Question:

Some scholars mention the following scheme for making ones haram wealth halal. Take a loan from a Non-Muslim and pay it off using the haram wealth (earnings) in ones possession. Is this permissible according to your honour?

Answer: حامدا ومصليا ومسلما

By this scheme the haram wealth does not become halal. All that happens is the food that one will buy with the loan becomes halal. However the sin of earning haram wealth and the sin of paying one’s debt with haram wealth still remains.

(Hazrat Mufti) Muhammad Taqi Usmani (May Allah preserve him.)
Fatawa Usmani (3/124-125)