Huzaima Bukhari, Dr. Ikramul Haq & Abdul Rauf Shakoori
The selective criteria of the Financial Action Task Force (FATF) in listing countries with strategic deficiencies are the main hurdles in curtailing the movement of illegal flow of funds. The jurisdictions that absorb the higher share of ill-gotten money are the key members of the FATF. The Financial Secrecy Index 2020 listed the top 10 major financial secrecy destinations. The top three secrecy havens are Cayman Islands, United States (US), and Switzerland. US is a founding member of FATF. As per the Index’, “US overtakes Switzerland in the global ranking of financial secrecy hotbeds, Cayman leaps over to the top of the index”. The Index further highlights that Cayman Islands increased its financial secrecy by 24% and moved it to the top on the list in 2020 as compared to the rating of 2018. Similarly, the US has maintained its position whereas Switzerland now ranks third on the Index.
The United Kingdom (UK), another founding member of FATF has increased financial secrecy as compared to any other country. Similarly, other major secrecy jurisdictions are Hong Kong, Singapore, Luxembourg, Japan, Netherland, the British Virgin Islands (BVI) and the United Arab Emirates (UAE). The painful fact is that despite being known as offshore havens to facilitate those having questionable wealth, these countries have never been subjected to the strict scrutiny or listed as countries with strategic deficiencies.
The quantum of illicit money injected in these countries in different sectors is greater than even the annual budget of most countries. Canada, another founding member of FATF is also struggling to fight against the movement of illicit funds. The International Narcotics Strategy Report (INCSR 2019) highlights that illegal drug trafficking, fraud, corruption, counterfeiting, piracy, tobacco smuggling, and human trafficking as the main sources of money laundering in Canada. The INCSR 2019 further highlights that the Canadian drug market is the largest criminal market and money launderers use cash smuggling, currency exchanges and money services businesses (MSBs), casinos, real estate, wire transfers, offshore corporations, credit cards, foreign accounts, funnel accounts, hawala/hundi networks, and digital currency to transport their illegal proceeds. Similarly, Better Dwelling in their report referring to the Global Financial Integrity (GFI) data states that from 2015 to 2020 the Canadians have approximately laundered US$ 626.3 million in cash to buy real estate. The GFI further reports about the US that more than US$2.3 billion has been laundered through its real estate market, including millions more through other alternate assets like art, jewelry, and yachts.
National Crimes Agency (NCA) estimates that the volume of money laundering in the UK is around £150bn every year. The major chunk includes property purchased by offshore companies. The Guardian claims that the NCA has expanded its use of unexplained wealth orders to freeze several multimillion-pound homes in the capital while it investigates how the money used to buy them was obtained.
In one case, NCA seized a £50m worth house overlooking Hyde Park from a Pakistani real estate tycoon. Transparency International (TI) insisted that UAE “need to clean up its real estate sector in Dubai”. Moreover, as offshore haven with strict secrecy laws, shell companies treat Hong Kong as the easiest place to launder their funds. South China Morning Post (SCMP), in a story, highlighted that more than 20 shell companies laundered HK$880 million (US$113.5 million) in 11 months. The Organized Crime and Corruption Reporting Project (OCCRP) in their report, quoting the Federal Money Laundering Reporting Department of Switzerland (MROS) figures, reported in its annual report for 2020 that an amount of CHF12.9 billion (US$13.2 billion) originated from suspected fraud and corruption offenses—around 60% of this belonged to people from abroad.
Now keeping in view Panama Papers or Pandora Leaks, the secrecy jurisdictions accommodating wealthy individuals without disclosing their information are Panama, Cayman Islands, BVI, US, and Switzerland. Bloomberg in their story reported that roughly US$5 trillion to US$32 trillion are parked in offshore havens. Due to strict secrecy laws, the process of seeking information about individuals involved in money laundering-related activities is complicated. The process of Mutual Legal Assistance is always compromised due to secrecy provisions. Moreover, these requests are entertained based on credible evidence of money laundering (ML) and terrorist financing (TF). Similarly, Swiss law provides legal remedies to affected persons if they are aggrieved with the treatment of their assets. Most countries with strict secrecy laws seek court order to provide access to any person with questionable wealth. Therefore, to approach the authorities to seek information about any individual named in money laundering must be supported with credible evidence.
Recently Pandora Leaks and earlier Panama Papers disclose the names of Pakistan’s wealthy individuals. There have been more than 700 politicians, businessmen, media house owners, bureaucrats, and army personnel from Pakistan, who are allegedly maintaining offshore establishments. It ranges from powerful military personnel like ex-Corps Commander, Gen Shafaat Ullah Shah, Ex-DG ISI, Major-General (retd) Nusrat Naeem, former Deputy DG ISI (Counter Intelligence), Ex-Air Chief, Abbas Khattak, Shaukat Tarin (former federal Finance Minister, whose tenure ended on 15 October 2021) and political turncoats like Monis Elahi, Khusro Bakhtiyar, etc.
Pandora Leaks has unveiled the hypocritical face of Pakistan’s political and military establishments that have always been preaching accountability, transparency, and stresses the importance of paying taxes—however, now caught red-handed in an alleged attempt to avoid taxes.
In the above scenario, the question is that despite disclosure of the names of powerful military and civil personnel in these leaks, whether Pakistan’s law enforcement agencies (LEAs) are serious about the return of money parked offshore by these powerful individuals? Whether Pakistan’s agencies are competent to figure out individuals named in the leaks who have made their fortune through corrupt practices? Moreover, whether decisions of the courts in Pakistan are worthy enough to convince foreign jurisdictions for their co-operation?
The answer is very simple. White collar crime investigations need special expertise to deal with different nature of financial crimes. However, our top institutions, like National Accountability Bureau (NAB) that takes pride being autonomous, constitutionally established, to work against corruption and act as critical national agency to counter economic terrorism, has compromised its credibility. NAB’s Chairman is the most controversial person with a questionable character. Moreover, one of its Director Generals (DG) is accused of having a fake degree. The Supreme Court, headed by the most controversial Chief Justice of Pakistan, Mian Saqib Nisar, later came to his rescue. The arbitrary decisions of Mian Saqib Nisar caused losses to the tune of billions to the national treasury. The other DG NAB, Irfan Mangi does not have relevant qualifications—he admitted before the Supreme Court that he has no experience in dealing with cases of criminal nature. Apart from NAB, other LEA’s personnel are not competent enough to understand the nature of illicit flow of funds. The Mutual Evaluation Report 2019 (MER 2019) observed that Pakistan convicted only one person since the introduction of ML laws that are not consistent with its risk profile. The MER 2019 notes lack of internal directives, guidance on ML investigation, lack of skilled resources, capacity to investigate ML, lack of understanding of ML offenses and low level of awareness by the provincial police as well as lack of awareness as to the elements of ML offenses by the judiciary.
Another factor that is shaking our credibility and being justified by our superior courts is the encouragement of financial crimes related cases filed to achieve political motives by those who have a questionable background. The Broadsheet and decision against Suleman Shahbaz and Shahbaz Sharif are classic examples of incompetence of our LEAs. Therefore in Pakistan, accountability has been a popular slogan, political parties, military personnel, members of the judiciary have been repeatedly taking controversial and vindictive measures in the pretext of so-called accountability. Through this politically motivated initiative, they achieve their short-term goals, however, these controversial initiatives break the controls in place to save the country from reputational risks, which is the main element of risk assessment. Our selective drive to counter financial crimes is not helping us. The dichotomy and irony are that in recent past when Panama Papers were leaked and it established links with the family of former Premier Mr. Nawaz Sharif, almost all political forces, military establishment and judiciary took a keen interest in the matter and made coordinated and even collusive efforts to conclude this matter to their satisfaction. In this process, they defined new legal standards, which had no precedent or legal basis, but still, law and process were twisted and redefined to ensure that ex- premier and his family is shackled and chained in this circuit of accountability.
The abuse of process by the mighty especially the untouchables is not a hidden fact in Pakistan. The hybrid regimes whether current or in the past seem to enjoy immunity from any kind of accountability and all-powerful individuals in corridors of power seem to be hand in glove with each other. There is no or little hope that those names in this leak will be held accountable or even will be asked to clarify their positions. This presumption is based on the fate of the Panama Papers saga where more than 400 Pakistanis were named but except for Nawaz Sharif no one was even called by any court or investigating body and all the activity was nothing but an opportunity to settle personal political scores.
It is very disheartening for a common Pakistani to see its sweat and blood earnings end up landing in offshore havens especially by those who are entrusted with the sacred responsibility of running the state or by those who are responsible for protecting the homeland. These frequent disclosures coming from external sources is a matter of great embarrassment for our local institutions. It is a testimony of the fact that our investigative and financial institutions have repeatedly failed to identify and curtail the flight of capital. We need a strong commitment, transparent mechanism to address these challenges otherwise our economy will keep on suffering and the gulf between the ruling elite, and common man will keep on widening.
Huzaima Bukhari & Dr. Ikramul Haq, 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). Abdul Rauf Shakoori is a corporate lawyer based in the USA and an expert in ‘White Collar Crimes and Sanctions Compliance’. They have recently coauthored a book, Pakistan Tackling FATF: Challenges and Solutions.