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Imran Khan on illicit financial flows

Huzaima Bukhari & Dr. Ikramul Haq

Prime Minister, Imran Khan, raised vital issues in his extraordinary speech at ‘High-Level Dialogue on Financing for Development’ at the United Nations in New York on September 26, 2019. One issue was related to assets stashed in various tax havens by loot and plunder or through tax evasion. He rightly observed that “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.

According to a news report, 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”. The report adds that “most of the money was made out of corruption and sent outside”. The report further adds: “The funds that could have been spent on human development in the country ended up in offshore bank accounts and western capitals”.

Premier Imran Khan also pointed out that after coming into power his government has been 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”. According to a news report: “He called upon developed countries to do better as far as the return of illicit wealth is concerned. He observed that there “is a lack of political will in the rich countries because they gain from it”. The poorer countries on the other hand do not have the resources to retrieve the laundered money. He added that the aid given by the richer countries to the poor countries is “miniscule” when compared to the money stolen from the latter and taken abroad”.

“I do not understand why in this day and age you have these offshore safe tax havens, wondering why rich countries continue to protect tax evaders. He stressed upon the need to treat money laundered from poor countries to rich nations in the same way as “drug money” and terror financing “because it kills far more people”.

Earlier addressing the same event, UN Secretary General Antonio Guterres emphasized cooperation between countries to curb corruption and the flow of illegal funds. He said that “collaboration is crucial in cracking down on tax avoidance, tax evasion, corruption and illicit financial flows that deprive developing countries of tens of billions of dollars of potential resources for their development every year”. He further added that “cooperation will also be necessary in addressing the new challenge of taxing the digital economy”.

The discussion also saw other leaders and experts stressing on the importance of clamping down on illicit financial flows. Sneha Shah, a financial analyst with Thomson Reuters said that “we are losing 1.5 trillion dollars in illicit financial flows each year and we are not winning this battle. How much are we recovering? One percent of that wealth and 86 percent flowing is through the banking system, so we are not winning”.

Shahbaz Rana in his report of June 28, 2018, ‘Money stashed by Pakistanis in Swiss banks down 34%’, revealed the following facts:

  • “Money kept by Pakistani nationals in Swiss banks fell by over 34% to the lowest level of CHF   724 million or $738 million in 2018”. Switzerland’s central bank, the Swiss National Bank, on Thursday published its annual report, “Banks in Switzerland 2018” and the corresponding data for its annual banking statistics. The money that is directly linked to clients from Pakistan stood at CHF 724.1 million or $738 million in 2008, according to the annual report. It was down by CHF 376 million or 34% when compared with CHF 1.1 billion in 2017. However, the money held by Pakistanis through fiduciaries or wealth managers increased by 26% to CHF 20.1 million – a net addition of only CHF 5.2 million over the preceding year. The CHF 724 million was the lowest level of deposits retained by Pakistanis since 1996 – the year when the Swiss central bank started tracking the money by nationalities. Pakistanis have been constantly withdrawing their funds from the Swiss banks since 2015 when Pakistan and Switzerland finalised a revised taxation treaty. Since then, there has been a reduction of 49% or CHF 723 million in deposits held by Pakistanis, according to the annual report. Former finance minister Ishaq Dar informed the National Assembly in 2014 that at least $200 billion of Pakistani money was stashed in Swiss banks. In a written reply, Dar had said that the government was engaging with the Swiss authorities to get to the money, hidden away by various Pakistani nationals. In August 2014, Pakistan initialled the revised treaty with Switzerland, which would have allowed it to get information in early 2015. But in September 2014, the then federal government decided to renegotiate the treaty despite initialling the agreement.
  • In May 2017, the federal cabinet finally ratified the revised bilateral treaty but it did not cover old transactions. Prime Minister Imran Khan and his cabinet ministers, particularly Communication Minister Murad Saeed, have claimed to bring back $200 billion that Pakistanis presumably stashed in Swiss bank. There has not been any progress on this issue during the 11-month rule of the PTI government.
  • Minister of State for Revenue Hammad Azhar has also claimed about receiving 152,000 bank account details from the Organization for Economic Cooperation and Development (OECD). But Switzerland is not among the 28 nations that have shared information about the bank accounts. Pakistan has also shared a new Memorandum of Understanding on automatic exchange of information about the bank accounts with Switzerland. So far, there is no progress. The officials of the Federal Board of Revenue (FBR) said that Pakistani nationals still have far more than CHF 724 million deposits but these are hidden through various modes. According to them, the United Arab Emirates’ ‘iqama’ is one such method. The money held by the UAE iqama holders is shown against the UAE nationality, they said. Like its predecessor, the PTI government is also struggling to broaden the tax base. The FBR has recently claimed that it has details of 53 million Pakistanis, which it also placed on the official website. The businessmen, corporate executives and bureaucrats, who have seen these details, told The Express Tribune that the FBR largely knows only what they have themselves disclosed in their wealth statements. The last Pakistan Muslim League-Nawaz (PML-N) government had also given the tax amnesty scheme to allow people to whiten their offshore and domestic hidden assets. As many as 5,929 Pakistanis availed the offshore tax amnesty scheme and declared Rs1 trillion in foreign assets and paid Rs47 billion in taxes. An FBR official said that out of Rs1 trillion, Rs345 billion worth of assets were disclosed from the UAE destination and Rs115 billion from Switzerland. But Rs115 billion or $1 billion at that time’s exchange rate does not match with CHF 1.1 billion money held by Pakistanis in 2017.
  • If all the money in Switzerland had been disclosed, the net funds should have been nil in 2018 as against CHF 724 million. This shows that people have still managed to hide their money abroad. In total, nearly 83,000 Pakistanis availed the PML-N’s tax amnesty and declared Rs2.5 trillion assets and paid Rs124 billion taxes. Prime Minister Imran has also offered an assets whitening scheme that is going to end on Sunday. During the first month, people gave a cold response and only 250 persons availed the scheme. But a senior FBR official said on Thursday that the response was very encouraging during this week. He hoped that the government may fetch more than Rs30 billion in revenues, if the trend continued during the remaining three days.
  • Former Federal Finance Minister, Muhammad Ishaq Dar, on March 7, 2017 told the National Assembly that “Pakistan will sign an agreement with Switzerland on exchange of information regarding bank accounts on March 21”. He informed the parliamentarians that “several media reports have surfaced over the years alleging that Pakistanis have evaded taxes—a hefty amount of over $180-200 billion—and stashed the money in Swiss banks”. He claimed the situation demanded that Pakistan should approach the Swiss government for a treaty surrounding the exchange of information”.

We wrote in these columns:

“Dar did not tell the House what happened in August 2014 when the Chairman of Federal Board of Revenue (FBR) was to lead a delegation to Switzerland to “re-negotiate and upgrade treaty on Avoidance of Double Taxation [DTA] to retrieve and/or tax undeclared money deposited in the Swiss banks by Pakistani nationals. At the last moment, he was asked not to go and the Chief International Taxes, FBR, was sent alone! It was anticipated that there would be no agreement or if at all Switzerland did agree, they would disown it making the junior officer a scapegoat by alleging that he was not authorised to sign it! The plan worked as the politicians desired!!

The treaty renegotiated and inked after talks [August 24-26, 2014] was blocked first by political masters and reasons were found subsequently through hand-picked bureaucrats that was exposed in Pakistani cash in Swiss banks pulled out, The Express Tribune, February 22, 2017.  The reasons for not honouring the renegotiated treaty are sham. It was claimed that reduction in rate of dividends to 5% was unacceptable. Pakistan has 5% dividends rate with over a dozen countries—this reduced rate was signed with Spain and Czech Republic in 2016, after political masters frustrated the Swiss Treaty! Most-favoured nation status was just another play up, since Pakistan got a much better deal on royalty, interest and shipping. Swiss wanted assurance that if Pakistan gave better terms to any other country, they would demand the same. It was more of a technical thing hung in the distant future and also contingent upon many “ifs” and “butts” and had no price tag for Pakistan immediately as wrongly claimed in National Assembly by the Finance Minister.

Though Ishaq Dar was fully aware of the fact that majority of the offshore companies of Pakistanis were registered in British Virgin Islands, yet he did not take any initiative to sign a Tax Information Exchange Agreement (TIEA) with British Virgin Islands that India signed way back in 2011. During the rule of PPP and PMLN no serious effort was made for retrieving looted wealth invoking Swiss law (Foreign Illicit Assets Act (FIAA) of 18 December 2015) or tax losses caused by non-reporting of income by Pakistanis having off-shore accounts. On the contrary, the government is seriously considering extending amnesty to them!  Even the Opposition has not tabled any Bill in the Parliament to show its interest and concern in the matter proving emphatically that an unholy, anti-people alliance lurks among all forces of loot on this issue. It is high time that all the documents related to 2014 negotiations for Swiss Treaty are made public by the present government so that masses come to know about the game our politician have been playing!

On March 21, 2017, according a release of Press Information Department, Pakistan and Switzerland signed the revised Agreement on Avoidance of Double Taxation with respect to Taxes on Income. It says: “One of the highlights of the re-negotiated treaty is the replacement of the Article on ‘Exchange of Information’ with the new one reflecting the internationally accepted standard which is based on the OECD Model. The new Article on Exchange of Information will considerably expand the existing scope of information to be obtained on request basis for the enforcement of domestic tax laws. It will also provide access to bank information for tax purposes and such information shall not be refused solely because the information is held by a bank or other financial institution. For this purpose, the Requesting State will be providing information to the Requested State such as the identity of the person under investigation and period of time for which the information is requested”.

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 and 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, 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 till the time they rule!

We have been repeatedly writing since 2010 stressing the government to approach Switzerland for re-negotiating the DTA, but matter was constantly delayed by politicians. After reading our articles, apparently, FBR moved a summary in 2013 for re-negotiating the DTA with Switzerland, but the PPP government did not respond. At least three summaries moved from time to time were shoved under the carpet. The reasons behind this for this were discussed in detail in our article, ‘The Swiss accounts’, Business Recorder, September 9, 2013. Then President, Asif Ali Zardari, got his $60 million moved from Swiss banks and never bothered to inform the nation where the said money came from and how much tax was paid on it in Pakistan or elsewhere.

After pressure from inside and international donors, the present government gave approval on September 20, 2013 for renegotiation with Swiss government, but played it dirty tricks thereafter as narrated above. By not honouring the 2014 renegotiated treaty it allowed many, sufficient time to move away shady funds from Swiss banks. The fear is that now new treaty signed on March 21, 2017 will not yield the desired results after coming into force. It confirms that the delay was intentional, wilfill and well-planned—though crafty politicians are still taking credit of taking actions in “national interest” to hoodwink the people!

On March 9, 2014, the Ministry of Finance, in a written reply told the National Assembly 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.” Similarly, Micheline Calmy-Rey, a former Swiss Foreign Minister, “is reported to have put the amount of Pakistani money hidden in Switzerland at $200 billion—a statement that was never contradicted,” the statement added. Finance Ministry claimed that there were reasons to believe that the figures were correct. Later, the Finance Minister, Mr. Ishaq Dar said the government was working under the ambit of RIAA, which “allows the Swiss government to exchange information that was earlier considered confidential regarding money that might have been obtained illegally and deposited in Swiss banks”. He also briefed the House on the steps the government was taking to get the money back. All this proved to be a farce!

Amid a global squeeze on tax evasion, money laundering and blatant outflows of capital, Switzerland’s 11 largest banks, according to many reports, house nearly $7 trillion of the world’s total offshore liquidity stock of $32 trillion. 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.

The issue of tax avoidance by keeping accounts in tax havens has become a highly charged political issue in the world especially after Bahamas Leaks and Panama Leaks. Across much of Europe, particularly the richer northern countries are increasingly fed up with demands for bail-out money from heavily indebted countries like Greece. A key demand of a recent bailout deal announced for Cyprus was that the nation should drastically shrink its role as a financial center and, many in Germany suspect, a haven for money laundering. In Pakistan’s case we have been borrowing or begging for bailouts while trillions untaxed are lying abroad.

The successive governments in Pakistan, unfortunately, adopted 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. The Supreme Court in 2012 and 2013 declared the petitions filed by some individuals as “non-maintainable” and the same was the fate of many petitions in Lahore High Court”.

We hope that Imran Khan and his team will consider the contents of this write up and make fresh efforts to retrieve the looted money.  


The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS)

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