Retrieving booty

Governments keep begging for loans and bailouts from foreign lenders and donors while billions of untaxed dollars of Pakistanis are lying abroad

Retrieving booty

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.

Now after five years, the issue is taken up by the Supreme Court of Pakistan in suo motu case no. 2 of 2018. The perpetual inaction on the part of state institutions, mainly Parliament, to remove protective laws, in the wake of Panama, Bahamas and Paradise Papers ultimately compelled the highest court of the country to take cognizance of the matter.

As expected, State Bank of Pakistan (SBP), Federal Board of Revenue (FBR) and Federal Investigation Agency (FIA), Securities & Exchange Commission of Pakistan (SECP) etc, in the very first hearing on February 15, 2018, showed "helplessness" in retrieving untaxed money and stolen assets claiming that the existing laws are the main impediment in their way. The question is that why they have never suggested to the government to plug the loopholes in the existing laws and enact the laws to counter the loss caused to the national exchequer by undesirable outward remittances? What was the role of Parliament in the bleeding of national economy due to unlawful flight of money? All this was discussed in detail in an op-ed, ‘Suo motu on foreign assets’, Business Recorder, February 9, 2018.

It is pertinent to mention that the Chairman of FBR was to lead a delegation to Switzerland scheduled to visit from August 26-28, 2014 to "re-negotiate and upgrade treaty on Avoidance of Double Taxation [DTA] with Switzerland to retrieve and tax undeclared money deposited in the Swiss banks by the Pakistani nationals". At the last minute, he cancelled his programme and sent a junior officer. The aim was allegedly to sabotage the effort to get information from Swiss government and retrieve the tax (reported in ‘Pakistani cash in Swiss banks pulled out’, The Express Tribune, February 22, 2017.

The good news is that Pakistan has now a revised Convention on Avoidance of Double Taxation and Fiscal Evasion (DTA) with Switzerland facilitating exchange of information. In a hearing before the Senate Standing Committee on Finance on January 9, 2018, the spokesman for FBR said that "information about old cases cannot be obtained" under the revised convention "but we will try our level best to get past information as well, specifically bank accounts details of Pakistanis held in Swiss banks." The FBR has neither made public nor submitted before the Supreme Court how many requests have been made so far under the revised DTA. The FBR’s spokesman told the Senate: "We have requested the Swiss government to include name of Pakistan in the list of countries for exchange of information, which has been endorsed by the Swiss Parliament." It is strange that the government has taken such a long time to renegotiate revised DTA with Switzerland and even after signing the same has yet not made any progress in getting details of money stashed there what to speak of retrieving the lost revenues.

The good news is that Pakistan has now a revised Convention on Avoidance of Double Taxation and Fiscal Evasion (DTA) with Switzerland facilitating exchange of information on money parked abroad.

In 2010, an article, [With the help of Swiss, Dawn, October 11, 2010], it was pointed out by these contributors that "nearer home, the Indian government has already taken steps to recover the hidden, ill-gotten wealth of its citizens lying in Swiss banks. Ever since reports emerged of Indians having accounts in tax havens like Liechtenstein and the success of governments like the US in accessing these accounts, New Delhi has been working zealously to retrieve funds from the Swiss banks". It was suggested that, "Before approaching the Swiss authorities, the Pakistani government should introduce asset-seizure legislation to confiscate all undeclared and untaxed assets. For money lying in Swiss banks, information can easily be obtained from Switzerland."

As expected, the above suggestion went unnoticed as far as our governments and Parliament are concerned. In the wake of publication of above article, FBR moved a summary for re-negotiating the DTA with Switzerland, but then coalition government did not respond. At least three summaries moved from time to time were swept under the carpet. The reason for this was discussed in detail in ‘Retrieving Swiss money’, Business Recorder, July 25, 2014.

In the meantime, former president, Asif Ali Zardari, conveniently got his $60 million moved from the Swiss banks and never told the nation from where the said money came and how much tax was paid on it in Pakistan or elsewhere. Till today, no action has been taken by FBR or NAB against him. Rather the case in NAB was dismissed for want of certified copies. Interestingly, there was no denial that he did not own the money as is the case with Nawaz Sharif who admits possessing properties through offshore companies but refuses to reveal the money trail.

The Ministry of Finance, in a written reply, told the National Assembly on March 9, 2014 that the government "was engaging with Swiss authorities to get to the money, hidden away by various Pakistani nationals." In a detailed response to a question raised by Dr Arif Alvi of the Pakistan Tahreek-i-Insaf (PTI), the ministry quoted statements by a Swiss banker and a former Swiss government minister: "One of the directors of Credit Suisse AG stated on the record that $97 billion worth of Pakistani capital was deposited only in his bank." This was discussed in detail in Our Swiss dilemma, The News on Sunday [Political Economy], August 17, 2014. It was noted that "the governments in Pakistan, unfortunately, are not taking any action against tax cheats at home. Even private efforts to invoke extraordinary jurisdiction of Supreme Court and High Courts to retrieve looted wealth and untaxed money have not been fruitful. The Supreme Court in 2012 and 2013 declared the petitions filed by some individuals as "non-maintainable."

The Senate Committee on Finance, Revenue and Economic Affairs on July 28, 2015 raised the issue of foreign remittance for the purchase of a hotel in London and asked SBP about the prevailing regulations and limitations of outward remittances for investment abroad. It is claimed in a report that SBP in its letter dated August 24, 2015 to the Senate Committee stated that the request for the investment abroad by Pakistani person was processed and considered in terms of applicable laws and policies. "However, any investment abroad of US $5 million or above required approval of Economic Coordination Committee." This has not been conveyed by SBP to Supreme Court in its reply in suo motu case no. 2 of 2018.

Amid a global squeeze on tax evasion, money laundering and blatant outflows of capital, Switzerland’s 11 largest banks, housing nearly US$7 trillion of the world’s total offshore liquidity stock of US$42 trillion, has remitted US$2 trillion so far to various countries. Switzerland has traditionally been the oldest, the most formidable and the most popular secret banking jurisdiction, attracting massive sums of tax-evaded money from across the world into its banks with numbered-accounts. Since 2009, the US and EU have consistently been pressing Switzerland and other tax havens to allow international tax administrations to track illegal funds parked in their secretive banks. Pakistan has yet to take any concrete measures in this direction.

In the wake of Panama, Bahamas and Paradise leaks, the issue of tax avoidance by keeping accounts in tax havens has become a highly charged political issue in the world. Across much of Europe, particularly the richer northern countries are increasingly fed up with demands for bailout money from heavily indebted countries like Greece. A key demand of bailout deal announced for Cyprus was that the nation should drastically shrink its role as a financial centre and, many in Germany suspect, a haven for money laundering.

In our case, we are begging for loans and bailouts from foreign lenders and donors while trillions untaxed are lying abroad. Whether Adviser to the Prime Minister on Finance, Revenue and Economic Affairs Miftah Ismail will fulfill promises made by his predecessor in the National Assembly to retrieve and tax the gargantuan hidden funds by offering amnesty or taking tough measures? If he does so, the entire nation will be indebted to him.

Retrieving booty