Sharifs' flawed defence

The Panama Papers have led to resignations of heads of government (Iceland, Ukraine), Spain's industry minister and release of tax returns by others (UK and Russia). Significantly the US President whose name has not surfaced as a client of Mossack Fonseca released his 2015 federal income tax returns in which he paid an effective rate of 18.7 percent; in total the Obamas paid 81,472 dollars tax on a combined income of 436,065 dollars and donated 64066 dollars to the Beau Biden Foundation and Sidwell Friends School where their two children go to school.
In marked contrast, Prime Minister Nawaz Sharif has neither offered to resign nor to release his income tax returns dating back to the time the offshore accounts, acknowledged by his elder son, were set up. The family's strategy has focused on four lines of defence. First, in a knee-jerk reaction premised on successful defence against charges of corruption in the past, the Prime Minister denied all wrong doing and bewailed past victimisation by the Bhuttos, father and daughter, and Musharraf. It is doubtful if the people of Pakistan felt any degree of sympathy given the revelation of the family's vast wealth. Nawaz Sharif's claim of victimisation was also challengeable given that the Panama leaks were not the result of an investigation by a hostile political party/government in Pakistan but the outcome of an unexpected leak by the company's offshore account holders. But what made the Prime Minister's denial simply inexplicable was the easy availability of irrefutable proof of ownership of Mayfair flats in court documents in the UK which reveal that Mayfair Flats 16 and 16A (acquired by Nielson 31 July 1995), Flat 17 (acquired by Nescoll Ltd 1 June 1993) and Flat 17A (acquired by Nescoll on 23rd July 1996) were pledged with Al Towfeek Investment Fund Limited for a loan acquired and defaulted by Hudaibiya (a company acknowledged by the Sharif family) while the two offshore companies were acknowledged by Hussain Nawaz.
In this context, it is relevant to note that in September 2011 (when the PPP was in power) National Accountability Bureau (NAB) filed an application seeking revival of the Hudaibiya reference, supported by Ishaq Dar's extremely detailed affidavit as an approver, consisting of 47 pages. In 2014 when the PML-N was in power in the centre and Punjab, Nawaz Sharif, his brother Mian Muhammad Abbas Sharif, their mother Shamim Akhtar, Hussain Nawaz, Hamza Shahbaz, Sabiha Abbas, Maryam Safdar and Syed Ajmal Sibtain, the secretary of the Hudaibiya Paper Mills, successfully filed a petition to quash the Hudaibiya Paper Mills and Raiwind Assets reference cases.
The Sharif defence has been easily rebutted because of the inconsistent statements by members of the Prime Minister's family over the years particularly with respect to the timing of the ownership of the Mayfair flats. Late 1999 Hassan Nawaz, the Prime Minister's younger son, in an interview to the BBC claimed that the Mayfair flat where he was resident at the time was rented, the money for his education expenses was being remitted from the family businesses in Pakistan, and that he was not required to submit his tax returns as he was not earning an income at the time. In 2000, Kulsoom Nawaz acknowledged ownership of the Mayfair flats in an interview to a British daily. In 2011, Maryam Nawaz in a televised interview denied ownership of any flat in the UK by any member of her family. And in 2016 Hussain Nawaz gave a couple of interviews to private channels in Pakistan claiming that the flats were acquired in 2006 (after sale of the steel company located in Saudi Arabia at a massive profit - a steel company that was acquired without any seed money by the Sharifs through loans from friends and Saudi banks). The fact that his unprecedented interviews pre-dated the Panama leaks by a month or so has convinced few that the timing of his admissions was simply coincidental. Panama papers had been with journalists from over 80 countries for more than a year and it is not inconceivable that the Sharifs got wind of the leaks a month or so before it became headline news globally.
The question is whether it is illegal, though morally it is considered untenable globally, to take money out of the country for the Prime Minister's family? The answer is in the negative as in 1992 Protection of Economic Reforms Act (PERA) was passed by the then Sharif administration extending immunity against any inquiry from the income tax department as to source of foreign currency that may be freely taken out of the country without a foreign currency declaration at any stage; the 2002 Musharraf amendment to PERA allows freeing these foreign currency accounts from all foreign exchange restrictions. Thus the demand by PTI and PPP that international forensic experts be hired to investigate the Sharif fortune outside the country may find that the PERA makes their foreign exchange outflows legal.
Second, Nawaz Sharif's defence consists of pointing out that his name is not on the leaked list of account holders of Mossack Fonseca. That may be true, but accounts were opened at a time when his children were still students and as Hassan said in his 1999 interview he was not earning any income at the time and so did not have to file an income tax return.
Thirdly, post-Panama leaks, Nawaz Sharif's damage control strategy focuses on highlighting values that are dear to the people of Pakistan notably the love and respect to one's parents. I refer to the release of a photograph showing the Prime Minister bending over and kissing the hand of his mother seated on a wheel chair, before his departure for London for a medical check-up. Those of us who had by this time begun to indulge in our most treasured national pastime - spinning conspiracy theories given the relative silence of Shahbaz Sharif on the Panama leaks - were meant to be silenced with Shahbaz Sharif's tweet on the photograph "my great mother and dear brother two very special people in my life. Infinite respect and love thank you Maryam beti for this picture." And Maryam beti promptly responded with "love you always uncle". To use one's family for political purposes is not uncommon in democracies but this was the first time such a picture was used by the Sharif family that led to cynicism. The second photograph released showed the Prime Minister having his blood test in London while lying on a gurney which simply defies the imagination. Heads of government are rightly reluctant to share their ill health with the public as it raises questions about their capacity to govern in the eyes of the public. However these two photographs did not take away the image of the Prime Minister outside those very same obviously luxurious flats in Mayfair.
Fourth, Dar and officials of his tightly controlled Ministry of Finance and its attached departments have begun to try to divert attention by reporting that the government has begun to talk to Swiss authorities with respect to the source of 200 billion dollars held by Pakistanis in Swiss accounts. This is too little too late and one would assume unlikely to bring any result.
Fifth, the release of PML-N attack guards with the sole objective of attacking the attackers on the electronic media.
To prove the illegality of the offshore accounts forensic experts would have to check the paper trail in this country - a trail that would require full cooperation by the companies of the Sharif family, many of which are defunct with paperwork perhaps not available, bank accounts held by the Sharif family members domestically since 1990 as well as the income taxes filed by family members dating back to the 1990s at least.
And the way forward is not only to make the Prime Minister and his family as well as others accountable for capital flight but also to amend tax laws that allow for flight of capital and whitening of black money including: (i) repealing PERA; (ii) remittances above a certain amount not be tax free; (iii) Federal Board of Revenue at present barred from auditing accounts of more than 5 years, should be allowed to do so, (iv) double taxation treaties must be abandoned and, like the US, taxes be imposed on all non-resident Pakistanis earning above a certain amount irrespective of where they may earn their income, and (v) the frequently used phrase in SRO 1065/2013 that a clause 'may be used to avoid taxes' be permanently deleted as tax avoidance is no longer considered morally and in several countries post Panama leaks, legally admissible.