Released on, Aug. 21 – August 21, 2025 at 3:03 PM
For years, Pakistan’s economic landscape has been hindered by issues related to an informal sector and illicit fund transfers. This unregistered portion of the economy functions beyond official tax and oversight mechanisms, resulting in reduced state income and providing opportunities for graft, avoidance of taxes, and the movement of black money. As per multiple research reports, approximately 40 percent of the country’s economic activity goes untaxed, undermining fiscal stability and promoting unlawful monetary transactions.
In an effort to address these challenges, Pakistan has set up several organizations including the National Accountability Bureau (NAB), Federal Investigation Agency (FIA), Anti-Corruption Units (ACUs), the Corporate Crime Division (CCD), and the Financial Intelligence Unit (FIU) within the State Bank of Pakistan. Nevertheless, the efficiency of these bodies continues to be questioned.
The issue of an undocumented economy and money laundering arises when individuals and companies evade taxes by functioning beyond the official economic system. Transactions conducted in cash, informal enterprises, and unrecorded properties contribute to a shadow economy, which results in lower public income and increased reliance on international borrowing.
When individuals gather money obtained through corruption, trafficking, and tax avoidance, they often move these funds via fictitious accounts or traditional informal banking methods like “hawala/hundi.” Money laundering constitutes more than just an economic offense; it poses a threat to national security because it may support terrorist activities and undermine financial stability.
The role of Pakistani institutions like the NAB has involved handling prominent corruption and money laundering investigations. However, those targeted by the NAB are often subjected to political motives, with an inconsistent approach to accountability and limited success in prosecutions.
Meanwhile, another unit within the FIA handles cross-border criminal activities, cybercrime, migration issues, and financial misconduct. The AML department looks into unusual transactions and informal money transfer systems like hawalas. The FIA often encounters challenges such as insufficient staff, absence of modern investigative equipment, and external political influence, which contribute to reduced effectiveness.
The Anti-Corruption Units (ACU) function within provinces. They primarily address administrative graft, fraudulent land deals, and abuse of power. These entities are significantly influenced by political factors and face challenges in aligning efforts with national authorities.
Financial Oversight Department (FOD) – Central Bank of Pakistan serves as Pakistan’s Financial Intelligence Agency (FIA), complying with FATF standards. FOD gathers and reviews Suspected Transfer Records (STPs) and Cash Flow Statements (CFSs) submitted by banking organizations and monetary bodies. FOD has been enhanced following inclusion on the FATF gray list; however, further improvements in technology and autonomy are required.
These organizations have made valuable contributions by raising awareness regarding financial misconduct, meeting global regulatory standards (such as those set by the FATF), and gathering monetary intelligence via the Financial Intelligence Unit.
Nevertheless, several issues persist primarily due to overlapping authorities leading to ambiguity and postponements, as well as an ineffective enforcement mechanism enabling offenders to evade consequences. The National Accountability Bureau handles corruption, the Federal Investigation Agency deals with cross-border offenses, and the Financial Monitoring Unit manages financial data. Yet, repetition of responsibilities and inadequate cooperation diminish effectiveness. Establishing a unified strong agency focused on financial misconduct might consolidate assets, prevent redundancy, and develop specialization in areas like forensic auditing, digital tracking, and monetary analysis. Nonetheless, centralizing control within one entity poses dangers of potential abuse by politics.
The battle against the informal economy and financial misconduct in Pakistan demands both structural changes within institutions and strong governmental determination. Although entities such as NAB, FIA, ACE, CCD, and FMU have significant responsibilities, their shared areas of authority and lack of effective cooperation frequently weaken the effectiveness of enforcement actions. In essence, the challenge lies not so much in the quantity of organizations but rather in their autonomy, expertise, and ability to work together. Unless these improvements take place, Pakistan’s shadow economy and illicit financial flows will remain obstacles to long-term economic development.
Muhammad Bilal Khan was once a government employee and has extensive experience in public relations, possessing valuable understanding of administration, responsibility, organizational changes, and skill in crafting communication strategies.
@bilalpunnu
