Pakistani Elite are Using Gift Schemes for Money Laundering

A group of wealthy individuals residing in Pakistan have received ‘gifts’ worth Rs 102 billion during the last fiscal year 2016-17. 

The Federal Board of Revenue informed the Senate standing committee that the Anti-Money Laundering (AML) cell has started a probe into possible money laundering using the gift scheme.

Money Laundering: How Does it Work?

For those of you in the dark, money laundering in simple terms means ‘cleaning’ of black money (obtained from illegal sources). This is done by connecting the source of the black money to a legal business or origin and make it seem like profits from that business/origin.

In this case, millions of rupees which should have gone to the government as taxes, were avoided by many individuals who reported this money as ‘gifts’ obtained from overseas family members.

There is nothing wrong with receiving gifts from abroad. But the fact that no tax is deductible on these gifts makes it an attractive source of laundering money.

Details of the ‘Gifts’

The AML cell’s data revealed that 2,785 wealthy individuals attributed Rs 102 billion in their wealth statements to gifts received from abroad.

Three of the individuals declared gifts of Rs 1 billion and above. Eight declared gifts worth between Rs 1 billion and Rs 500 million. 194 of them valued these gifts between Rs 500 million to Rs 100 million, while 280 reported between Rs 100 million and Rs 50 million.

The remaining 2,348 were between Rs 50 million and Rs 10 million.

In the preliminary investigation of the returns, wherever the net assets grew without any taxable income, ‘gifts’ were declared as the source of income without disclosing any details about the source of the gifts. This raised some eyebrows at the AML cell and further investigation has begun.

Money Laundering with the intent of evading tax is a strict violation of the law and the money can be confiscated under the Anti-Money Laundering Act 2010. Moreover, culprits are liable to imprisonment for up to 10 years.