From Panama to Pandora Leaks!

Huzaima Bukhari & Dr. Ikramul Haq

In The Panama Papers, the leaked data covered nearly 40 years, from the late 1970s throughout the end of 2015. It exposed a never-before-seen view inside the offshore world—providing a day-to-day, decade-by-decade look at how dark money flows through the global financial system, breeding crime and stripping national treasuries of tax revenues. Now Pandora Papers—the largest investigation in the history of journalism, according to International Consortium of Investigative Journalists (ICIJ), “exposes a shadow financial system that benefits the world’s most rich and powerful. This sums up the journey from Panama to Pandora Leaks.

We wrote extensively about the earlier leaks by ICIJ and even prior to that as to how the offshore industry has been providing services for legal as well as illicit purposes to its clients. All the leaks elucidate that major banks are big drivers behind the creation of hard-to-trace companies in the British Virgin Islands (BVI), Panama and other offshore havens. The Indians signed a bilateral agreement with BVI in 2011 but our successive governments failed to do it as highlighted in ‘Probing Swiss accounts’, Business Recorder, August 15, 2014 and ‘The games politicians play’, The News, March 26, 2017.

Tackling the dual menaces of unlawful outflows, money laundering and tax evasion is not just our peculiar problem. Many governments of the world are facing challenges of checking flight of untaxed money. Before taking oath of office, Joe Biden called out corporate corruption as a threat to national security. Biden wrote in Foreign Policy: “I will lead efforts internationally to bring transparency to the global financial system, go after illicit tax havens, seize stolen assets, and make it more difficult for leaders who steal from their people to hide behind anonymous front companies”. An article in The Nation, titled, How Tax Haven States Enable Billionaires to Hide Trillions,sums up the ugly legacy of offshore maze—read the latest article, where one of us is a coauthor: The Pandora’s box of our ugly offshore legacy, Global Village Space, October 5, 2021.

Economists, tax and financial professionals, accountants, lawyers, academics and writers of the world have a consensus that tax is the foundation of good government and key to the wealth or poverty of nations. But this foundation till today is under threat by tax havens as alleged in all the leaks by ICIJ.

In The Panama Papers, allegation about the three-times elected premier and family was: “Nescol Limited and Nielson Holdings Limited were incorporated in BVI in 1993 and 1994, respectively, and were held by one bearer share each. In February 2006, Mariam Safdar signed a resolution of Nescol Limited as the “sole (bearer) shareholder. MF was appointed as the registered agent through Minerva Trust which described Mariam Safdar as the beneficial owner of both companies. Following queries from the Financial Investigation Agency in 2012, MF invoked the Anti-Money Laundering and Terrorist Financing Code of Practice (2008) to grill Minerva for information about Nescol and Nielson. In June 2012, Minerva Trust & Corporate Services Ltd revealed that both companies “owned a UK property each” —16 and 17 Avenfield House—and were “owned by the same beneficial owner Mariam Safdar.”

The important question was why these properties did not find any mention in declarations of Mariam Safdar in her tax returns and declarations before Election Commission by her father and/or husband. Why the family opted to use tax havens to buy properties? The answer lies in understanding what tax havens offer. They offer not only low or zero taxes, but also provide facilities for people or entities to get around the rules, laws and regulations of other jurisdictions, using secrecy as their prime tool. Therefore, Tax Justice Network (TJN) prefers the term “secrecy jurisdiction” instead of the more popular “tax haven”.

In order to unveil the mystery of offshore companies, it is necessary to understand the significance of “beneficial owner” and “bearer certificates”. According to BVI offshore law, “a shareholder is a person (individual or corporate), in whose name shares in a particular offshore company are registered”. So, it is basically what the name suggests, the “holder” of shares. However, in some situations, the shareholder may hold shares for the benefit and on behalf of another person (such shareholder would be called “nominee shareholder”). In such instance, the other person, who would accordingly be the real owner of the shares, is the beneficial owner. The ‘beneficial owner’is the person who isthe real, de-facto owner of shares, “entitled to all gains, profits and benefits accruing to such shares“.

The Joint Investigation Team (JIT) formed by Supreme Court failed to mention in its report [on the basis of which references were filed by National Accountability Bureau (NAB) and matter is now before Islamabad High Court (IHC)] that even if someone chooses to configure BVI company with bearer shares, the law requires that all bearer shares are “immobilized”, meaning that the Share Certificates must remain with a Licensed Custodian, together with a written indication as to the actual identity and address of the owner of such shares. Therefore, the person actually loses the main advantage of bearer shares, namely the ability to quickly and anonymously transfer the ownership of the shares.

Most banks in the world would refuse opening account for an offshore company with bearer shares what to speak of giving loans. In the case of Nescoll and Nielson, the offspring of disqualified premier secured a loan of £7 million from Deutsche Bank against four flats in Park Lane[‘Pakistani PM’s children raised £7m against UK flats owned offshore’, The Guardian, April 5, 2016]. This fact alone confirms that the story of transfer of property by Royal Qatar family in 2006 through bearer certificate was fabricated. The case is presently subjudice before IHC and propriety demands not to comment on it any further. However, the legal position must be stated that in view of International Business Companies (Amendment) Act, 2003, which was passed by the British Virgin Islands’ Legislative Council on April 17th, 2003, several changes were made with regard to bearer shares and Directors for International Business Companies (IBCs). After this law was made effective in 2003, the transfer of Mayfair flats through delivery of bearer certificates by royal family of Qatar in 2006 was not possible.

The cases of Aleem Khan and Jahangir Tareen Khan as well as political leaders of all other parties from the perspective of offshore maze were discussed in detail in: All stand fully exposed, Business Recorder, March 3, 2017,  ‘Offshore labyrinth’, Business Recorder, October 27, 2017, Disqualification debates, Daily Times, December 24, 2017 and From cases to conviction, Daily Times, July 8, 2018.   

Both the Pandora PapersandPanama Papers have proved beyond doubt that the corrupt international infrastructure allowing élites to escape tax and regulations is also widely used by criminals and terrorists. As a result, tax havens are heightening inequality and poverty, corroding democracy, distorting markets, undermining financial and other regulation and curbing economic growth, accelerating capital flight from poor countries, and promoting corruption and crime around the world, stripping off humanity from mankind.

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The writers, lawyers and partners of Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS), members Advisory Board and Visiting Senior Fellows of Pakistan Institute of Development Economics (PIDE).