REPORTS
OF THECOURSERESOURCE MATERIALSERIES
No. 55
GROUP 1ECONOMIC CRIME DAMAGING GOVERNMENT AND
THE NATIONAL ECONOMY
Chairperson
Co-Chairperson
Rapporteur
Co-Rapporteur
Members

Advisers

Mr. M. S. Bali
Mr. Jeshop Remember Shabangu
Mr. Kedar Paudel
Mr. Takahiro Maeda
Mr. Mao Borin
Ms. Wang Yabin
Mr. Shinji Iwayama
Mr. Masahiko Motoyoshi
Mr. Atsushi Tohyama
Mr. Wasana Sisaykeo
Professor Hiroshi Iitsuka
Professor Shinya Watanabe
Professor Shoji Imafuku

I. INTRODUCTION
Economic crime has become the crimeof choice; it is a crime of low risk and highgain. After economic crime became
international, it has been necessary forcriminals to legitimize the fruits of crime,
and accordingly, the mushrooming of offshore banking and bank secrecy legislation
has taken place. Tax evasion, smuggling
and money laundering have become thetools of economic criminals, with corruption
playing the part of lubricant for the smoothrunning of the crime machine. The South
Pacific and the Caribbean, far flung fromthe international financial centers of theworld, have developed off-shore banking
into an art form, where invariably, thefinancial institutions are knowingly or
unknowingly used, directly or indirectly, forthe purpose of concealing the source andexistence of the proceeds of crime. In many
instances, the laws have been designed tomake inaccessible the information requiredby investigating agencies and defrauded
victims. According to one estimate, the sizeof the global underground economy in the210(India)(South Africa)(Nepal)(Japan)(Cambodia)(China)(Japan)(Japan)(Japan)(Laos)(UNAFEI)(UNAFEI)(UNAFEI)

region was a staggering US $ 5.8 Trillion
in 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 one
nation is not obliged to enforce the fiscal
policy of another nation. Accordingly, fiscal
offences were not normally extraditable,
and international co-operation was rarely
extended to the investigation of suchcrimes. More recently, policy makers inmany jurisdictions are questioning therationale behind this principle. However,within the conflicting priorities, a common
conscience has also begun to emerge
amongst the nations of the world, forcing
them to make joint efforts to fight the
menace 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

110TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
country concerned; the difficulties
encountered in its investigation;prosecution and trial; and possible
countermeasures which can be
implimented complimentary to individual
political, social, economic and legal systems
and the state of their development.
II. CORRUPTION
Economic crime is invariably associatedwith corruption, which of course represents
an even more direct attack on the integrityof the State and its institutions.
Corruption, illegal gratification, andconsiderations which are not due, involve
huge amounts of money and valuables.
Their transactions not only breed blackmoney, but also potential grounds forvested interests for the commission andexpansion of activities directed towards
economic offences.
Corruption in public and corporate life
has assumed serious dimensions.
Corruption in the global context has
adversely affected the societies of bothdeveloped as well as developing countries.
Corruption on a practical level has various
aspects. The legal definition of corruption
differs from country to country. According
to one view, corruption at the lowest levelsof administration, where money or someother consideration is paid on a small scale
to 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 small
corruption leads to bigger, and thecredibility of the government apparatus isdamaged by all kinds of corruption, as
ultimately conditions favourable for
economic crime are created. Therefore, noattempt has been made to give a legalistic
interpretation of corruption in this report.
However, the group considered thefollowing major areas in the field ofcorruption:• Corruption by means of bribery (asdifferentiated from ‘Grease’)• Abuse of authority• Political corruption• Embezzlement of public money
A. Actual Situation
Bangladesh
Corruption is perceived as a disease
impairing the vital elements of society.
This, in turn, has ramifications in limiting
the socio-economic development of thecountry. According to the statistics of the
Bangladesh Bureau of Anti-Corruption,from 1995 to August 1997, a total of 1378
petitions were lodged by the Bureau indifferent courts. Due to the lengthy
investigation procedure, a large number of
corruption cases are pending investigation.
Cambodia
Like other developing countries,
Cambodia is also suffering from the
problem of corruption. Most vulnerable
areas in the Cambodian administration are
high-ranking public servants (both politicaland bureaucratic), departments ofCustoms, Economic police, Immigration,and the judiciary. Laws and regulations
are not effectively implemented in the
country because of corruption, which
results in other economic crimes such as
smuggling, tax evasion, drug trafficking
etc. The fight against corruption has notreceived the seriousness it deserves in
Cambodia, and corruption has become aculture amongst public officials.
China
Corruption 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 of
economic crime. Besides, the policy of
opening up to the world has exposed theChinese people to external influences and211

RESOURCE MATERIAL SERIES No. 55
inducements. Advances in science andtechnology, as well as administration
methodology, has brought benefits to theChinese people. At the same time, some
negative elements have contributed to newcrimes, especially corruption. The criminal
law of China describes public servants as
those who work in government agencies,
State owned companies, enterprises,
institutions or peoples’ associations. Also
those public servants that are assigned towork in non-State owned companies,
enterprises, institutions, or peoples’
associations are covered by the anticorruption law. The law further stipulates
that public servants who illegally takeadvantage of their office, steal or
fraudulently appropriate public property,
are guilty of a crime. Further a public
servant who misappropriates large sumsof public funds for profitable business, ormisappropriates large public funds without
return over three months, is guilty of thecrime of embezzlement. Anti-corruption
agencies in China have been filing large
numbers of anti-corruption cases and thecourts have also disposed of most of thesecases.
India
From the early eighties, politicalcorruption has been on the increase. Many
leading political figures in India and many
political parties have been accused of
accepting illegal monetary contributions
from the business world in the matter ofarms contracts, power and fertilizer
contracts etc. Liaison agents, both ofleading Indian and foreign firms have been
operating 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. During
1996, the CBI has taken 304 persons under212

custody for various offences under the Act.
Enforcement by the States/Union
territories on this account shows asignificant increase in the number of
persons arrested in the cases registeredunder the Act during 1995 to1996.
During 1996, the CBI made a record
seizure to the tune of Rs. 143 million. The
State/ Union territory Vigilance Officials
seized property to the tune of Rs. 262
million in various cases of corruption. In
the cases investigated by the CBI in 1996,
departmental action was taken against 544
officials, whereas in the States,
departmental action was taken only
against 168 persons. The punishment
awarded to various public servants in thecases handled by the CBI included 42
dismissals, 20 removals, 148 major and 228
minor punishments in 1996. In State
Vigilance cases, 168 persons were referredfor departmental action in 1996. There
were 9 dismissals, 2 removals from service,
27 minor and 97 major punishments
awarded to the public servants during thisyear. An analysis of the profile of the public
servants proceeded against by various
agencies 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 servants
charged for corruption are at thelower levels of administration.
(c) Action taken by the State / Union
territory anti-corruption agencies isvery small as compared to the CBI.
Japan
Analysis shows that 40 percent ofcorruption cases in Japan pertain tomalafide deals between private
construction companies and local publicbodies involving big enterprise on one side,and politicians or bureaucrats on the other.

110TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
Recently, a serious case of corruption inwhich heads of several self-governing
bodies and major construction companies
were involved, was detected in 1993. Suchcorrupt deals have been the source of illegal
profit to private firms, and illegal collusion
between the contractors has made prices
unfair by interfering with healthy
competition. The companies have beenable to keep large amounts of unaccounted
funds, which have been used in corrupt
deals.
There is no special legislation to deal
with the corruption cases in Japan, butvarious penal regulations have beenenshrined in the Criminal Code and otherlaws. In Japan, basically the police
investigate corruption cases. There is a
special investigation division thatinvestigates economic crimes including
corruption at the police headquarters ofeach prefecture. Police and publicprosecutors regard cooperation between
them as the key for successful
investigation. Public prosecutors also
investigate special corruption cases inwhich high-ranking politicians andbureaucrats are involved. Special
Investigation Departments have beenorganized in the District Public Prosecutors
Office of Tokyo, Osaka and Nagoya. These
Special Investigation Departments
investigate the corruption cases of thecategory mentioned above. These Special
Investigation Departments have beengetting good results by conducting
investigations independently, without any
political influence.
Korea
Korea, in the recent past, has been jolted
by serious cases of corruption. In 1995, theCentral Investigation Department
investigated bribery charges involving theformer President Mr. Roh Toe Woo, in
which he was awarded a heavy
punishment. In 1993, Regulations for

Enforcement of Emergency Presidential
Order on Real Name Financial
Tr a n s a c t i o n s a n d P r o t e c t i o n o f
Confidentiality was enacted. As a result,bank accounts cannot be opened insomebody else’s or false names. This has
proved to be a deterrent to the corrupt andhas helped investigators in tracking
criminals and their assets in cases wherea banking channel is used by the corrupt
in their deals.
Laos
To g e t h e r w i t h s o c i o - e c o n o m i cdevelopment, Laos has been facing
problems of various types of economic
crime. Corruption is not a serious problem
in the country, but it is still significant
enough to be taken serious note of.
Involvement of government officials invarious corrupt activities is damaging
socio-economic development and resulting
in the loss of the confidence and faith ofthe people. Corruption in Laos has beenendemic in middle and high-ranking
officials of the government working in thefields of finance, tax, customs, immigration
police, banks etc. Lack of moral values,
poor living conditions and low salary aresome of the causes of corruption amongst
public servants in Laos. The present laws
and regulations are not effective enoughto combat corruption in the country.
Nepal
There is a general realisation in Nepal
that there is corruption in both thegovernment and private sectors thatinvolves the whole spectrum of society. A
developing country like Nepal loses acolossal percentage of its development
expenditure by way of corruption.
Reasonable investment towards
development 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 of213

RESOURCE MATERIAL SERIES No. 55
corruption, and completed investigation in
629 cases. Out of the completed cases, 11cases were filed in the court in which 1
Minister, 3 Secretaries and various otherpublic officials were prosecuted. The CIAA
also forwarded the recommendation for
departmental and other actions against
more than 32 public officials. Likewise in
1997/98, besides 6 cases filed in court, theCommission recommended departmental
and other action against more than 30
public officials. The departmental action
taken in the cases investigated by theSpecial Police Department in the fiscal
years 1993/ 94, 1994/ 95 and 1995/ 96 has
been against 82, 73, and 30 officials
respectively.

any other necessary action, if it finds on
inquiry or investigation that they havemisused their authority by improper
conduct. In cases of corruption, CIAA may
bring, or cause to be brought, an action
against such public servants or any otherperson involved therein in a court having
jurisdiction in accordance with law. The
Prime Minister, Ministers, Speaker of theHouse of Representatives, members of
Parliament, and all public officials areincluded within its jurisdiction. CIAA is
the sole body, which looks after cases ofcorruption and all other anti-corruption
institutions of the government function
under the delegated power of theCommission.

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

Pakistan
Corruption is a serious problem andpermeates all stratas of society in Pakistan.
The last three governments were dismissedon charges of corruption. Recently thegovernment has enacted new legislation
called the ‘Ehtsab’ Act (Accountability Act)to weed out corruption in the higher
echelons of bureaucracy/politics. This
enactment has produced positive results sofar.

The Constitution has made the provision
for the establishment of the Commission
for the Investigation of Abuse of Authority(CIAA). The Commission investigatescases of abuse of authority in terms ofcorruption or improper conduct (maladministration) by any person holding apublic office. The CIAA functions as an
Ombudsman institution as well as an Anticorruption institution. It has been given
the power to admonish such public servantsor forward recommendations to theconcerned authorities for departmental or214

Philippines
Corruption amongst public servants has
been a problem in the Philippines. A toughAnti-corruption law was enacted in 1991
as a result of corruption under former
President Marcos, who allegedly plunderedbillions of dollars from the government
coffers. The Anti-Graft and Corrupt
Practices Act and Anti-Malversation(Embezzlement) Revised Penal Code havealso been enacted to deal with various
aspects 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.

110TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
South Africa
Achieving good governance, andovercoming the practices of profligacy andcorruption inherited from the apartheid
government and its economy, are two of themost important challenges facing South
Africa. Corruption is also rife in South
Africa’s private and public institutions.
The apartheid era was structurally
conducive to corruption as its culture of
secrecy resulted in a lack of a transparent
and 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 often
involved. A member of the provincial
legislature (deputy speaker) has been
removed and is facing criminal charges ofcorruption.
The current legislation to combat
corruption is inadequate and there is noprovision for the presumption of guilt.
There are various institutions involved in
the investigation of corruption. These
structures are inadequate and work in
isolation. The Anti-Corruption Unit
investigates cases of corruption within theSouth African Police Service, the Office for
Serious Economic Offences (OSEO)
investigates allegations of serious economic
offences that include corruption on a large
scale. The Commercial Crime Unit, theD’Olivera Task Unit, the Presidential Task
Unit, the Public Protector, the Independent
Complaints Directorate, the HealthCommission, the National Intelligence
Agency and other intra-departmental units
are 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 for
Corruption
Some of the factors which contribute increating an environment for corruption
identified during the discussion are as
follows:(i) Political Commitment: There seems
reluctance on the part of some of thepolitical parties and governments toseriously combat corruption. As aresult, the attitude of the governments
becomes lackadaisical in combatting
corruption.
(ii) L a c k O f Tr a n s p a r e n c y i n t h eAdministration and Management: Lackof transparency in framing policies andin taking administrative decisions of
the 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 government
work provides opportunity for thecorrupt to often go undetected.
(iii) Internal Auditing and Control Systems:
Lack of efficient internal auditing andcontrol systems in the governmental
set-up makes a favorable environment
for corruption. More often than not, theaudit has become a formality and lacks
effectiveness.
(iv) Lack of Ethical Standards and NonAdherence to Code of Conduct: In somecountries, a low level of ethicalstandards in the society in general, anda low regard of conduct rules amongst
public servants in particular, breeds aculture of corruption and cynicalacceptance of the same amongst the
public.
(v) Lack of Professionalism: Professional
experts such as Chartered Accountants,

215

RESOURCE MATERIAL SERIES No. 55
Income-Tax Attorneys etc go against
their professional ethics and help thecorrupt in legitimizing their ill-gotten
gains. This has in turn made the taskof the investigating agencies so much
more difficult.
(vi) Inadequate Pay Structure: In somecountries, the abnormally low pay
structures for public officials has also
led to a perverted justification ofcorrupt practices on the part of somepublic servants.
(vii)Poverty and Shortage of Essential
Supplies and Lack of Awareness: In
some countries, the vicious circle ofpoverty, and shortage or lack of proper
education amongst the populace
creates an environment for corruption
and lowers the capacity of the public toresist the same.
C. Problems in investigation,
Prosecution and Trial
This basically involves action by one
organ of the government, i.e. the criminal
justice system, against its counterparts inother organs of the government, often far
more powerful than the former. The
situation becomes even more exasperatingwhen the criminal justice system is infectedwith corruption. The fight against
corruption is a fight against wellentrenched vested-interests.
During the group discussion on thesubject, it was clear that whereas some ofthe problems and possible solutions are
identical for different countries, others are
not uniformly applicable due to differencesin their political, social, economic systems
and the state of their development.
(i) Independence and Neutrality ofInvestigating and Prosecuting Agencies:
In some of the countries it seems thatinvestigating agencies have been216

hesitant to proceed against highly
placed public servants. This has been
noticed particularly when high politicaland bureaucratic persons are suspect.
In some cases, even the judiciary has
been pressurised by the vested
interests. This has highlighted theneed to insulate the investigating/prosecuting agencies in such countries
from the political/ bureaucratic
executive, so that they can carry out
their 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 Starting
Investigation: Due to the ‘white-collar’nature of the crime, information is often
either not forthcoming or is imprecise.
Complicated financial transactions
have enabled the corrupt to disguisetheir illegal incomes as legal assets. In
cases of highly placed public servants,
informants are often reluctant to comeforward with information out of fear of
retribution.
(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 allow
the enforcement agencies to become
strong and capable of effective
investigation. In some countries where
the number of corruption cases is verylarge, it has been felt that investigators
are overburdened, resulting in delays,
as well as poor quality of investigation.
It has also been felt that investigationand trial of corruption cases requires
special skills and knowledge inaccounting, tax and company laws etc
on the part of investigators andprosecutors, which they often lack.
(iv) Provision of Prior-Sanction: In somecountries, prior-sanction of the

110TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
government is required before starting
investigation of a case against a seniorpublic servant. This leads to motivateddelays and sometimes even leakage of
information to the advantage of thecorrupt.
(v) Shortage of Courts: In some countries,
the number of special courts to try
corruption 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, sometimes
extending to a number of years, is taken
in anti-corruption trials. Due to this,the witnesses, and sometimes even thecomplainants, become hostile in the
court, leading to many unsuccessfulprosecutions.
(vi) Delays In-Built in the Legal System: A
corrupt 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 has
to prove the case beyond all reasonable
doubt. In most cases where a corrupt
public servant has been legitimizing
assets by a series of financial operations
over a period of time, the degree of proof
required 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 is
usually high, resulting in the low
morale 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 of
Criminal JusticeCorruption 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 participating
countries.
(i) Independent and Neutral Investigating
Agencies: In order to ensure a free handto the enforcement agencies in thisfield, personnel should be given
security against abrupt transfers andother forms of retributive action on thepart of politicians and senior public
servants. Prescribing fixed tenures anda strict and impartial procedure for the
induction/appointment, as well astransfer/removal, of personnel working
in these agencies can go a long way inensuring the independence andneutrality of these agencies.
(ii) Protection of the Complainants andWitnesses: In order to encourage
complainants to come forward withinformation, and to allow the witness
to depose freely, Witness Protection
Programs should be introduced.
Invariably, the offenders in serious
cases of corruption are highly placed
politicians and/or bureaucrats, andvery often there is a collusion between
these two kinds of public servants.
Under any system of government, such
persons wield a lot of power. Informers
and witnesses are extremely reluctant
to depose against such powerfulpersons for fear of retribution. It istherefore, either difficult to start217

RESOURCE MATERIAL SERIES No. 55
investigation or it is virtually
impossible to conduct a successful
investigation and trial. Countries haveto consider this problem in their own
perspective and determine exactly
what kind of protection is to be offeredto the informers, complainants andwitnesses.
(iii) Adequate Number of Well-Trained
Investigators: Besides increasing thenumber of investigators in the anticorruption agencies, special training
programmes should be organised forthem in the fields of accounting, tax andcompany law, including practicaltraining under experienced
investigators.
(iv) Removal of Prior Sanction System: Theprovision of prior sanction before
initiating an inquiry or investigation,
prevailing in some countries, should be
removed. Instead, if felt necessary, astatutory commission could beestablished to examine grounds forstarting an inquiry or an investigation.
(v) Increase in the Number of Courts: The
number 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 proof
or a presumption of guilt should lie on
the accused in certain circumstances ofhighly suspicious evidence against
public officials. In a case where a link218

by way of ownership of an asset has
been proved against the accused by theprosecution, the court should make it
incumbent on them to prove that they
are not the owner of the same, to thesatisfaction of the court. Provisions for
shifting the burden of proof, in certain
circumstances, onto the accusedalready exist in some countries in anticorruption and other laws. If necessary,
substantive and procedural laws can bereviewed and amended accordingly.
Hearsay evidence is often the majorpart of evidence gathered byinvestigators in anti-corruption cases.
However, the evidentiary laws of mostcountries regard hearsay evidence as
inadmissible. It is recommended that
wherever proper foundation has beenlaid, hearsay evidence should be madeadmissible by amending theevidentiary laws.
(viii) Immunity from Prosecution: Somecountries have provisions in their laws
wherein immunity from prosecution is
granted to a co-accused by the courts
upon their confession. This can be aneffective means to strengthen evidence
against the main accused where anumber of conspirators are involved.
This step is recommended tostrengthen anti-corruption laws where
ever possible. Besides this, steps toprovide protection to state witnesses(approvers) under the witness
protection programme should also be
considered.
(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

110TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
community should recognize theoffences of corruption as an
extraditable offence and take steps toexpeditiously extradite such accused to
face legal action.
E. Other Countermeasures
To make the fight against corruption
effective, the following countermeasures in
the realm of government and legislatureare recommended by the group:(i) Transparency in Administration andEffective Management Systems to
Eliminate Situations which could Leadto Corruption: Transparency in thepolicy and administrative decisions of
the government in the matter of
acceptance and allocation of contracts,
procurement of goods, appointments
and transfer of officers should beensured. The internal management
should be made efficient and prompt.
A Single Window System ofgovernment decisions should be
introduced, obviating the need formaking contact with different public
servants by the applicant. Legislationon the Right to Information may also
prove to be a step in making the systemof government decision-making more
open.
(ii) Professional Misconduct: In case of
professional 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 corruption
should be debarred from holding apublic office until the conclusion of thelegal proceedings. Similarly, agovernment servant accused of thecrime of corruption should becompulsorily suspended from service

until the conclusion of legal
proceedings. Such a system alreadyexists in some of the participating
countries.
(iv) Public Education and Mobilization:
Public-cooperation and support play animportant role in any anti-crime
measure, and more so for the successful
campaign against corruption.
Therefore, emphasis should be given for
public education and mobilization by
governmental, as well as nongovernmental, organizations and by
campaigns 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 are
more often than not scoffed at by the richand wealthy, who regard taxes as ameasure of fiscal unfairness and as a
reduction 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 also
those with sufficient means to pay for the
expensive advice available to enable themto avoid paying more tax than is absolutely
necessary, and to minimize taxes to which
they are already subject. This ensures thatin practice they pay proportionally less tax
than the poorer members of society.
A. Actual Situation
China
In recent years, China has made reforms
in its taxation system. Cases of tax evasion
have been increasing. In 1994, theprocuratorates received 12074 cases
relating to tax evasion, and filed 6841 cases
prosecuting 7562 defendants; 7180 cases
were finalised. In 1995, the courts handled219

RESOURCE MATERIAL SERIES No. 55
491 cases relating to tax evasion, 495 cases
ended in conviction and 1354 defendants
were punished.

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

India
In India, tax evasion is the most common
illegitimate activity, which is practiced bysuppressing facts and the manipulation ofrecords by professionals and other tax
payers. Information from the Central
Board of Direct Taxes reveals that there
hase been a steady and continuous effort
to unearth income tax evasion throughsearches. The assets seized during 1996
were to the tune of Rs. 4056.3 million.
According to one estimate, as much as 70%
of taxes are evaded in India (the years
1992-96). A look into the prosecutions thatwere launched for tax evasion reveals thatthe conviction rate has been low. During
1996, out of 234 cases, which wereprosecuted under the direct taxes
enactment, 70 were compounded, 149 cases
were acquitted and only 15 cases resulted
in conviction.

Nepal
Tax revenue is the major source offinancing the Government expenditure in
the country. Tax revenue and non-tax
revenue 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 lower
tax assessment. It is often alleged that theactual tax collection is only in a fraction of
the 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 Investigation
Department, an administrative body, hasbeen established for the investigation of tax
evasion cases in the country. Very few casesof tax evasion are investigated andprosecuted. Where cases are prosecutedin the court, it takes a long time for them
to 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 forwarded
from the previous year, were prosecutedand no cases were disposed of.

Japan
Recently in Japan, on average 40 to 60
billion yen is lost every year due to tax
evasion. Most of the evasion is in the fieldof income tax, corporation tax andinheritance tax. In Japan, the police do
not investigate tax evasion cases, because
this requires expert technical knowledgeof the many tax laws and techniques of theinvestigation. Investigation of these cases
is conducted by the tax investigation
officers of the Tax Administration Bureau
and the Public Prosecutors Office. During
investigation, the public prosecutor and thetax investigation officers usually discuss
the many points of investigation, and theinvestigation is carried out under close
cooperation between them. The Tax
Investigation Bureau recently investigatedabout 230 tax evasion cases, and referred
about 75% of the cases to the publicprosecutor, most of which were prosecuted.

220South Africa
Wi t h h o l d i n g t a x w a s d e e m e d alegitimate means to fight the Government
during the apartheid regime. Businesspersons, professionals and other taxpayers
suppressed facts and manipulated records.
This culture has taken root. The current
Government is taking corrective steps tostop the above practice. Tax laws have beenenacted to deal with tax evasion.

110TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
B. Contributory Factors for Tax
EvasionThe group identified some of thefollowing contributory factors for tax
evasion during its discussion:(i) Tax-Shelters: In order to encourage
private investment in socially
responsible activities, the fiscal laws
provide for tax shelters where lower
taxes are charged for making suchinvestments. This provides incentive
for manipulation of records to takeadvantage of tax shelters.
(ii) Fiscal Policies: At times, fiscal policies
are deliberately distorted and loopholes
are left by corrupt politicians and seniorbureaucrats in the tax laws for corrupt
motives, with the objective of favoring
big business houses.

lack a deterent effect.
(vi) Unprofessional and Unethical Conduct
of Tax Professionals: Large scale
unprofessional and unethical practices
by chartered accountants and income
tax attorneys, whereby for personal
gain 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 tax
administration, where a mutually
beneficial but unholy relationshipexists between the assessed and the tax
official, with resultant loss to thetreasury.

(iii)High Rate of Taxation: In somecountries, the rate of taxation is very
high 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 tax
structure, persons with low incomes,
agriculture sector etc are either not
taxed or taxed very lightly, with theresult that there is a feeling of unfair
treatment amongst persons in higher
income levels, motivating them in turnto evade taxes.

(ii) Independent Tax Administration: In
some countries, the tax administration
lacks independence of action, as they
are subject to extraneous pressuresfrom high political and bureaucratic
quarters.

(iv) Implementation of Company Laws:
Weak implementation of companies
laws also results in companies forging
records and avoiding full disclosure ofbusiness information, leading to tax
avoidance.

(iv) Reporting of Transactions: Absence ofreporting requirement by the banks
and financial institutions fortransactions of more than a certain
value, and bank secrecy laws, help thetax-evader to hide information about
various commercial deals and incomesgenerated therefrom.

(v) Lack of Deterrence: Penalties for taxdefaulters are lenient and most of thetimes, the cases are compounded (dealt
with administratively) through thepayment of fine. Thus the penalties(iii)Lack of Professional Skills: Lack ofprofessional competence amongst the
tax-administration officials,
prosecutors and judges about modern
complex financial operations works tothe advantage of the tax-defaulter.

221

RESOURCE MATERIAL SERIES No. 55
D. Countermeasures in the Field of
Criminal JusticeThe group recommends the following
countermeasures related to the problems
as identified above.
(i) Deterrent Penalties: Exemplary
deterrent punishment should beprescribed for dishonest tax officials
and politicians colluding in tax evasion.
(ii) Neutrality of Tax-Administration: The
independence and neutrality of tax
administration agencies should beensured through constitutional/
legislative steps. In some countries, tax
administrations have been given
statutory status.
(iii)Improving Professional Skills: In order
to correctly analyze highly complex
financial deals involved in the tax
cases, tax administration officials,
prosecutors and judges dealing with tax
cases should be trained in up-to-datetax administration methodology andaccounting. Tax administration
officials have been posted as advisors
to 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 been
made a legal requirement in many
countries including the U.S.A.
(v) Computerization of Tax Records: The
tax administration should computerize
its record keeping to make the forging
of records difficult and detectable.
(vi) Double Taxation Treaties: International
cooperation should be freely sought andgiven in getting details of bank deposits
and financial transactions
accomplished abroad. More ‘double

222

taxation’ treaties should be concluded
with countries to elicit theircooperation in this field.
(vii) Public Education: In some of thecountries, tax-payment has been
considered as a donation to thegovernment rather than a legal dutyof the citizen. Public awarenessprograms play an important role in theefforts to decrease tax evasion. The
emphasis should also be given for
public education through various
means, including mass media, in orderto motivate them to become honest
taxpayers.
E. Other Countermeasures
The group also identified the following
countermeasures which can be taken on
the part of the government to supplement
the efforts of the tax-administrators to
reduce 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 ‘exemption
schemes’, which provide an opportunity
for manipulations and forging ofrecords by the assessors.
(ii) Fiscal/Tax Policies: Fiscal and tax
policies 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 more
persons, professions and businesses in
the categories eligible to pay tax.
(iv) Financial Intelligence/Data Bank
Organization: An organization on the

110TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
lines of FINCEN (United States
Department of the Treasury Financial
Crimes Enforcement Network) may beformed in every country to act as thecentral repository for financial
intelligence and analysis, for providing
assistance in the investigation offinancial crimes including tax fraud.
IV. SMUGGLING
In their initial stages of development,
the developing countries had extremely
limited foreign exchange reserves andtherefore, had to conserve it for the importof essential items, defense and other crucial
requirements. Regulatory measures
including restrictions on the import ofgoods, both for the sake of protecting
indigenous industry and for conserving
scarce foreign exchange, had to be resorted
to. Further, in the absence of a strong
industrial or agricultural sector, revenue
required to undertake massive
development had to be generated by
imposing high tariffs. Evasion of duty andcircumvention of import trade control
restrictions therefore put a premium on
smuggled items and made smuggling
profitable.
Smuggling of contraband like drugs,
firearms and pornographic material etc canlead to serious social and politicalproblems. Smuggling of items protectedby copyright and intellectual property
rights can seriously upset relations
between the countries. Smuggling is atransnational crime and requires
cooperation between nations for combatingit.
A. Actual Situation
Cambodia
Cambodia has been fighting a terrorist
war at its northwestern borders for overtwo decades. Consequently, large-scale
firearms and other offensive weapons havebeen smuggled into the country. Apart from
this, large scale smuggling of gold, timber,consumer items and drugs has resulted in
the country, from its borders with Thailand
and Vietnam.
China
In 1995, 1119 cases of smuggling werefiled with 1097 cleared by public security
organs; 154 cases were convicted by the
courts and 239 defendants were punished.
In 1996, the public security organs finalised
1000 cases of smuggling involving cars,
tobacco, drugs, pornography, CDs and DVC
disks. Smuggling offences by companies
are increasing and sometimes government
officials are also involved. Most of thesmuggling in China is carried out byorganized gangs.
India
In India, apart from outright smuggling,evasion of customs duty by mis-declarationof value and description of goods also takes
place. These activities bring together
unscrupulous elements both in India andabroad. Well organized gangs, which havethe capacity to arrange funds abroad forestablishing sophisticated communication
networks, arrange the landing of goods
both by air and sea. Smuggling, involving
consequent evasion of customs duty,
generation of black money, money
laundering and evasion of taxes etc, grew
as a formidable parallel economy in the
1960’s and 1970’s.
Information in respect to the number of
seizures made and the nature ofcommodities seized for the years 1992-1996
presents the gravity of the offence and thetraffic that takes place in contraband goodsin the country. Over the years, the trend
for this type of crime has been steady,however, the type of contraband haschanged. Consequent to the ushering in of
new economic policies in 1992-93, there
was a reduction in rates of custom duties

223

RESOURCE MATERIAL SERIES No. 55
and liberalization in the economic policiesof the country. There has been a gradualfall in the quantum of goods sought to be
smuggled into the country. Compared to
1995, there has been a decrease of 11.4%
in cases of seizures made by the Customs
in 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, has
yielded place to narcotics and electronic
items. Outright smuggling of gold hascome down due to the economic measuresinitiated by the government, which
includes import of gold up to 10 kg allowed
to each passenger returning from abroad
after 6 months, and the import of gold
under special license. There has been a
disturbing trend of smuggling foreign
currency in and out of the country by
various means, including payments forunder-invoiced imports, inward
remittances for over-invoiced goods orbogus exports for financing the import/
smuggling of gold and other sensitive
items. Other items seized by customs
include silver, diamonds, watches,
synthetic fibers etc.
Japan
The Japanese law enforcement agencies
are especially striving against anti-social
smuggling (illicit drugs and guns) on
account of their obvious negative effects onsociety. ‘Boryokudan’ (mafia gangs) havebeen found to organize most of this kind of
smuggling. In addition, duties are evaded
on articles like silk, pork and clothes byimporters via fraudulent declarations. In
recent times, cases involving smuggling by
tourists of illicit drugs, guns, jewellery havecome to notice. Smuggling is carried out
amongst other methods through storage inships, cargo containers and postal services.

224

Laos
In Laos, the commodities involved insmuggling include motorcycles, medicine,
fruit, cosmetics, construction equipment
etc. Since it is one of the ‘Golden Triangle’countries, Laos is also a transit route fordrug smuggling. As Laos is a land locked
country, having international borders withfive countries, smugglers find it relatively
easy to carry out their nefarious trade.
Nepal
Smuggling has a serious effect on theeconomy of the country. Though statistical
data is not available for smuggling
activities, it is accepted that the national
revenue, mostly dependant on the customs
and tax revenue, has suffered due to anincrease in smuggling activities. Illicit
trafficking of narcotics, illegal import andexport of gold, foreign currencies, andillegal export of timber are some of the
major items involved in smuggling in the
country. Violation of the Customs Act, theForeign Exchange Act and other related
laws is a consequence of smuggling
activities. Forged Letters of Credit, as well
as forged customs receipts and registration
papers, are commonly used in thesmuggling of goods and motor vehicles.
Nepal is basically a transit point for
smuggling. Due to its open borders with
India and China, most of the smuggling
activities 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 with
Afghanistan. Afghanistan has transit
rights through Pakistan and quite a few
consignments find their way into the tribal
areas of Pakistan, from where they are
distributed to different parts of the country.

110TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
South Africa
The most damaging aspect of smuggling
operations is the killing of rhinos for theirhorns, and elephants for their ivory, by
poachers. These items are smuggled outof the country for sale. Stolen motor
vehicles, gold and diamonds are also
smuggled out of the country. Drugs,
firearms, counterfeit goods are smuggled
into the country.
B. Contributory Factors for
Smuggling
The group felt that following factors
contribute 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 enforcing
anti-smuggling measures has become
quite daunting, involving hugefinancial and human resources.
(ii) Duty Free Export Schemes: Violation ofcertain fiscal measures designed toencourage exports in developing
countries, like the duty free exemption
schemes, is difficult to detect andinvestigate due to lack of co-operation
amongst the countries in the matter of
information sharing about the crimeand criminals.
C. Problems in Investigation,
Prosecution and Trial(i) Lack of Information: As smuggling is atransnational crime, enforcement
agencies are handicapped due to thelack of information about the activitiesof the organised gangs in othercountries affecting them. Smugglers
have been using containers,
complicated structures of the ships andeven human bodies to hide contraband,making the job of detecting the same
extremely difficult.

(ii) Conflicting Jurisdictions: Conflicting/overlapping jurisdictions amongst
Customs, 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 the
Enforcement Agencies: Lack of cooperation between enforcement
agencies in the matters of sharing/follow-up of information, and in actual
anti-smuggling operations, works tothe advantage of the smugglers.
(iv) Lack of Manpower: Lack of sufficient
manpower in the enforcement agencies,
particularly at small local ports or
wayside border custom offices, makes
them the focus of operations by
smugglers.
(v) Corruption in Customs Department: In
most of the developing countries,
corruption amongst Customs officials
and border police further compounds
the problem of detection andinvestigation.
(vi) Involvement of Organized Gangs:
Involvement of organized crime groups
in smuggling, like the ‘Boryokudan’ inJapan and similar gangs in othercountries, makes the job of enforcement
difficult. These gangs have large
resources and are transnationalorganisations, with none of the
problems/handicaps of information,
jurisdiction etc, faced by the official
enforcement agencies. The carriers
rarely belong to the gangs, as they
operate in the background. Thus in theevent of the carrier being apprehended,
the smuggling syndicate remains
intact.
(vii) E x t r a d i t i o n : D i f f i c u l t y i n t h e

225

RESOURCE MATERIAL SERIES No. 55
extradition of smugglers, due to thehurdles in extradition processes often
experienced between countries, also
helps the smugglers. As long as theinvestigating agencies are unable toproceed against the gang behind theoperations, action against the carriers
is like treating the symptoms rather
than the disease.
D. Countermeasures in the Field of
Criminal Justice(i) International Co-operation in the Field
of Investigation and Information
Sharing: Close monitoring of theactivities of the organised gangs, andinformation sharing between the
countries affected, has proved very
effective in curbing smuggling. This
has resulted in the offenders coming
under pressure from both ends. Joint
training programmes between theenforcement agencies of various
countries, based on the one conductedunder the UNDCP in the field of drugs
smuggling, can be organised. Japanese
enforcement agencies have been
exchanging information and seeking
cooperation under the aegis of the Asia
Pacific Maritime Safety Agencies
F 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 antismuggling operations.
(ii) Co-ordination and Joint Operations
B e t w e e n E n f o r c e m e n t A g e n c i e s:
Coordination, including information
sharing meetings, between senior
officers of the enforcement agencies;
joint training programs; inspections
and exchange of personnel at middle
and lower levels, will improve interagency co-operation and speedily
resolve jurisdictional problems to makejoint operations more efficient. In
Japan, officials of police, Customs and226

the Maritime Safety Agency closely cooperate and this has led to manysuccessful operations.
(iii) Strengthening Manpower at Smaller
Ports/Inlets: To supplement the
manpower shortage of the enforcement
agencies, video-monitoring, more patrol
cars, patrol vessels and air-crafts may
be used as force-multipliers.
Manpower of smaller ports and land
inlets should be strengthened.
(iv) Anti-corruption Measures in Customs
Departments: Senior supervisory
officers and anti-corruption agencies
shall keep a close watch on the conduct
and lifestyle of their subordinates, fromthe point of view of enforcing integrity.
Exemplary punishment shall follow
cases of malafide conduct.
(v) New Technology to Improve Detection
and Monitoring: Provision of the latest
gadgetry to enforcement authorities
will 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 smuggling
items ingenuously hidden, withoutslowing down the process of Customs
clearance. Detection dogs have beeneffective in anti-drug operations.
(vi) Fast Extradition: High level contacts
and improved co-operation between
countries in matters of the extraditionof suspects will act as an effective
deterrent to smugglers.
(vii) Double Taxation Treaties: Thesebilateral treaties are negotiatedbetween countries having considerable
trade between them, in order to secure
co-operation between their

110TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
investigating agencies. More double
taxation treaties should be negotiatedbetween affected countries, which will
help in exchanging information andevidence about individual deals.
(viii) Controlled Delivery Operations: In
certain countries, including Japan,
controlled delivery operations by the
Customs/narcotics department have
proved very successful, particularly insmuggling through postal channels.
This enables the enforcement agencies
to apprehend the main gang behind theoperations.
V. MONEY LAUNDERING
Money laundering means conversion ofillegal and ill-gotten money into seemingly
legal money, so that it can be integrated
into the legitimate economy. Proceeds of
drug related crimes are an importantsource of money laundering world over.
Besides, tax evasion and violation of
exchange regulations play an importantrole in merging this ill-gotten money with
tax-evaded income, so as to obscure its
origin. The aim is generally achieved via
the intricate steps of placement, layeringand integration, so that offenders, without
any fear of detection, can freely use themoney so integrated in the legitimate
economy. Initial deposits are usually madein states without regulations and thentransferred to offshore centers.
In some parts of Asia, ‘illegal
underground banking’ is used bylaunderers because it leaves no paper trail.
Money never enters the formal banking
system but is instead transmitted throughalternative banking systems such as the‘hawala’ in India and Pakistan. These
parallel banking systems are based onfamily or gang alliances and reinforced
with an unspoken covenants of retributive
violence. Now, Africa is also being

increasingly used as a route by money
launderers.
A. Impact of Money Laundering
As for as the impact of money
laundering, it is well known that it
facilitates tax evasion, smuggling, drugtrafficking and terrorism. An I.M.F.
working paper concludes that money
laundering impacts financial behaviour
and macro-economic performance in avariety of ways, including policy mistakes
due to measurement errors in national
account statistics; volatility in exchange
and interest rates due to unanticipatedcross-border transfer of funds; the threatof monetary instability due to unsoundasset structures; tax collection and public
expenditure allocation due to misreportingof income; misallocation of resources due
to distortions in assets and commodity
prices; and contamination of legaltransactions due to perceived possibility of
being associated with crime.
B. Actual Situation
China
China has of late experienced the crimeof money laundering. In view of thissituation, China has criminalised thegeneral offence of money laundering by
amending its Criminal Law.
India
The Enforcement Directorate in India,
in the course of its action against money
launderers, 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. The
value of confiscated Indian currencies by
adjudication registered a sharp rise, to thetune of 40 million as against 12 million
during 1995.
The offence of money laundering is likely
to be criminalised soon and ‘the Prevention

227

RESOURCE MATERIAL SERIES No. 55
of Money Laundering Bill 1998’ has been
introduced in the Indian Parliament. It
contains provisions for the mandatory
reporting of financial transactions above acertain value, and for the compulsory
maintenance of records of suchtransactions by the banks and financial
institutions.
Japan
In Japan, the Special Drug Law
specifically provides for regulation ofmoney laundering of ‘illicit proceeds or the
like’. Any person, ‘who disguises facts withrespect to the acquisition or disposition ofillicit proceeds or the like, or conceals illicit
proceeds or the like, shall be imprisoned for
not more than five years or fined not morethan three million yen or both’. The same
shall apply to any person who disguises
facts with respect to the source of illicit
proceeds. However, the scope of antimoney laundering legislation in Japan at
the moment is limited only to proceeds
connected 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 Japanese
Ministry of Justice is actively considering
a report to extend the scope of money
laundering laws to other crimes, besides
drug offences.
Nepal
Money laundering is a newly emerging
economic crime in the country. The
opportunities for money laundering haveincreased in the era of economic reforms.
Liberalization of market economy, creationof favorable environments for foreign
investors and the casino business haveprovided ground for huge financialtransactions. However, the crime of money

228

laundering in the country has yet to be
identified and investigated. There is stilla lack of legislation making money
laundering a criminal offence. The
Narcotic Drug Control Act 1976 hasprovision for the forfeiture of drug related
property and assets. Other financial
regulatory laws such as the Nepal Rasrta
Bank Act 1953 (The Central Bank Act) andthe Foreign Exchange (Regulation) Act
1962 do not cover all aspects of thesophisticated and complicated crime ofmoney laundering.
Pakistan
Principal money laundering methods
detected so far are Hawala/Hundi, Bearer
Investment 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 has
not enacted any laws against money
laundering. However, the Control of
Narcotics Substances Act 1997 provides
punishment for laundering drugs proceeds.
Reporting of suspicious transactions by thebanks and financial institutions has been
made obligatory in this law.
South Africa
The 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 to
be promulgated. The proposed Bill
provides for the establishment of a
Financial Intelligence Centre (FIC).
C. Contributory Factors for Money
Laundering(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

110TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
provides a glimpse into the offshore
industry. With the seventh largest
deposit base in the world, the Cayman
Islands has 550 banks in the territory,
only 17 of which have a physicalpresence and are subject to money
laundering laws. Total assets held by
Cayman banks in 1994 were above$USD 430 billion. Other countries
considered as being ‘major offence
centers’ are the Bahamas, Bahrain,
Hong Kong, the Netherlands Antilles,
Panama and Singapore. Some of thesecountries have been hesitant in
enforcing controls on tax havens dueto the benefits accruing to theirindividual economies.
(ii) Free Trade Zones: Trade liberalizationand free trade zones provide additional
money laundering venues. It isbelieved that these zones are shiftingfrom using the banking system to using
international trade to launder money.
Free trade zones in various parts of theworld bring economic prosperity totheir individual economies, but they
have often been manipulated by money
launderers due to an absence ofcontrols, by indulging in deals withmanipulated invoices.
(iii) Big Businesses: Billions of dollars in
drug proceeds are laundered throughmajor businesses such as stock
brokerages and insurance firms. Other
money laundering schemes involve
cash businesses such as bars, casinos
and restaurants, as well as non-bankfinancial institutions such as chequecashing stores and money exchange
houses. Such businesses have large
cash turnovers and, unless closely
monitored, are likely to and have often
been used by money launderers in theiroperations of conversion of illegal into
legal money.

D. Problems in Investigation,
Prosecution and Trial(i) Absence of Anti-Money Laundering
Legislation: Most of the countries,
particularly in the developing world,
are yet to introduce comprehensive
anti-money laundering legislation. In
some countries, this crime so far has
been dealt with under Foreign
Exchange Regulation Acts; underwhich most of the cases get
compounded and very few prosecutions
are launched. Absence of specific laws
in this field has provided a climate ofnon-deterance to criminals.
(ii) Bank Secrecy Regulations: These
regulations, which were designed togive privacy to genuine customers, arebeing used by criminal money
launderers for illegal deals. For thesake of attracting deposits, somebankers misuse these laws by opening
fictitious accounts for the money
launders.
(iii) Electronic Transfer of Funds: Wiretransfer systems allow criminalorganizations the facility of a swift andnearly risk free conduit for moving
money between countries. With theestablishment of electronic cash, it has
become virtually impossible to trace thetransfer of funds from one place toanother over the Internet or via e-mail.
Dig-Cash uses public key and digitally
blind signature techniques, whereby‘blinding’ carried out by the user’s own
device makes it impossible for anyone
to link payments to the payer.
Electronic cash has of late been
increasingly used by money launderers
due to the anonymity it provides to thesource of the funds.
(iv) Lack of Information: Professionals suchas attorneys, tax consultants etc, are229

RESOURCE MATERIAL SERIES No. 55
usually involved in money laundering
operations. Since the crime iscommitted by white-collar criminals,
information which is traditionallyreceived by the enforcement agencies
from the criminal world is lacking inthese cases. Absence of mandatory
reporting of financial transactions by
the banks also deprives theenforcement agencies of clues aboutmoney laundering rackets.
E. Countermeasures in the Field of
Criminal 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 should
now be the objective of every country.
This measure should include therequirement of mandatory reporting oftransactions over a certain amount,and the keeping of documentary
records of transactions for certain
number of years.
(ii) Co-operation between Nations: As
money laundering is a transnational
crime, the nations of the world must
co-operate to relax bank secrecy laws
which should, while ensuring
legitimate customer privacy, readily
provide required information toauthorized investigators. Besides
facilitating extradition of offenders/suspects, nations should also impose
commensurate regulatory controls onbanks functioning as tax havens,
exports and imports in free trade zones,
and on the monitoring of transactions
in cash rich businesses like casinos,
non-banking financial institutions andmoney exchange stores etc, in order tomake their misuse by money
launderers counter-productive.
(iii) Use of Technology for Pre-Shipment
Inspections: In order to effectively deal
with over-invoicing as a mode for the230

transfer of funds, Florida International
University experts have developed
software to filter trade data which canbe used in developing countries as apotential compliment or substitute forpre-shipment inspection to monitor
abnormal pricing. Governments should
provide their enforcement officials withsuch technology and training to operate
the same, in order to make the use ofmanipulation of import and export
invoicing difficult by money launderers.
(iv) Creation of Financial Database
Agencies: Along the lines of FINCEN
of the U.S.A (and other such agencies
in the U.K and France), agencies may
be created in every country which havea large database on financial operations
within the country, collected fromvarious sources like banks, financial
institutions, customs, Internal
Revenue Services, narcotic control
organizations etc, to aid and help
financial investigations. The AUN
anti-money laundering program,started in 1997 by the Vienna-based
UN office for Drug Control and Crime
Prevention, the ‘Global Program
against Money Laundering’ provides
governments with legal advice andoffers training for law enforcement andjudicial officers. It also assists inestablishing national financial
intelligence units.
F. Other Countermeasures
The group has recommended thefollowing countermeasures as preventive
measures to combat the crime of money
laundering:(i) Legislation in the Area of Digital
Money: Laws are in the process of being
enacted in various countries in theworld, criminalising various computeroffences. These laws should also
attempt to include the area of digital

110TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
money and virtual banking.
Organizations like FINCEN in every
country should be granted
constitutional authority to secretly
monitor all cyber-banking transactions.
(ii) Relaxation of Tough Foreign Exchange
Regulations: This measure is necessary
to 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 of business. As
underground banking channels are also
being used by money launderers incertain countries, this measure will
reduce avenues of money laundering insuch countries.
VI. CONCLUSION
The study of economic crime, both fromtheoretical as well as practical aspects, has
a common objective. It is the objective of
making the world safe and secure for free
trade and commerce, and for ensuring thestability of national economies. The task
requires educating the public about thedanger facing the economies from theactions of economic criminals, and thereby
ensuring international co-operation incontrolling economic crime.

231

RESOURCE MATERIAL SERIES No. 55
CORRUPTION
CHINA
Economic Criminal Cases Investigated by the People’s Procuratorates in China(1995)
Type

Disposition Cases

Total
Corruption
Bribery
Embezzlement
Tax evasion
Others126453
51340
30080
20618
13621
10794

FilingCases Defendants
63953
72601
21642
25897
16831
17763
12616
13550
8049
8912
4815
6479

Finalization
Cases Defendant
58773
67286
20281
24564
15550
16499
11650
12683
17302
8128
3990
5412

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

Corruption Cases Disposed and Finalized by the Court in China
Types
Corruption, bribery &embezzlement
Economic offences
Percentage
Numbers of defendants
punished

1994
Disposition Finalization

1995
Disposition Finalization

31223

30793

33068

39934

43065
72.5%

43013
71.5%

46614
70.9%

46386
86%

20019

26689

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

1993
1994
1995
Disposition Finalization Disposition Finalization Disposition Finalization
Economic offences
27463
27323
43605
43013
46614
46386
Total of criminal offences 403267
403177482927480914 495741
496082
Percentage
6.81%
6.77%
9.03%
8.94%
9.4%
9.35%
Types

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

232

110TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
INDIADetails of Cases Registered and Persons Arrested under the Prevention of
Corruption Act (1992 - 1996)
Years
1992
1993
1994
1995
1996

No. of vigilance cases registered by
CBIStates / Uts
1231
1772
1282
1895
1106
2104
825
2064
845
2361

Persons Arrested
CBI
States / UTs
1011
1167
463
2296
297
2604
304
2922

JAPAN
Year

No. of Cases

1993
1994
1995
1996
1997

67
82
77
60
89

No. of Bribe-taker
80
102
98
82
120

No. of Offenders
No. of Bribers
139
176
138
141
172

Total
219
278
236
223
292

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

Year
1993
1994
1995
1996
1997

No. of Offenders
No. of Bribe-takers No. of Bribers
23
39
26
16
32
27
11
8
11
14

Total
62
42
59
19
25

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

233

RESOURCE MATERIAL SERIES No. 55
NEPAL
Cases Investigated by CIAA
Fiscalyear
1996/97
1997/98

Total No. of Complaints
C/F from Registered
Total
last year this year
334
1422
1756
691
1004
1695

Investigation
started1320
1432

Investigation
completed

629
800

Cases
filed in
court
11
6

Note: Extracted from the Annual Reports of CIAA

Departmental Actions taken by SPD
Fiscal year
1993/94
1994/95
1995/96

Government servants
Personnel of Public Corporations
Gazetted Non-gazetted
Officers
Non-officers
10
44
13
15
12
37
7
17
8
4
1
17

Total
82
73
30

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

TAX EVASION
INDIA
Seizures by Income Tax Department (1992 - 1996)

234

Year

No. of searches conducted

Assets seized(Rs. in crores)

1992
1993
1994
1995
1996

4777
5026
4830
4612
4299

384.02396.46381.43458.14405.63

Unaccounted income
disclosed during searches(Rs. in crores)
501.05448.83577.08NANA

110TH INTERNATIONAL TRAINING COURSEREPORTS OF THE COURSE
JAPAN
Situation Regarding Criminal Investigation in Past 5 YearsYear

No. ofcommencements(case)

No. ofdismissals(case)

No. ofcomplaints
referred to
publicprosecutor

Accusation
rate
(%)

Total
amount of
tax evasion(yen mil.)

Total amountofaccused
tax evasion(yen mil.)

1993
1994
1995
1996
1997

212
215
217
221
232

215
216
223
232
225

161
155
163
177
166

75
72
73
76
74

60,10744,05041,53344,72336,31052,721 (327)37,817 (244)33,144 (203)
33,640 (190)
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
1991
1992
1993
1994
1995
1996
1997

Referred to
public prosecutor
by TaxAdministration
Bureau

452
484
783
879
559
497
574
567

Prosecutedby Public
Prosecutor

Not
Prosecutedby Public
Prosecutor

Under
investigation

20
23
35
304
107
58
49
63

168
132
394
193
154
103
123
125

93%
94%
91%
56%
74%
86%
89%
86%

Total
16
14
13

Disposed of
51-

Outstanding
11
13
13

264
330
354
382
298
337
402
379

by Public
Prosecutor

Prosecution
Rate

NEPAL
Number of Cases Prosecuted in Court
Fiscal year
1993/94
1994/95
1995/96

C/F
11
13

Current year
16
3-

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

235

RESOURCE MATERIAL SERIES No. 55
SMUGGLING
INDIA
Seizure made by Customs under Customs Act (1992 -1996)
Year
1992
1993
1994
1995
1996

Total no. of Seizures
59,27052,96349,99755,94749,580

Value of Seizures (Rs. in crores)
502.1
389.0
535.2
1,062.0
553.4

JAPAN
Year
1993
1994
1995
1996
1997

Antisocial smuggling
205
259
259
257
242

Evade duty
390
372
260
324
843

Without permission
453
438
324
301
352

Total
1,048
1,069
843
837
834

MONEY LAUNDERING
INDIA
Money Laundering 1992 -1996 (Cases under FERA)

Year

1992
1993
1994
1995
1996

236

No. ofCurrency Seized(Indian Rs. incrores)Searches/ Seizures/
IndianRaids Recoveries
1,215
738
3.9
1,234
843
6.7
1,540
1,046
9.8
1,175
832
10.2
1,164
868
12.4

Fines

Currency Confiscated(Indian Rs. in(Indian Rs. in crores)

crores)Foreign

Indian

2.5
4.5
8.1
6.5
7.8

2.4
3.1
1.8
1.2
4.0

Foreign Imposed Realized
2.2
3.0
2.2
2.3
2.0

27.8
10.6
78.0

2.3
3.2
3.4
2.2
1.6