some countries, should beremoved. Instead, if felt necessary, astatutory commission could beestablished to examine grounds forstarting an inquiry or an investigation.

(v) Increase in the Number of Courts: Thenumber of courts dealing withcorruption cases should be increased sothat trials are not inordinately delayed.This will increase the effectiveness ofthe fight against corruption.

(vi) Restriction on Appeal/Revision:Procedural laws may be amended torestrict actions intending to causedelays in the ongoing trials, and thecourts should, on their part, take astrict attitude against attempts todelay the trials.

(vii)Burden of Proof: The Burden of proofor a presumption of guilt should lie onthe accused in certain circumstances ofhighly suspicious evidence againstpublic officials. In a case where a link

by way of ownership of an asset hasbeen proved against the accused by theprosecution, the court should make itincumbent on them to prove that theyare not the owner of the same, to thesatisfaction of the court. Provisions forshifting the burden of proof, in certaincircumstances, onto the accusedalready exist in some countries in anti-corruption and other laws. If necessary,substantive and procedural laws can bereviewed and amended accordingly.Hearsay evidence is often the majorpar t o f ev idence gathered byinvestigators in anti-corruption cases.However, the evidentiary laws of mostcountries regard hearsay evidence asinadmissible. It is recommended thatwherever proper foundation has beenlaid, hearsay evidence should be madea d m i s s i b l e b y a m e n d i n g t h eevidentiary laws.

(viii)Immunity from Prosecution: Somecountries have provisions in their lawswherein immunity from prosecution isgranted to a co-accused by the courtsupon their confession. This can be aneffective means to strengthen evidenceagainst the main accused where anumber of conspirators are involved.Th is s tep i s recommended tostrengthen anti-corruption laws whereever possible. Besides this, steps toprovide protection to state witnesses(approvers) under the witnessprotection programme should also beconsidered.

(ix) Freezing and Confiscation of Assets:The provision for freezing andconfiscation of illegal assets should bemade simple, quick and effective.

(x) International Cooperation: At times,the accused have found sanctuary inother countries out of reach of theinvestigators. The international

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community should recognize theo f f e n c e s o f c o r r u p t i o n a s a nextraditable offence and take steps toexpeditiously extradite such accused toface legal action.

E. Other CountermeasuresTo make the fight against corruption

effective, the following countermeasures inthe realm of government and legislatureare recommended by the group:

(i) Transparency in Administration andEffective Management Systems toEliminate Situations which could Leadto Corruption: Transparency in thepolicy and administrative decisions ofthe government in the matter ofacceptance and allocation of contracts,procurement of goods, appointmentsand transfer of officers should beensured. The internal managementshould be made efficient and prompt.A S i n g l e Wi n d o w S y s t e m o fgovernment decisions should beintroduced, obviating the need formaking contact with different publicservants by the applicant. Legislationon the Right to Information may alsoprove to be a step in making the systemof government decision-making moreopen.

(ii) Professional Misconduct: In case ofprofessional misconduct by charteredaccountants and income tax attorneys,a special provision debarring them fromtheir profession should be introducedin the relevant Acts.

(iii)Suspension from Holding Public Post:A politician accused of corruptionshould be debarred from holding apublic office until the conclusion of thelegal proceedings. Similarly, agovernment servant accused of thecr ime of corruption should becompulsorily suspended from service

unt i l the c onc lus i on o f l ega lproceedings. Such a system alreadyexists in some of the participatingcountries.

(iv) Public Education and Mobilization:Public-cooperation and support play animportant role in any anti-crimemeasure, and more so for the successfulcampaign aga inst corrupt ion .Therefore, emphasis should be given forpublic education and mobilization bygovernmental , as well as non-governmental, organizations and bycampaigns through mass media.

III. TAX EVASION

Chiselled into the granite portico of theInternal Revenue Service building inWashington, DC, are the words ‘Taxes arewhat we pay to live in a free society’.However, such egalitarian sentiments aremore often than not scoffed at by the richand wealthy, who regard taxes as ameasure of fiscal unfairness and as areduction of incentive to create wealth.This situation contributes another facet tothe capitalist paradox, as those with thegreatest need to protect their wealth fromthe grasp of acquisitive chancellors are alsothose with sufficient means to pay for theexpensive advice available to enable themto avoid paying more tax than is absolutelynecessary, and to minimize taxes to whichthey are already subject. This ensures thatin practice they pay proportionally less taxthan the poorer members of society.

A. Actual SituationChina

In recent years, China has made reformsin its taxation system. Cases of tax evasionhave been increasing. In 1994, theprocuratorates received 12074 casesrelating to tax evasion, and filed 6841 casesprosecuting 7562 defendants; 7180 caseswere finalised. In 1995, the courts handled

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491 cases relating to tax evasion, 495 casesended in conviction and 1354 defendantswere punished.

IndiaIn India, tax evasion is the most common

illegitimate activity, which is practiced bysuppressing facts and the manipulation ofrecords by professionals and other taxpayers. Information from the CentralBoard of Direct Taxes reveals that therehase been a steady and continuous effortto unearth income tax evasion throughsearches. The assets seized during 1996were to the tune of Rs. 4056.3 million.According to one estimate, as much as 70%of taxes are evaded in India (the years1992-96). A look into the prosecutions thatwere launched for tax evasion reveals thatthe conviction rate has been low. During1996, out of 234 cases, which wereprosecuted under the direct taxesenactment, 70 were compounded, 149 caseswere acquitted and only 15 cases resultedin conviction.

JapanRecently in Japan, on average 40 to 60

billion yen is lost every year due to taxevasion. Most of the evasion is in the fieldof income tax, corporation tax andinheritance tax. In Japan, the police donot investigate tax evasion cases, becausethis requires expert technical knowledgeof the many tax laws and techniques of theinvestigation. Investigation of these casesis conducted by the tax investigationofficers of the Tax Administration Bureauand the Public Prosecutors Office. Duringinvestigation, the public prosecutor and thetax investigation officers usually discussthe many points of investigation, and theinvestigation is carried out under closecooperation between them. The TaxInvestigation Bureau recently investigatedabout 230 tax evasion cases, and referredabout 75% of the cases to the publicprosecutor, most of which were prosecuted.

In the trial, almost 100% cases were foundguilty, out of which 80% or more were givensuspended sentences.

NepalTax revenue is the major source of

financing the Government expenditure inthe country. Tax revenue and non-taxrevenue comprise 80.4% and 19.6%respectively of the government revenue.However, the business community andother high-income groups mostly evadetaxes. The usual ways of tax evasion is bysubmitting false documents whereby afalse income is declared, resulting in lowertax assessment. It is often alleged that theactual tax collection is only in a fraction ofthe taxes which are due. Statistics showthat the volume of business transactions,as well as the tax base of the country, isincreasing but in comparison, revenue isdecreasing. The Revenue InvestigationDepartment, an administrative body, hasbeen established for the investigation of taxevasion cases in the country. Very few casesof tax evasion are investigated andprosecuted. Where cases are prosecutedin the court, it takes a long time for themto be disposed of. In the fiscal year 1994/95, out of the 14 cases prosecuted, only 1case was disposed of. In 1995/96, no newcases, other than those carried forwardedfrom the previous year, were prosecutedand no cases were disposed of.

South AfricaWithholding tax was deemed a

legitimate means to fight the Governmentduring the apartheid regime. Business-persons, professionals and other taxpayerssuppressed facts and manipulated records.This culture has taken root. The currentGovernment is taking corrective steps tostop the above practice. Tax laws have beenenacted to deal with tax evasion.

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B. Contributory Factors for TaxEvasion

The group identified some of thefollowing contributory factors for taxevasion during its discussion:

(i) Tax-Shelters: In order to encourageprivate investment in social lyresponsible activities, the fiscal lawsprovide for tax shelters where lowertaxes are charged for making suchinvestments. This provides incentivefor manipulation of records to takeadvantage of tax shelters.

(ii) Fiscal Policies: At times, fiscal policiesare deliberately distorted and loopholesare left by corrupt politicians and seniorbureaucrats in the tax laws for corruptmotives, with the objective of favoringbig business houses.

(iii)High Rate of Taxation : In somecountries, the rate of taxation is veryhigh with the maximum being as highas 70%. It is felt in some quarters thata high rate of taxation is itself amotivation for evasion. In a graded taxstructure, persons with low incomes,agriculture sector etc are either nottaxed or taxed very lightly, with theresult that there is a feeling of unfairtreatment amongst persons in higherincome levels, motivating them in turnto evade taxes.

(iv) Implementation of Company Laws:Weak implementation of companieslaws also results in companies forgingrecords and avoiding full disclosure ofbusiness information, leading to taxavoidance.

(v) Lack of Deterrence: Penalties for tax-defaulters are lenient and most of thetimes, the cases are compounded (dealtwith administratively) through thepayment of fine. Thus the penalties

lack a deterent effect.

(vi) Unprofessional and Unethical Conductof Tax Professionals: Large scaleunprofessional and unethical practicesby chartered accountants and incometax attorneys, whereby for personalgain they actively collude with richclients and private firms to create andforge records for tax-avoidance, is rife.

C. Problems of Investigation,Prosecution and Trial

(i) Corruption in Tax Administration:There is a large scale corruption in taxadministration, where a mutuallybeneficial but unholy relationshipexists between the assessed and the taxofficial, with resultant loss to thetreasury.

(ii) Independent Tax Administration: Insome countries, the tax administrationlacks independence of action, as theyare subject to extraneous pressuresfrom high political and bureaucraticquarters.

(iii)Lack of Professional Skills: Lack ofprofessional competence amongst thet a x - a d m i n i s t r a t i o n o f f i c i a l s ,prosecutors and judges about moderncomplex financial operations works tothe advantage of the tax-defaulter.

(iv) Reporting of Transactions: Absence ofreporting requirement by the banksand f inanc ia l inst i tut ions fortransactions of more than a certainvalue, and bank secrecy laws, help thetax-evader to hide information aboutvarious commercial deals and incomesgenerated therefrom.

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The group recommends the followingcountermeasures related to the problemsas identified above.

(i) Deterrent Penalties : Exemplarydeterrent punishment should beprescribed for dishonest tax officialsand politicians colluding in tax evasion.

(ii) Neutrality of Tax-Administration: Theindependence and neutrality of taxadministration agencies should beensured through constitutional/legislative steps. In some countries, taxadministrations have been givenstatutory status.

(iii)Improving Professional Skills: In orderto correctly analyze highly complexfinancial deals involved in the taxcases, tax administration officials,prosecutors and judges dealing with taxcases should be trained in up-to-datetax administration methodology andaccounting. Tax administrationofficials have been posted as advisorsto the courts in Japan.

(iv) Reporting of Financial Transaction:Reporting of financial transactions ofmore than a certain value should bemade mandatory for banks andfinancial institutions. This has beenmade a legal requirement in manycountries including the U.S.A.

(v) Computerization of Tax Records: Thetax administration should computerizeits record keeping to make the forgingof records difficult and detectable.

(vi) Double Taxation Treaties: Internationalcooperation should be freely sought andgiven in getting details of bank depositsa n d f i n a n c i a l t r a n s a c t i o n saccomplished abroad. More ‘double

taxation’ treaties should be concludedwith countr ies to e l i c i t the i rcooperation in this field.

(vii) Public Education: In some of thecountries, tax-payment has beenconsidered as a donation to thegovernment rather than a legal dutyof the citizen. Public awarenessprograms play an important role in theefforts to decrease tax evasion. Theemphasis should also be given forpublic education through variousmeans, including mass media, in orderto motivate them to become honesttaxpayers.

E. Other CountermeasuresThe group also identified the following

countermeasures which can be taken onthe part of the government to supplementthe efforts of the tax-administrators toreduce the tax evasion.

(i) Simple Tax Laws: Tax laws should bemade simple and fair. The laws shouldbe free from escape routes in the formof ‘tax shelters’ and ‘exemptionschemes’, which provide an opportunityfor manipulations and forging ofrecords by the assessors.

(ii) Fiscal/Tax Policies: Fiscal and taxpolicies should be designed andimplemented to make tax evasion a‘high risk/low profit’ business.

(iii) Overall Rate of Taxation : Someparticipants were of the opinion thatthe overall rate of tax should not bevery high and should be realistic.Instead, efforts should be made toincrease the tax base by including morepersons, professions and businesses inthe categories eligible to pay tax.

(iv) Financial Intelligence/Data BankOrganization: An organization on the

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lines of FINCEN (United StatesDepartment of the Treasury FinancialCrimes Enforcement Network) may beformed in every country to act as thecentral repository for financialintelligence and analysis, for providingassistance in the investigation offinancial crimes including tax fraud.

IV. SMUGGLING

In their initial stages of development,the developing countries had extremelylimited foreign exchange reserves andtherefore, had to conserve it for the importof essential items, defense and other crucialrequirements. Regulatory measuresincluding restrictions on the import ofgoods, both for the sake of protectingindigenous industry and for conservingscarce foreign exchange, had to be resortedto. Further, in the absence of a strongindustrial or agricultural sector, revenuer e q u i r e d t o u n d e r t a k e m a s s i v edevelopment had to be generated byimposing high tariffs. Evasion of duty andcircumvention of import trade controlrestrictions therefore put a premium onsmuggled items and made smugglingprofitable.

Smuggling of contraband like drugs,firearms and pornographic material etc canlead to serious social and politicalproblems. Smuggling of items protectedby copyright and intellectual propertyrights can seriously upset relationsbetween the countries. Smuggling is atransnational crime and requirescooperation between nations for combatingit.

A. Actual SituationCambodia

Cambodia has been fighting a terroristwar at its northwestern borders for overtwo decades. Consequently, large-scalefirearms and other offensive weapons have

been smuggled into the country. Apart fromthis, large scale smuggling of gold, timber,consumer items and drugs has resulted inthe country, from its borders with Thailandand Vietnam.

ChinaIn 1995, 1119 cases of smuggling were

filed with 1097 cleared by public securityorgans; 154 cases were convicted by thecourts and 239 defendants were punished.In 1996, the public security organs finalised1000 cases of smuggling involving cars,tobacco, drugs, pornography, CDs and DVCdisks. Smuggling offences by companiesare increasing and sometimes governmentofficials are also involved. Most of thesmuggling in China is carried out byorganized gangs.

IndiaIn India, apart from outright smuggling,

evasion of customs duty by mis-declarationof value and description of goods also takesplace. These activities bring togetherunscrupulous elements both in India andabroad. Well organized gangs, which havethe capacity to arrange funds abroad forestablishing sophisticated communicationnetworks, arrange the landing of goodsboth by air and sea. Smuggling, involvingconsequent evasion of customs duty,generation of black money, moneylaundering and evasion of taxes etc, grewas a formidable parallel economy in the1960’s and 1970’s.

Information in respect to the number ofseizures made and the nature ofcommodities seized for the years 1992-1996presents the gravity of the offence and thetraffic that takes place in contraband goodsin the country. Over the years, the trendfor this type of crime has been steady,however, the type of contraband haschanged. Consequent to the ushering in ofnew economic policies in 1992-93, therewas a reduction in rates of custom duties

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and liberalization in the economic policiesof the country. There has been a gradualfall in the quantum of goods sought to besmuggled into the country. Compared to1995, there has been a decrease of 11.4%in cases of seizures made by the Customsin 1996. The value of articles was aroundhalf of the previous years and stood at RS.5533.7 million.

Gold, which has traditionally been themost important item of smuggling, hasyielded place to narcotics and electronicitems. Outright smuggling of gold hascome down due to the economic measuresinitiated by the government, whichincludes import of gold up to 10 kg allowedto each passenger returning from abroadafter 6 months, and the import of goldunder special license. There has been adisturbing trend of smuggling foreigncurrency in and out of the country byvarious means, including payments foru n d e r - i n v o i c e d i m p o r t s , i n w a r dremittances for over-invoiced goods orbogus exports for financing the import/smuggling of gold and other sensitiveitems. Other items seized by customsinclude silver, diamonds, watches,synthetic fibers etc.

JapanThe Japanese law enforcement agencies

are especially striving against anti-socialsmuggling (illicit drugs and guns) onaccount of their obvious negative effects onsociety. ‘Boryokudan’ (mafia gangs) havebeen found to organize most of this kind ofsmuggling. In addition, duties are evadedon articles like silk, pork and clothes byimporters via fraudulent declarations. Inrecent times, cases involving smuggling bytourists of illicit drugs, guns, jewellery havecome to notice. Smuggling is carried outamongst other methods through storage inships, cargo containers and postal services.

LaosIn Laos, the commodities involved in

smuggling include motorcycles, medicine,fruit, cosmetics, construction equipmentetc. Since it is one of the ‘Golden Triangle’countries, Laos is also a transit route fordrug smuggling. As Laos is a land lockedcountry, having international borders withfive countries, smugglers find it relativelyeasy to carry out their nefarious trade.

NepalSmuggling has a serious effect on the

economy of the country. Though statisticaldata is not available for smugglingactivities, it is accepted that the nationalrevenue, mostly dependant on the customsand tax revenue, has suffered due to anincrease in smuggling activities. Illicittrafficking of narcotics, illegal import andexport of gold, foreign currencies, andillegal export of timber are some of themajor items involved in smuggling in thecountry. Violation of the Customs Act, theForeign Exchange Act and other relatedlaws is a consequence of smugglingactivities. Forged Letters of Credit, as wellas forged customs receipts and registrationpapers, are commonly used in thesmuggling of goods and motor vehicles.Nepal is basically a transit point forsmuggling. Due to its open borders withIndia and China, most of the smugglingactivities are cross-border operations.

PakistanDespite efforts to root out the evil of

smuggling, considerable luxury items andelectrical appliances are smuggled into thecountry due to porous borders withAfghanistan. Afghanistan has transitrights through Pakistan and quite a fewconsignments find their way into the tribalareas of Pakistan, from where they aredistributed to different parts of the country.

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South AfricaThe most damaging aspect of smuggling

operations is the killing of rhinos for theirhorns, and elephants for their ivory, bypoachers. These items are smuggled outof the country for sale. Stolen motorvehicles, gold and diamonds are alsosmuggled out of the country. Drugs,firearms, counterfeit goods are smuggledinto the country.

B. Contributory Factors forSmuggling

The group felt that following factorscontribute to an increase in smuggling:

(i) Long Land and Sea Frontiers: In mostof the countries, due to long coastlines,as well as long land frontiers, the taskof detecting smuggling and enforcinganti-smuggling measures has becomequite daunting, involving hugefinancial and human resources.

(ii) Duty Free Export Schemes: Violation ofcertain fiscal measures designed toencourage exports in developingcountries, like the duty free exemptionschemes, is difficult to detect andinvestigate due to lack of co-operationamongst the countries in the matter ofinformation sharing about the crimeand criminals.

C. Problems in Investigation,Prosecution and Trial

(i) Lack of Information: As smuggling is atransnational crime, enforcementagencies are handicapped due to thelack of information about the activitiesof the organised gangs in othercountries affecting them. Smugglersh a v e b e e n u s i n g c o n t a i n e r s ,complicated structures of the ships andeven human bodies to hide contraband,making the job of detecting the sameextremely difficult.

(ii) Conflicting Jurisdictions: Conflicting/overlapping jurisdictions amongstCustoms, tax authorities, police,narcotics control departments etc,delay the detection, investigation andtrial of smuggling cases to theadvantage of the offenders.

(iii)Lack of Co-operation Between theEnforcement Agencies: Lack of co-operation between enforcementagencies in the matters of sharing/follow-up of information, and in actualanti-smuggling operations, works tothe advantage of the smugglers.

(iv) Lack of Manpower: Lack of sufficientmanpower in the enforcement agencies,particularly at small local ports orwayside border custom offices, makesthem the focus of operations bysmugglers.

(v) Corruption in Customs Department: Inmost of the developing countries,corruption amongst Customs officialsand border police further compoundsthe prob lem o f detec t ion andinvestigation.

(vi) Involvement of Organized Gangs:Involvement of organized crime groupsin smuggling, like the ‘Boryokudan’ inJapan and similar gangs in othercountries, makes the job of enforcementdifficult. These gangs have largeresources and are transnationalorganisations, with none of theproblems/handicaps of information,jurisdiction etc, faced by the officialenforcement agencies. The carriersrarely belong to the gangs, as theyoperate in the background. Thus in theevent of the carrier being apprehended,the smuggling syndicate remainsintact.

(vii) Extradi t ion : Di f f i cu l ty in the

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extradition of smugglers, due to thehurdles in extradition processes oftenexperienced between countries, alsohelps the smugglers. As long as theinvestigating agencies are unable toproceed against the gang behind theoperations, action against the carriersis like treating the symptoms ratherthan the disease.


(i) International Co-operation in the Fieldof Investigation and InformationSharing: Close monitoring of theactivities of the organised gangs, andinformation sharing between thecountries affected, has proved veryeffective in curbing smuggling. Thishas resulted in the offenders comingunder pressure from both ends. Jointtraining programmes between theenforcement agencies of variouscountries, based on the one conductedunder the UNDCP in the field of drugssmuggling, can be organised. Japaneseenforcement agencies have beenexchanging information and seekingcooperation under the aegis of the AsiaPacific Maritime Safety AgenciesF o r u m a n d Wo r l d C u s t o m sOrganisation, which has proved to beof immense help in their anti-smuggling operations.

(ii) Co-ordination and Joint OperationsBetween Enforcement Agencies :Coordination, including informationsharing meetings, between seniorofficers of the enforcement agencies;joint training programs; inspectionsand exchange of personnel at middleand lower levels, will improve inter-agency co-operation and speedilyresolve jurisdictional problems to makejoint operations more efficient. InJapan, officials of police, Customs and

the Maritime Safety Agency closely co-operate and this has led to manysuccessful operations.

(iii) Strengthening Manpower at SmallerPorts/Inlets : To supplement themanpower shortage of the enforcementagencies, video-monitoring, more patrolcars, patrol vessels and air-crafts maybe used as f o r ce -mul t ip l i e r s .Manpower of smaller ports and landinlets should be strengthened.

(iv) Anti-corruption Measures in CustomsDepartments: Senior supervisoryofficers and anti-corruption agenciesshall keep a close watch on the conductand lifestyle of their subordinates, fromthe point of view of enforcing integrity.Exemplary punishment shall followcases of malafide conduct.

(v) New Technology to Improve Detectionand Monitoring: Provision of the latestgadgetry to enforcement authoritieswill increase their detection andmonitoring ability. Video monitoring,fiber-scopes, x-ray machines andcomputer programs are being used inJapan, which makes the task ofmonitoring and checking more efficientfor the purpose of detecting smugglingitems ingenuously hidden, withoutslowing down the process of Customsclearance. Detection dogs have beeneffective in anti-drug operations.

(vi) Fast Extradition: High level contactsand improved co-operation betweencountries in matters of the extraditionof suspects will act as an effectivedeterrent to smugglers.

(vii) Double Taxation Treaties : Thesebilateral treaties are negotiatedbetween countries having considerabletrade between them, in order to securec o - o p e r a t i o n b e t w e e n t h e i r

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investigating agencies. More doubletaxation treaties should be negotiatedbetween affected countries, which willhelp in exchanging information andevidence about individual deals.

(viii)Controlled Delivery Operations: Incertain countries, including Japan,controlled delivery operations by theCustoms/narcotics department haveproved very successful, particularly insmuggling through postal channels.This enables the enforcement agenciesto apprehend the main gang behind theoperations.

V. MONEY LAUNDERING

Money laundering means conversion ofillegal and ill-gotten money into seeminglylegal money, so that it can be integratedinto the legitimate economy. Proceeds ofdrug related crimes are an importantsource of money laundering world over.Besides, tax evasion and violation ofexchange regulations play an importantrole in merging this ill-gotten money withtax-evaded income, so as to obscure itsorigin. The aim is generally achieved viathe intricate steps of placement, layeringand integration, so that offenders, withoutany fear of detection, can freely use themoney so integrated in the legitimateeconomy. Initial deposits are usually madein states without regulations and thentransferred to offshore centers.

In some parts o f As ia , ‘ i l l egalunderground banking ’ is used bylaunderers because it leaves no paper trail.Money never enters the formal bankingsystem but is instead transmitted throughalternative banking systems such as the‘hawala’ in India and Pakistan. Theseparallel banking systems are based onfamily or gang alliances and reinforcedwith an unspoken covenants of retributiveviolence. Now, Africa is also being

increasingly used as a route by moneylaunderers.

A. Impact of Money LaunderingAs for as the impact o f money

laundering, it is well known that itfacilitates tax evasion, smuggling, drug-trafficking and terrorism. An I.M.F.working paper concludes that moneylaundering impacts financial behaviourand macro-economic performance in avariety of ways, including policy mistakesdue to measurement errors in nationalaccount statistics; volatility in exchangeand interest rates due to unanticipatedcross-border transfer of funds; the threatof monetary instability due to unsoundasset structures; tax collection and publicexpenditure allocation due to misreportingof income; misallocation of resources dueto distortions in assets and commodityprices; and contamination of legaltransactions due to perceived possibility ofbeing associated with crime.

B. Actual SituationChina

China has of late experienced the crimeof money laundering. In view of thissituation, China has criminalised thegeneral offence of money laundering byamending its Criminal Law.

IndiaThe Enforcement Directorate in India,

in the course of its action against moneylaunderers, made recoveries/seizures inmoney laundering cases during 1996 to thevalue of Rs 124 million (Indian Currencies)and Rs 78 million (Indian equivalent offoreign currencies seized) respectively. Thevalue of confiscated Indian currencies byadjudication registered a sharp rise, to thetune of 40 million as against 12 millionduring 1995.

The offence of money laundering is likelyto be criminalised soon and ‘the Prevention

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of Money Laundering Bill 1998’ has beenintroduced in the Indian Parliament. Itcontains provisions for the mandatoryreporting of financial transactions above acertain value, and for the compulsorym a i n t e n a n c e o f r e c o r d s o f s u c htransactions by the banks and financialinstitutions.

JapanIn Japan, the Special Drug Law

specifically provides for regulation ofmoney laundering of ‘illicit proceeds or thelike’. Any person, ‘who disguises facts withrespect to the acquisition or disposition ofillicit proceeds or the like, or conceals illicitproceeds or the like, shall be imprisoned fornot more than five years or fined not morethan three million yen or both’. The sameshall apply to any person who disguisesfacts with respect to the source of illicitproceeds. However, the scope of anti-money laundering legislation in Japan atthe moment is limited only to proceedsconnected with trafficking in drugs. Someof the cases have indicated the involvementof organized gangs like the ‘Yakuza’ (mafia).

So far, 8 cases of money laundering havebeen investigated in Japan. Four of thesecase were disposed of by suspension ofprosecution, whereas three cases haveresulted in convictions. The JapaneseMinistry of Justice is actively consideringa report to extend the scope of moneylaundering laws to other crimes, besidesdrug offences.

NepalMoney laundering is a newly emerging

economic crime in the country. Theopportunities for money laundering haveincreased in the era of economic reforms.Liberalization of market economy, creationof favorable environments for foreigninvestors and the casino business haveprovided ground for huge financialtransactions. However, the crime of money

laundering in the country has yet to beidentified and investigated. There is stilla lack of legislation making moneylaundering a criminal offence. TheNarcotic Drug Control Act 1976 hasprovision for the forfeiture of drug relatedproperty and assets. Other financialregulatory laws such as the Nepal RasrtaBank Act 1953 (The Central Bank Act) andthe Foreign Exchange (Regulation) Act1962 do not cover all aspects of thesophisticated and complicated crime ofmoney laundering.

PakistanPrincipal money laundering methods

detected so far are Hawala/Hundi, BearerInvestment Schemes, over and underinvoicing of imports and exports,smuggling of currency, investment andspeculation in real estate. Hawala is thepreferred method of money laundering inPakistan. The Government of Pakistan hasnot enacted any laws against moneylaundering. However, the Control ofNarcotics Substances Act 1997 providespunishment for laundering drugs proceeds.Reporting of suspicious transactions by thebanks and financial institutions has beenmade obligatory in this law.

South AfricaThe proposed Money Laundering

Control Bill, which is supposed tocompliment the enforcement of theProceeds of Crime Act by combating themoney laundering in the country, is yet tobe promulgated. The proposed Billprovides for the establishment of aFinancial Intelligence Centre (FIC).

C. Contributory Factors for MoneyLaundering

(i) Lack of International Co-Operation:Today nearly 40 countries in all partsof the world are considered tax havens.The situation in the Cayman Islands

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provides a glimpse into the offshoreindustry. With the seventh largestdeposit base in the world, the CaymanIslands has 550 banks in the territory,only 17 of which have a physicalpresence and are subject to moneylaundering laws. Total assets held byCayman banks in 1994 were above$USD 430 billion. Other countriesconsidered as being ‘major offencecenters’ are the Bahamas, Bahrain,Hong Kong, the Netherlands Antilles,Panama and Singapore. Some of thesecountries have been hesitant inenforcing controls on tax havens dueto the benefits accruing to theirindividual economies.

(ii) Free Trade Zones: Trade liberalizationand free trade zones provide additionalmoney laundering venues. It isbelieved that these zones are shiftingfrom using the banking system to usinginternational trade to launder money.Free trade zones in various parts of theworld bring economic prosperity totheir individual economies, but theyhave often been manipulated by moneylaunderers due to an absence ofcontrols, by indulging in deals withmanipulated invoices.

(iii) Big Businesses: Billions of dollars indrug proceeds are laundered throughmajor businesses such as stockbrokerages and insurance firms. Othermoney laundering schemes involvecash businesses such as bars, casinosand restaurants, as well as non-bankfinancial institutions such as cheque-cashing stores and money exchangehouses. Such businesses have largecash turnovers and, unless closelymonitored, are likely to and have oftenbeen used by money launderers in theiroperations of conversion of illegal intolegal money.

D. Problems in Investigation,Prosecution and Trial

(i) Absence of Anti-Money LaunderingLegislation: Most of the countries,particularly in the developing world,are yet to introduce comprehensiveanti-money laundering legislation. Insome countries, this crime so far hasbeen dealt with under ForeignExchange Regulation Acts; underw h i c h m o s t o f t h e c a s e s g e tcompounded and very few prosecutionsare launched. Absence of specific lawsin this field has provided a climate ofnon-deterance to criminals.

(ii) Bank Secrecy Regulations: Theseregulations, which were designed togive privacy to genuine customers, arebeing used by criminal moneylaunderers for illegal deals. For thesake of attracting deposits, somebankers misuse these laws by openingfictitious accounts for the moneylaunders.

(iii) Electronic Transfer of Funds: Wiretransfer systems allow criminalorganizations the facility of a swift andnearly risk free conduit for movingmoney between countries. With theestablishment of electronic cash, it hasbecome virtually impossible to trace thetransfer of funds from one place toanother over the Internet or via e-mail.Dig-Cash uses public key and digitallyblind signature techniques, whereby‘blinding’ carried out by the user’s owndevice makes it impossible for anyoneto l ink payments to the payer.Electronic cash has of late beenincreasingly used by money launderersdue to the anonymity it provides to thesource of the funds.

(iv) Lack of Information: Professionals suchas attorneys, tax consultants etc, are

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usually involved in money launderingoperations. Since the crime iscommitted by white-collar criminals,information which is traditionallyreceived by the enforcement agenciesfrom the criminal world is lacking inthese cases. Absence of mandatoryreporting of financial transactions byt h e b a n k s a l s o d e p r i v e s t h eenforcement agencies of clues aboutmoney laundering rackets.

E. Countermeasures in the Field ofCriminal Justice

(i) E n a c t i n g To u g h A n t i - M o n e yLaundering Legislation: This shouldnow be the objective of every country.This measure should include therequirement of mandatory reporting oftransactions over a certain amount,and the keeping of documentaryrecords of transactions for certainnumber of years.

(ii) Co-operation between Nations: Asmoney laundering is a transnationalcrime, the nations of the world mustco-operate to relax bank secrecy lawswhich should , whi le ensur inglegitimate customer privacy, readilyprovide required information toauthorized investigators. Besidesfacilitating extradition of offenders/suspects, nations should also imposecommensurate regulatory controls onbanks functioning as tax havens,exports and imports in free trade zones,and on the monitoring of transactionsin cash rich businesses like casinos,non-banking financial institutions andmoney exchange stores etc, in order tomake the i r misuse by moneylaunderers counter-productive.

(iii) Use of Technology for Pre-ShipmentInspections: In order to effectively dealwith over-invoicing as a mode for the

transfer of funds, Florida InternationalUniversity experts have developedsoftware to filter trade data which canbe used in developing countries as apotential compliment or substitute forpre-shipment inspection to monitorabnormal pricing. Governments shouldprovide their enforcement officials withsuch technology and training to operatethe same, in order to make the use ofmanipulation of import and exportinvoicing difficult by money launderers.

(iv) Creation of Financial DatabaseAgencies: Along the lines of FINCENof the U.S.A (and other such agenciesin the U.K and France), agencies maybe created in every country which havea large database on financial operationswithin the country, collected fromvarious sources like banks, financialinstitutions, customs, InternalRevenue Services, narcotic controlorganizations etc, to aid and helpfinancial investigations. The AUNanti-money laundering program,started in 1997 by the Vienna-basedUN office for Drug Control and CrimePrevention, the ‘Global Programagainst Money Laundering’ providesgovernments with legal advice andoffers training for law enforcement andjudicial officers. It also assists inestablishing national f inancialintelligence units.

F. Other CountermeasuresThe group has recommended the

following countermeasures as preventivemeasures to combat the crime of moneylaundering:

(i) Legislation in the Area of DigitalMoney: Laws are in the process of beingenacted in various countries in theworld, criminalising various computeroffences. These laws should alsoattempt to include the area of digital

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m o n e y a n d v i r t u a l b a n k i n g .Organizations like FINCEN in everyc o u n t r y s h o u l d b e g r a n t e dconstitutional authority to secretlymonitor all cyber-banking transactions.

(ii) Relaxation of Tough Foreign ExchangeRegulations: This measure is necessaryto allow free flow of foreign exchange,particularly in countries where‘underground banking’ operations like‘Hawala’ abound. This measure will,to a large extent, put undergroundbanking out o f bus iness . Asunderground banking channels are alsobeing used by money launderers incertain countries, this measure willreduce avenues of money laundering insuch countries.

VI. CONCLUSION

The study of economic crime, both fromtheoretical as well as practical aspects, hasa common objective. It is the objective ofmaking the world safe and secure for freetrade and commerce, and for ensuring thestability of national economies. The taskrequires educating the public about thedanger facing the economies from theactions of economic criminals, and therebyensuring international co-operation incontrolling economic crime.

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CORRUPTION

CHINAEconomic Criminal Cases Investigated by the People’s Procuratorates in China(1995)

Type Disposition CasesFiling Finalization

Cases Defendants Cases DefendantTotal 126453 63953 72601 58773 67286Corruption 51340 21642 25897 20281 24564Bribery 30080 16831 17763 15550 16499Embezzlement 20618 12616 13550 11650 12683Tax evasion 13621 8049 8912 17302 8128Others 10794 4815 6479 3990 5412

Note: 1. Finalization includes the previous year2. Source data is from Law Yearbook of China

Corruption Cases Disposed and Finalized by the Court in China

Types1994 1995

Disposition Finalization Disposition FinalizationCorruption, bribery &

31223 30793 33068 39934embezzlementEconomic offences 43065 43013 46614 46386Percentage 72.5% 71.5% 70.9% 86%Numbers of defendants

20019 26689punishedNote: 1. Finalization includes the previous year

2. Source data is from Law Yearbook of China

Types1993 1994 1995

Disposition Finalization Disposition Finalization Disposition FinalizationEconomic offences 27463 27323 43605 43013 46614 46386Total of criminal offences 403267 403177 482927 480914 495741 496082Percentage 6.81% 6.77% 9.03% 8.94% 9.4% 9.35%

Note: 1. Finalization includes the previous year2. Source data is from Law Yearbook of China

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INDIADetails of Cases Registered and Persons Arrested under the Prevention ofCorruption Act (1992 - 1996)

YearsNo. of vigilance cases registered by Persons Arrested

CBI States / Uts CBI States / UTs1992 1231 1772 - 10111993 1282 1895 - 11671994 1106 2104 463 22961995 825 2064 297 26041996 845 2361 304 2922

JAPAN

Year No. of CasesNo. of Offenders

No. of Bribe-taker No. of Bribers Total1993 67 80 139 2191994 82 102 176 2781995 77 98 138 2361996 60 82 141 2231997 89 120 172 292

Note : Statistics complied by the National Police AgencyOffenders were investigated first by the police then sent to the public prosecutor

YearNo. of Offenders

No. of Bribe-takers No. of Bribers Total1993 23 39 621994 26 16 421995 32 27 591996 11 8 191997 11 14 25

Note : Statistics complied by the Ministry of JusticeOffenders were investigated by the public prosecutor independently

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NEPALCases Investigated by CIAA

Total No. of Complaints

1996/97 334 1422 1756 1320 629 111997/98 691 1004 1695 1432 800 6

Note: Extracted from the Annual Reports of CIAA

Departmental Actions taken by SPD

Fiscal yearGovernment servants Personnel of Public Corporations

TotalGazetted Non-gazetted Officers Non-officers

1993/94 10 44 13 15 821994/95 12 37 7 17 731995/96 8 4 1 17 30

Note: Extracted from the Annual Report of the Attorney General of Nepal 1995/96

TAX EVASION

INDIASeizures by Income Tax Department (1992 - 1996)

Assets seizedYear No. of searches conducted

(Rs. in crores)

1992 4777 384.02 501.051993 5026 396.46 448.831994 4830 381.43 577.081995 4612 458.14 NA1996 4299 405.63 NA

Fiscalyear C/F from

last yearRegisteredthis year Total

Investi-gationstarted

Investiga-tioncompleted

Casesfiled incourt

Unaccounted incomedisclosed during searches

(Rs. in crores)

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JAPANSituation Regarding Criminal Investigation in Past 5 Years

Year

1993 212 215 161 75 60,107 52,721 (327)1994 215 216 155 72 44,050 37,817 (244)1995 217 223 163 73 41,533 33,144 (203)1996 221 232 177 76 44,723 33,640 (190)1997 232 225 166 74 36,310 32,629 (197)

Note: The amount of tax evasion includes the amount of additional taxes The figure in the parenthesis is the amount of accused tax evasion per case

ANNEXTURE 6(B)No. of tax evader

Year

1990 452 264 20 168 93%1991 484 330 23 132 94%1992 783 354 35 394 91%1993 879 382 304 193 56%1994 559 298 107 154 74%1995 497 337 58 103 86%1996 574 402 49 123 89%1997 567 379 63 125 86%

NEPALNumber of Cases Prosecuted in Court

Fiscal year C/F Current year Total Disposed of Outstanding1993/94 - 16 16 5 111994/95 11 3 14 1 131995/96 13 - 13 - 13

Source: Annual Report of Attorney General of Nepal 1995/96

No. ofcommence-

ments(case)

No. ofdismissals

(case)

No. ofcomplaintsreferred to

publicprosecutor

Accusationrate(%)

Totalamount of

tax evasion(yen mil.)

Total amountof

accusedtax evasion(yen mil.)

ProsecutionRate

Referred topublic prosecutor

by TaxAdministration

Bureau

Prosecuted

by PublicProsecutor

NotProsecutedby Public

Prosecutor

Underinvestigation

by PublicProsecutor

236


SMUGGLING

INDIASeizure made by Customs under Customs Act (1992 -1996)

Year Total no. of Seizures Value of Seizures (Rs. in crores)1992 59,270 502.11993 52,963 389.01994 49,997 535.21995 55,947 1,062.01996 49,580 553.4

JAPAN

Year Antisocial smuggling Evade duty Without permission Total1993 205 390 453 1,0481994 259 372 438 1,0691995 259 260 324 8431996 257 324 301 8371997 242 843 352 834

MONEY LAUNDERING

INDIAMoney Laundering 1992 -1996 (Cases under FERA)

Year No. of

Searches/ Seizures/Indian Foreign Indian Foreign Imposed Realized

Raids Recoveries1992 1,215 738 3.9 2.5 2.4 2.2 - 2.31993 1,234 843 6.7 4.5 3.1 3.0 - 3.21994 1,540 1,046 9.8 8.1 1.8 2.2 27.8 3.41995 1,175 832 10.2 6.5 1.2 2.3 10.6 2.21996 1,164 868 12.4 7.8 4.0 2.0 78.0 1.6

Currency Seized(Indian Rs. incrores)

Currency Confiscated(Indian Rs. in crores)

Fines(Indian Rs. incrores)

economic crime damaging government and …...tax evasion, smuggling and money laundering have become...

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