Retrieving untaxed/ill-gotten assets - II

A breakthrough was made by media showing that investment in Dubai alone by Pakistanis during the past 10 years was in billions, yet instead of taking actions against the offenders, the government of PTI also extended asset whitening scheme, the details of which, and earlier schemes of 2018, vis-à-vis loss of revenue are as under:

a. The Federal Board of Revenue (FBR) on November 7, 2019 confessed before the Standing Committee on Finance & Taxation of National Assembly that governments of PTI and the Pakistan Muslim League-Nawaz (PML-N) in their amnesty schemes of 2018 and 2019, respectively, extended benefit of Rs 61.4 billion to 191 billionaires who were caught owning undeclared offshore assets. While the FBR did not disclose the names of the beneficiaries (as both the governments of PTI and PML-N provided legal cover to keep names secret of the beneficiaries), it was admitted by Director General of Directorate of International Taxes of the FBR, Muhammad Ashfaq that definite information was available against them under Automatic Exchange of Information (AEOI) initiative of the Organisation for Economic Cooperation and Development (OECD).

b. As many as 135 persons, named in the OECD database, availed the 2018 tax amnesty scheme of the PML-N and declared Rs 62.4 billion in assets. They paid only Rs 2.9 billion. Whereas, their actual liabilities without the tax amnesty could have been Rs 43.7 billion, getting a relief of Rs 40.8 billion from the last government. About 56 people, whose data was shared by the OECD, availed the PTI's tax amnesty scheme and declared Rs 31.8 billion worth of assets. They paid only Rs 1.7 billion and got a relief of Rs 20.6 billion. Of the remaining cases, Muhammad Ashfaq told the Standing Committee that the FBR assessed 115 cases, raised demand of Rs 4 billion and recovered Rs 1 billion. The total tax collection in 325 cases against $ 5.5 billion worth of foreign assets caught by the OECD web was only Rs 5.6 billion or 0.64% of the traced assets, he added.

c. Mohammad Ashfaq disclosed that among the beneficiaries were a few politicians but did not qualify in the definition of "officeholders" as provided in money whitening schemes! So corruption in their case was legalized after a lapse of 10 years under money whitening schemes even though the National Accountability Bureau Ordinance, 1999 provides otherwise.

d. The PTI government earlier had been proudly taking credit that it had received information of around 152,000 bank accounts owned by 57,450 Pakistani nationals, having $7.5 billion in bank deposits. Bulk of this information was received much before PTI came into power. Premier Imran Khan, before giving amnesty on the insistence of many, time and again expressed determination to bring back the looted and untaxed money. Later, he conceded before the forces of loot and plunder.

e. The tall claims of Imran Khan, especially of reopening the cases of beneficiaries of asset whitening scheme of PML(N) were exposed by Muhammad Ashfaq who told the House Committee of National Assembly that out of 191 persons who availed the 2018 and 2019 asset whitening schemes, tax received by FBR was only Rs 4.6 billion against declared assets of Rs 94.2 billion. Thus these 191 people paid on average 4.9% of the value of assets in taxes!!

f. It was conceded by Chairman FBR that they could have recovered 70% [As per provisions of Income Tax Ordinance 2001 on a concealed asset, there is a maximum income tax of 35% along with 100% penalty, bringing the total tax liability to 70%] of the assets. Tragically, the governments of PTI and PML(N) settled at just 2-4%, remarked Asad Umar, former Finance Minister of the PTI and Chairman of the Standing Committee. He added: "This tells why all political parties love to give tax amnesty schemes and also shows the elite capture of Pakistan's economy and politics".

g. The members of the Standing Committee of National Assembly were of the view that the beneficiaries of the schemes illegally took funds abroad. However, FBR defended them claiming that "$7.5 billion went out through legal channels under the Foreign Currency Accounts Ordinance of 2001 that allows dollar buying from the market and their remittance abroad through bank accounts". This contention of FBR was contested by Asad Umar.

h. Asad Umar claimed that the stance of State Bank of Pakistan on remitting money abroad without seeking permission was different from that of FBR historically. He was referring to a statement given by Irfan Ali, Director Banking of the State Bank of Pakistan before the Senate's Standing Committee on Finance and Revenue November 24, 2015 that the Central Bank neither gave any permission nor initiated a case for approval of the Economic Coordination Committee (ECC) to a billionaire for remitting $75 million for the purchase of Saint James's Hotel in London. Asad Umar once again emphasised that there was a need to shut this door by ending ambiguity.

i. By yielding to demand of announcing asset-whitening scheme, Prime Minister Imran Khan conveniently forgot his extraordinary speech at 'High-Level Dialogue on Financing for Development' at the United Nations in New York on September 26, 2019. There he highlighted the issue of assets stashed in various tax havens by loot and plunder or through tax evasion. He said: "While it is true that illicit financial flows adversely affect wealthy countries, such movement of ill-gotten money is devastating the developing countries across the world". Imran Khan's speech was highly appreciated at home and abroad proving his stature as a global leader. He very aptly observed: "I do not think people fully realise the impact it (illicit financial flows) is having in causing poverty, death and destruction in human development in the developing world"-this received a huge round of applause from the audience.

j. Premier Imran Khan said that "in the last decade Pakistan had a corrupt leadership which took the national debt accumulated over 60 years, up by four times in the last 10 years and most of the money was made out of corruption and sent outside". In his speech, Imran Khan claimed that after coming into power his government was trying its best to retrieve that money. He lamented that even after locating properties made from illegal money by Pakistanis abroad, "we face a number of legal lacunas and difficulties in trying to bring that money back".

k. Mohammad Ashfaq's and a top FBR official's briefing of November 7, 2019 before the Standing Committee of National Assembly clearly establishes that Imran Khan acted diametrically opposite to what he pleaded in respect of bringing looted and untaxed money stashed abroad. This was the worst one could expect from him! He has yet not realized how his advisors let him down by foregoing 70% tax on untaxed assets for which definite information was available through multilateral treaty signed by Pakistan. How could amnesty be given when the department possessed actionable information? In only 56 cases where data was shared by the OECD, due to PTI's tax amnesty, national exchequer suffered loss of Rs. 20.6 billion. The nation will never forgive him for this lapse which also belies all his claims of bringing tax evaders and looters of national wealth to task. Actions speak louder than words!

The PTI government due to influence of tax evaders within its own ranks and files showed inability to initiate action against those who created assets abroad through illegal transfer of funds. According to a newspaper report, the government in response to a question posed by a member in National Assembly that billions of dollars were lying in Swiss banks. That in 2014 after approval of Cabinet a team was sent to Switzerland for re-negotiating Agreement of Avoidance of Double Taxation and Fiscal Avoidance with Switzerland. That according to Press reports, the Swiss Government agreed for exchange of information but the new Agreement inked was frustrated. That the Supreme Court in pending case now must order the production of entire record of re-negotiation of Agreement with Switzerland in 2014 from Federal Board of Revenue and summon the person who inked the Agreement to explain why the same was not honoured. This would surely reveal the hidden facts and failure till today of not retrieving money from Switzerland while many countries e.g. United Kingdom, USA, Germany and Italy successfully did so-agreements to this effect are available.

Way back in 2013, the Senate of Pakistan in its recommendations to National Assembly for improving Finance Bill 2013-14 specifically emphasised the need for a law that could enable State Bank of Pakistan to obtain details about money held by Pakistanis in overseas accounts. The National Assembly that alone has power to pass Money Bill under the Constitution did not pay any heed to it. After five years, the issue was taken up by Supreme Court in Suo Motu Case No. 2 of 2018, which is still pending.

Perpetual inaction on the part of the State to remove protective laws [the Protection of Economic Reforms Act, 1992 and the Foreign Currency (Protection) Ordinance, 2001], even after Panama, Bahamas and Paradise Papers, is highly lamentable as country is bleeding heavily due to such laws that allow unchecked outflows.

Many politicians and government servants in the past obtained dual nationality and parked assets abroad through trusts, offshore companies and benamidars. That till today no serious effort is made to seek information about their assets stashed abroad with the help of foreign governments and international agencies. Then shockingly in the Foreign Assets (Declaration and Repatriation) Ordinance, 2018, Voluntary Declaration of Domestic Assets Ordinance, 2018 [became Act in Finance Act 2018] and the Assets Declaration Ordinance, 2019 [became Act in Finance Act 2019] those who held public office prior to 1st January 2000 were allowed to avail the amnesty schemes.

The framing of policies is the prerogative of the government but the supreme law of the land, in unequivocal terms binds the parliament and the government not to make any law/policy that is repugnant to basic rights of the citizens. The data regarding stashing of assets abroad or even within Pakistan, created out of untaxed/undeclared resources is not an issue. It is either available or can easily be obtained. What is lacking is the conviction to retrieve the same and nothing else.

The successive governments, fully aware of the fact that majority of the offshore companies of Pakistanis were registered in British Virgin Islands (BVI), yet 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 the Swiss law (the Foreign Illicit Assets Act (FIAA) of 18 December 2015) for return of proceeds of kickbacks lying in Switzerland about which an order of the Supreme Court [Para 177 to 179] of Dr Mobashir Hassan and other v FOP and others PLD 2010 SC 265] exists.

The Supreme Court in suo motu Case No. 2 of 2018, which is still pending, may consider the following:

a. The issue is not merely whether the government and Parliament are making the necessary effort to bring back all or some significant part of the stashed assets. The fact that there is some information and knowledge that such vast amounts may have been stashed away in foreign banks, implies that the State has the primordial responsibility, under the Constitution, to make every effort to trace the sources of such assets, punish the guilty where such assets have been generated and/or taken abroad through unlawful activities, and bring back the assets owed to the country.

b. The degree of success, measured in terms of the amounts of assets brought back, is dependent on a number of factors, including aspects that relate to international political economy and relations, which may or may not be under our control. The fact remains that with respect to those factors that were within the powers of our State such as investigation of possible criminal nexus, threats to national security etc., were not even attempted.

c. Fealty to the Constitution is not a matter of mere material success; but, and probably more importantly from the perspective of moral authority of the State, a matter of integrity of effort in all the dimensions that inform a problem that threatens the constitutional projects. Further, the degree of seriousness with which efforts are made with respect to those various dimensions can also be expected to bear fruit in terms of building capacities, and the development of necessary attitudes to take the law enforcement part of accounting or following the money seriously in the future.

d. The merits of vigour of investigations, and attempts at law enforcement, cannot be measured merely on the scale of what we accomplish with respect to what has happened in the past. It would necessarily also have to be appreciated from the benefits that are likely to accrue to the country in preventing such activities in the future. Our people may be poor, and may be suffering from all manner of deprivation. However, the same poor and suffering masses are rich, morally and from a humanistic point of view. Their forbearance of the many foibles and failures of those who wield power, no less in their name and on their behalf than of the rich and the empowered, is itself indicative of their great qualities, of humanity, trust and tolerance. That greatness can only be matched by exercise of every sinew, and every resource, in the broad goal of our constitutional project of bringing to their lives dignity. The efforts that Supreme Court makes in this regard, and will make in this respect and these matters, can only be conceived as a small and minor, though nevertheless necessary part. Ultimately the protection of the Constitution and striving to promote its vision and values is an elemental mode of service to our people.

e. The Supreme Court of India while adjudicating the same issue in Ram Jethmalani & Others v Union of India and Others (2008) 8 SCC 1 held as under: "......in many instances, in the past, when issues referred to the Court have been very complex in nature, and yet required the intervention of the Court, Special Investigation Teams have been ordered and constituted in order to enable the Court, and the Union of India and/or other organs of the State, to fulfill their constitutional obligations".

f. A Special Investigation Team, headed by a former Judge of Supreme Court or a General who worked in NAB, or anyone else who is competent enough may be constituted and charged with the responsibilities and duties of investigation, initiation of proceedings, and prosecution, whether in the context of appropriate criminal or civil proceedings of: (a) all issues relating to the matters concerning and arising from unaccounted assets stashed abroad; (b) all other investigations already commenced and are pending, or awaiting to be initiated, with respect to any other known instances of the stashing of unaccounted assets in foreign bank accounts by Pakistani citizens or other entities operating in Pakistan; and (c) all other matters with respect to unaccounted assets being stashed in foreign banks by Pakistanis or other entities operating in Pakistan that may arise in the course of such investigations and proceedings.

The Supreme Court may further direct in suo motu Case No. 2 of 2018 that within the ambit of responsibilities described above, there lies the responsibilities to ensure that the matters are also investigated, proceedings initiated and prosecutions conducted with regard to criminality and/or unlawfulness of activities that may have been the source for such assets, as well as the criminal and/or unlawful means that are used to take such unaccounted funds out of and/or bring such monies back into the country, and use of such monies in Pakistan or abroad. A Special Investigation Team may be charged with the responsibility of preparing a comprehensive action plan, including the creation of necessary institutional structures that can enable and strengthen the country's battle against generation of unaccounted monies, and their stashing away in foreign banks or in various forms domestically and how to retrieve the lost caused to the nation.

(Concluded)

(The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are member Adjunct Faculty of Lahore University of Management Sciences. The view expressed in this article are not necessarily those of the newspaper)