Huzaima Bukhari and Dr Ikramul Haq
“It has been common knowledge for years that a large number of Pakistani citizens, who are residents of Pakistan and are maintaining accounts in foreign countries without disclosing the same to the authorities competent under the laws of Pakistan or paying taxes on the same in accordance with law. Prima facie, it appears that such money is siphoned off without the payment of taxes through illegal channels and represents either ill-gotten gains or kickbacks from public contracts. Such money creates gross disproportion, inequality and disparity in the society, which warps economic activity and growth, and constitutes plunder and theft of national wealth”—Supreme Court of Pakistan re suo motu action taken up in court.
The Supreme Court of Pakistan took a landmark decision on February 1, 2018 by taking a suo motu action in the matter of untaxed/undeclared assets stashed abroad by Pakistanis. The perpetual inaction on the part of state institutions in the wake of Panama, Bahamas and Paradise Papers ultimately compelled the highest court of the country to take cognizance of the matter.
The Supreme Court noted: “The Chairman, Federal Board of Revenue (FBR) had appeared before the court and made a statement that appropriate action was being initiated against the citizens whose names had appeared in above said papers. However, no appreciable progress appears to have been made in this regard. The society and economy of the country is being bled by illegal and surreptitious theft of national wealth, which is stashed in foreign countries, the same could otherwise be utilized for the welfare of the people in projects such as education, health and public welfare. Such delinquency constitutes violation of the fundamental rights of the citizens of Pakistan and is a matter of great public importance”.
The Supreme Court in exercise of powers under Article 184(3) of the Constitution of the Islamic Republic of Pakistan, 1973, directed as follows and fixed the case for February 15, 2018:
i) The State Bank of Pakistan shall before the next date of hearing submit a comprehensive report regarding steps which have been taken under the international agreements/treaties/protocols to identify the citizens who hold accounts in foreign jurisdictions, including the UAE, Switzerland, Luxemburg, Spain, the UK, etc., and other tax haven jurisdictions, including, British Virgin Islands, Cayman Islands, Channel Islands, etc.
ii) The State Bank of Pakistan, the FBR, the Security & Exchange Commission of Pakistan and the Ministry of Finance shall submit report about the steps taken, in collaboration with other State institutions, for retrieval of the said money.
iii) The Federal Board of Revenue shall also submit a report providing details of the steps taken on the basis of information available, inter alia, through the Panama Papers and the Paradise Papers and the action taken against citizens holding properties and banks accounts in foreign countries.
iv) All State agencies including IB, ISI, MI and FIA arc directed to share all requisite information available with them with this Court.
v) The State Bank of Pakistan, FBR, the Ministry of Finance and Ministry of Foreign Affairs shall collaborate with each other, collect and share information and approach the afore-noted foreign jurisdictions to obtain such/other further information, as may be necessary, through legal and diplomatic channels”.
The issue of unlawful transfer of funds, non-declaration of hidden assets and evasion of taxes is universal and Pakistan is no exception. The wealthy of the world have around $40 trillion in tax havens. The share of Pakistanis is not known as the successive governments never bothered to ascertain information using bilateral treaties or international agencies, especially Stolen Asset Recovery Initiative (StAR) of the World Bank. FBR did not utilise the huge network of avoidance of double taxation and fiscal evasion agreements signed with over 55 countries.
According to StAR, the cross-border flow of proceeds from criminal activities, corruption and tax evasion is between $2 trillion per year, about half of which comes from the developing and transitional economies. Assets held offshore, beyond the reach of effective taxation, are equal to about a third of total global assets. Offshore finance is not only based in islands and small states, it has become an insidious growth within the entire global system of finance, offering not only low or zero taxes, but facilities for individuals or entities to get around the rules, laws and regulations using secrecy as their prime tool.
According to a new report, “Pakistanis have bought properties worth an estimated Rs1.1 trillion in the heart of Dubai in the past one-and-a half-decade. Interestingly, the majority of them did not disclose these properties in their annual returns and were said to be moving their assets out of the country to avert getting caught in the event of a serious crackdown on this unaccounted-for money”.
The report further claims that about 5,000 Pakistanis bought properties in their names since 2002 while around 2,000 owned properties as benami (using other person’s name). It is claimed in the report that some Pakistanis made investment in expensive areas e.g. “967 villas/residential properties in luxury areas of Greens; 75 precious flats in Emirates Hills; 165 properties in Discovery Garden (residential and commercial); 167 flats in Jumeirah Island; 123 residential properties in Jumeirah Park; 245 plush flats in Jumeirah Village; 10 properties in Palm Deira; 160 in Palm Jabel Ali; 25 properties in Palm Jumeirah Shorelines; 234 properties in International City; and 230 in Dubai Cilicon”.
The report claims that “7000 plus super rich Pakistanis bought luxury residential villas/flats/estates in 12 renowned localities in the Emirati capital and adds that “estimated value of 7,000 properties owned by Pakistanis in Dubai, UAE, totalled AED 35,000,000,000 (approximately, US$ 9,529,000,000 or Pakistani Rs 1,004,663,897,187)”.
The above revelations confirm what was mentioned in the following articles:
1. Countering loot and plunder, Business Recorder, December 29, 2017
2. Paradise Papers: another wake-up call, Business Recorder, November 10 and 12, 2017
3. Offshore labyrinth, Business Recorder, October 27, 2017
4. Trail of hidden wealth, Business Recorder, May 6, 2016
5. Taxing undisclosed income and assets, Business Recorder, March 27, 2015
6. Probing Swiss accounts, Business Recorder, August 15, 2014
Unfortunately, nobody took note of the above articles. FBR, SBP, FIA, NAB and other agencies never bothered to investigate the matter repeatedly pointed out in these columns. Now the Supreme Court has taken cognizance and a breakthrough in the matter can be made if FBR is asked to produce the entire record related to 2014 negotiations for new Tax Treaty with Switzerland. It will unveil the dirty tricks played by the Pakistani government to protect tax evaders and looters of national wealth.
Ishaq Dar, on March 7, 2017, while informing the National Assembly that “Pakistan will sign an agreement with Switzerland on exchange of information regarding bank accounts on March 21”, did not tell the House what happened in August 2014 when the then Chairman FBR was prevented from leading a delegation to Switzerland to re-negotiate the treaty. Treaty renegotiated and inked after talks by Chief Taxes on August 24-26, 2014 was later blocked [details available in Pakistani cash in Swiss banks pulled out, The Express Tribune, February 22, 2017].
It is undeniable that although our governments were aware of the fact that majority of the offshore companies of Pakistanis were registered in British Virgin Islands (BVI), yet they did not take any initiative to sign a Tax Information Exchange Agreement (TIEA) with BVI similar to the one signed by India way back in 2011. Till today, no effort has been made for invoking Swiss law (Foreign Illicit Assets Act (FIAA) of 18 December 2015) for known case of $60 million stashed by Asif Ali Zardari in Switzerland about which even an order of the Supreme Court is in the field.
On October 1, 2010, the Swiss Parliament passed a law, The Restitution of Illicit Assets Act, 2010 (RIAA), empowering the Swiss Federal Tax Administration (FTA) to sign DTAs based on revised Article 26 of the OECD Model Tax Convention to cooperate with international requests for exchange of bank information of all kinds. In the wake of this development, many countries approached Switzerland to upgrade their DTAs to incorporate OECD’s Article 26. The United States, Germany, France, the United Kingdom, the Netherlands, Qatar, and India after incorporating revised Article 26 of OECD started reaping notable tax revenue gains and receiving capital back from Switzerland. Our men in power tried to hoodwink the masses by saying that they were going for Organization for Economic Cooperation and Development (OECD) Multilateral Convention on Mutual Administrative Assistance in Tax Matters. They were just buying time to ensure that no information comes to Pakistan during the period of their rule!
On March 21, 2017, Pakistan and Switzerland signed the revised Tax Treaty. By not honouring the 2014 renegotiated treaty the government facilitated many to move away shady funds from Swiss banks. So treaty signed on March 21, 2017 may not yield the desired results after coming into force. It confirms that the delay was intentional, willful and well-planned—though crafty politicians are still taking credit of taking actions in “national interest” merely to hoodwink the people!
The successive governments in Pakistan, unfortunately, have been adopting a policy of appeasement towards tax cheats and looters of national wealth. Even private efforts to invoke extraordinary jurisdiction of Supreme Court and High Courts to retrieve looted wealth and untaxed money have not been fruitful. On the contrary, the Indian Supreme Court took historic decision in the case of Ram Jethmalani and Other v Union of India [(2011) 8 SCC 1=2011 PTR 1933 (S.C. Ind)] and ordered ‘Special Investigation Team’ (SIT) to supervise the government-led investigations into black money belonging to Indians, lying abroad. One hopes that our Supreme Court would consider the case of Ram Jethmalani in the forthcoming proceedings in Suo Motu Case No. 1 of 2018.
(The writers, lawyers and partners in Huzaima, Ikram &Ijaz, are Adjunct Faculty at Lahore University of Management Sciences)
