Huzaima Bukhari and Dr Ikramul Haq

In the Sub-continent as elsewhere, the rich and mighty—greedy politicians, unscrupulous businessmen and dishonest civil-military bureaucrats—keep on singing the mantra of “patriotism” (sic) but remit millions abroad. They indulge with impunity in rent-seeking, plundering of national wealth and organised crime, yet rule over the poor as a matter of right—shamelessness is the most appropriate word for them as even feeling shameful is a sign that one’s conscience still pricks but complete apathy towards wrongdoings confirms an unabashed attitude.

Large-scale tax evasion and the existence of an outsized black economy while resulting in colossal loss of revenue to the State, tends to reduce the built-in elasticity of a fiscal system to the extent that tax evaded income is spent on goods and services that help generate inflationary pressures and raise prices of real property. In the context of the prevailing grave challenge to combat terrorism, together with money laundering operations, and the problem of ever-growing black money, (which, according to independent experts, is around 70% of the total economy), there is an urgent need to launch a well-thought-for asset-seizure law to prevent this enormous amount of money from becoming a lethal weapon in the hands of mafias who are now in control of economy as well as the government. Before enacting such a law, it is important to identify the sources generating black money. If such sources are not blocked, black money will keep on thriving notwithstanding the existence of stringent laws.

According to a conservative estimate, Rs 800 billion is generated every year in Pakistan by the parallel economy. Add to this, the black money generated through smuggling in goods and narcotics trade that is between Rs 300 billion and Rs 500 billion. This amounts to a whopping Rs 1300 billion. When the presence of black money is so apparent, then how come its criminal accumulation and generation is not revealed and the offenders punished, is a question, which has been baffling the minds of honest citizens. They ask, whether it is on account of lack of political will, or rampant corruption, or collusion of tax dodgers and the tax administrators at defrauding the revenue, or the political system or the ineffectiveness and defectiveness of laws, or the pervasive stubborn indifference of the citizens towards their duties?

Tax evaders and money launderers in Pakistan hardly need any international channel for whitening their ill-gotten wealth. All support from the State is available. If anybody brings money (earned from drug trade or any illicit activity or even one’s own untaxed money, hiring services of local money exchangers to depict it as remittance) in Pakistan through normal banking channels, the State Bank and tax authorities do not pose any question about the “source”. Tax evaders, drug-arms-human traffickers, rent-seekers and terrorist apparatus remit billions of rupees into the country every year from bank accounts maintained in various countries using fictitious Computerized National Identity Cards. This money, in the hands of drug-mafia, tax evaders and terrorist networks has made them invincible, besides making life harder and harder for those who earn from legitimate sources.

In the Income Tax Ordinance 2001, section 111(4) facilitates money launderers to remit (laundered is more appropriate term) their ill-gotten money through banking channels and surrender the foreign currency to the State Bank and get Pakistani rupees as encashment. In this way they can escape not only taxation but also any query from Federal Board of Revenue (FBR). This scheme presumably announced as a measure to bring huge foreign funds to Pakistani economy succeeded immensely as foreign remittances crossed US$ 20 billion mark. This scheme has been used liberally and cleverly by the Pakistani drug syndicates and tax dodgers to launder their money through State patronage. They also exploit section 5 and 9 of Protection of Economic Reforms Act, 1992 that debar FBR/Federal Investigating Agency (FIA) from probing foreign currency accounts.

Tax evaders in Pakistan have illegally transferred billions abroad. There is no will on the part of government to bring back this looted wealth/untaxed money as has been done by many countries in recent years. After five years of foot dragging, Nigeria got back $700 million of its plundered wealth back from Switzerland and Philippines recovered its $684 million looted by Ferdinand Marcos. After 18 years of litigation with the Swiss authorities, the Filipino authorities finally managed to get their money back. Furthermore, between August 2001 and 2004, Peru recovered nearly over $180 million stolen by its former spy chief Vladimiro Montesinos from several jurisdictions, including Switzerland, Cayman Islands and the United States.

While it took Mexico some 12 years to witness the repatriation of $74 million of the $110 million stolen by its ruler Raul Salinas, the governments of Mali and Argentina have also recently received $2.5 million and $4.5 million respectively from Switzerland. US tax fraud probe into wealth management giant UBS, opened cracks into the rock-solid reputation of the $2 trillion Swiss wealth management industry. UBS paid a hefty $780 million fine to settle the US tax fraud charges and agreed to disclose Swiss bank data belonging to around 4,500 of its US clients.

It is no secret that Pakistani tax evaders have been transferring huge amounts of money abroad but till today no effort has been made by the National Accountability Bureau (NAB), FBR and FIA to approach foreign governments as per law and retrieve the money. The situation in India was also the same till 20101. On March 28, 2011, the Indian Supreme Court came down heavily on the Enforcement Directorate (ED) of Income Tax asking if the department was sleeping since 2008 on the black money case.

After seeing the ED status report on black money investigation, the two-judge bench observed: “It is difficult to stay calm on the way things are happening in this country.” The Solicitor General told the Supreme Court that tax evader Hasan Ali Khan had given a written statement to the ED that there was a danger to his life and that of his family. Interestingly, the ED also sought protection for its officials investigating the black money case. The same day, in an exclusive interview with CNN-IBN, Swiss Ambassador to India, Philippe Welti, embarrassing the government of India, alleged that “the Indian government has not done enough to get information on money laundering. The government hasn’t filed a single application in a proper manner agreed upon by the two governments in its double-taxation treaty to access such data. All that the Indian government needs to do is to apply in a proper manner as per rules agreed upon by the two governments”.

In Pakistan, FBR is completely silent on the issue, though in these columns we had repeatedly explained the procedure for obtaining information under Pak-Swiss tax treaty (Probing Swiss accounts, Business Recorder, August 15, 2014, Retrieving Swiss money, Business Recorder, July 25, 2014, The Swiss accounts, Business Recorder, September 9, 2013, German-Swiss tax pact: lessons for Pakistan, Business Recorder, April 13 & 14, 2012 and Swiss ‘Return of Illicit Assets Act’: we can get billions back, Business Recorder, October 1, 2010). The government of Pakistan, it appears, has no intention to seek information directly from any Swiss bank by making use of proper channel that is, writing to Swiss Foreign Affairs Ministry through our Foreign Office.

The ugliest face of black money emerges in the corridors of power, political as well as administrative. Pakistan is passing through the worst financial crisis of its history, i.e., the crisis of resources manifested in the huge budgetary deficits. Revenue has to be collected and all measures both stringent and persuasive have to be taken in that direction. The government, therefore, needs to introduce asset-seizure legislation to confiscate the mammoth reservoir of the untaxed black money—huge chunk of which is lying in banks at home and abroad. It is not difficult to seek information from Swiss or for that matter from any government, as has been done by the US, the EU countries and many others in Asia and Africa. The only lacking factor is that of political will.(The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences)