Dr. Ikramul Haq & Abdul Rauf Shakoori
“Priority measures include the establishment of an asset declaration system with a focus on high-level public officials (including federal cabinet members) (end-March 2022 SB) [SB is structural benchmark], reset to end-September 2022), and publication of a comprehensive review of the anticorruption institutional framework (i.e., National Accountability Bureau) by a task force with the participation of independent experts with international experience and civil society organizations (new end-January 2023 SB)”—Pakistan: IMF Country Report No. 22/288, September 2022.
The International Monetary Fund (IMF) has been demanding Pakistan for a public declaration of civil servants’ assets to revive the stalled US$ 7 billion programme. It has also been insisting to acquire details of the overseas assets of bureaucracy. In addition to this, IMF has also stressed on establishing an authority that could publicize civil servants’ assets. In short, the international lender has asked Pakistan government to make public, movable and immovable assets of the bureaucrats at home and abroad to ensure transparency and accountability, through an Electronic Assets Declaration System.
For meeting this IMF’s condition, the Federal Board of Revenue (FBR) has notified Sharing of Declaration of Assets of Civil Servants Rules, 2023 [“the rules”] vide S.R.O. 80(l)12023 dated February 1, 2023. These rules bind commercial banks to seek asset details of civil servants from grade 17 to 22 before opening their bank accounts. The term “Civil Servants” used in these rules mean “an employee serving under Civil Servants Act, 1973 (LXXI of 1973)”. Under the rules, FBR would share a simplified or abridged electronic version of the declarations filed with FBR, based on the fields agreed with the State Bank of Pakistan (SBP). It is worth noting that the government has not brought the judiciary and armed forces within the purview of the asset declarations system implying that the most powerful and privileged ones are still protected under the so-called secrecy laws!
The bank will obtain express written consent from the civil servants of whom the bank intends to access information from FBR, by obtaining a certificate from them on prescribed format annexed to the rules, duly signed by the person declaring that he/she is a civil servant of BS-17 and above, with complete name, designation, employee number and all other particulars mentioned therein.
According to the rules, the bank’s head of compliance is to use a single authorized email address for the request or receipt of simplified declaration. Each bank has to furnish particulars of four persons seeking data, for corresponding with FBR.
Under the rules banks are bound to ensure confidentiality of data by authorized official submitting a declaration to FBR that he/she will maintain secrecy of information provided, and the same would not be divulged to any person.
In December 2021, Pakistan government agreed with IMF to publicly disclose asset declarations filed by politically exposed persons, civil servants, and their spouses. It is provided in a Press report as under:
- “The government had resisted the demand to ensure compulsory declaration because these people were already required to submit their asset details in the Establishment Division. However, the IMF did not agree to it and instead asked Pakistan that such declarations should be filed with the tax authorities. However, many bureaucrats did not file their asset declarations, nor did they submit their annual income tax returns, including many taxmen.
- The IMF’s view was that any important position holder drawing a salary from the budget should disclose assets to ensure transparency.
- “The disclosure of information in respect of high-level public officials is proposed in line with the requirements of the development partners, rule of law and integrity,” the note sent by the FBR Chairman to the financial adviser about changes being made in the tax laws read.
- However, the government has found a way out where the declarations filed by members of the armed forces would not be made public, the sources said, adding that the exception has been created by Law Minister Barrister Farogh Naseem.
- The sources said that the requirement of non-disclosure of the asset declarations would not apply to those who were currently exempted from the applicability of the National Accountability Ordinance.
- A proviso is likely to be inserted in the law that will state that nothing in clause (t) shall apply to those who are expressly exempted under clause (iv) of sub-section (m) of Section 5 of the National Accountability Ordinance, 1999.
- Former Prime Minister Imran Khan has been advocating transparency and ending corruption in society. But his cabinet members were trying to create exceptions for certain classes of the society, which is contrary to the vision of the premier”.
Pakistan agreed with IMF for the assets declaration system at the start of Extended Fund Facility (EFF) Programme and during the seventh and eighth reviews, it agreed on the timeline for activation of this system. However, no progress was made in this regard till the start of negotiations (started on January 31, 2023 and will end on February 9, 2023) for the delayed ninth review.
The negotiations so far are declared to be “productive” by both sides. The technical level talks continued till Feb 3, 2023, while the second phase of policy negotiations will continue till Feb 9, 2023 to finalise a memorandum of economic and financial policies (MEFP).
The question arises whether launching of assets declaration system for public officials would curtail corruption and the movement of illicit flow of funds generated through corruption and/or other illegal means. The answer is a big “NO”. The real issue is recovery of assets parked in foreign jurisdictions by corrupt politicians, civil and military servants and members of judicial service (federal and provincial).
Pakistan is a member of the United Nations Convention against Crime [“the Convention”], signed in 2003 and accepted in August 2007 with reservation on Article 66, Paragraph 3 of the Convention. Pakistan does not consider itself bound by the provisions of paragraph 3 of this Article. Pakistan has so far failed to comprehend the real value of the Convention to avail its full-scale benefits to follow illegal money parked in various international jurisdictions.
Instead of equipping its law enforcement agencies with new techniques and facilities to trace illegal assets stashed abroad, Pakistan prefers surrendering before criminals by introducing frequent amnesties and/or asset whitening schemes. Unfortunately in 2018 and 2019, within a gap of few months, two amnesties were launched by the two Prime Ministers of Pakistan with tall claims to fetch enough funds to meet fiscal challenges. However, both amnesty schemes could not enrich the national treasury (amounts contributed were just peanuts), rather elicited criticism from local writers, organisations and international forums. Subsequently, while signing the EFF programme with IMF in 2019, the global lender added a condition barring the government from issuing amnesty schemes in future.
Former Prime Minister Imran Khan also created the infamous Assets Recovery Unit (ARU) to bring back assets illegally stashed abroad by Pakistanis. However, the head of the ARU was named in various controversies such as asking for commission from the head of Broadsheet, mysterious and secret conditions agreed with National Crimes Agency of United Kingdom regarding settlement of 190 million pounds in the case of Riaz Malik (business tycoon), political victimization of Imran Khan’s adversaries, and initiating a case against the sitting senior judge of the Supreme Court of Pakistan. During his entire tenure, the ARU could not contribute any significant amount to the national kitty, though it spent taxpayers’ billions of rupees to fuel the political agenda of its “masters”.
Our rulers should realize the heavy cost of plundering taxpayers’ money by corrupt public officials, irrespective of their affiliations. It is high time to deal with them firmly and decisively under the law. There are numerous examples where assets created by abusing public money are stashed abroad. This must be stopped by improving controls, investigation and prosecution. Such assets should be repatriated to Pakistan, for which cooperation of international community needs to be secured.
The Nigerian government signed a trilateral memorandum of understanding with Switzerland and the World Bank for the return of Abach II funds worth US $321 million, Malaysia recovered with assistance provided by the United States, over US$ one billion in four wire transfers, stolen from Malaysia’s 1MDB Fund. Similarly, Uzbekistan and Switzerland signed a framework agreement over the return of around $131 million in confiscated assets from the former Uzbek president’s daughter. The UK also returned millions to the concerned countries, stolen by their influential persons.
Despite various leaks by the International Consortium of Investigative Journalists (ICIJ) and OECD’s reports highlighting billions of dollars parked in offshore accounts by Pakistani citizens, we have failed to recover the stolen and/or untaxed assets. It shows that we do not care either about misuse/abuse/plunder of our public funds or make efforts to streamline our governance system to stop the bleeding of our resources.
Corporate vehicles such as shell and shelf companies are the major instruments in hiding illicit money. Since there is limited information available regarding these entities, therefore, criminals can easily disguise their illicit funds. The implementation of beneficial ownership rule can help to detect real ownership of these companies.
However, before seeking this information from relevant jurisdictions, it is necessary to develop a well-trained investigation team that can articulate and initiate a case plan, create solid evidence, feature relevant offence, outline media strategy, and prepare a case evaluation. The case must be based on strong indirect and circumstantial evidence identifying the crime based on unexplained wealth or illicit enrichment. The law enforcement official should be trained enough to understand the concept of dual criminality, the kind of legal assistance, and the legal purpose of seeking cooperation from international agencies in this regard. Money laundering laws that can play an important role in recovery of stolen assets are considered important tools to follow illicit money.
We have written various articles pinpointing the anomalies in our existing Anti-Money Laundering and Combating of Terrorist Financing (AML-CFT) laws. We have been highlighting in these columns and elsewhere that our existing legal framework creates a conflict of interest and at many levels does not meet international standards. Instead of addressing these concerns and aligning them with international best practices, the FBR, in compliance with IMF’s conditions regarding “Disclosure of Public Official’s Assets”, hastily and without meaningful public debate issued rules, in exercise of powers conferred under sub-section (1) of section 237 of the Income Tax Ordinance, 2001.
In the rules, FBR imposed conditions on the banks for customer due diligence which is already their legal responsibility to ensure that deposited funds are generated through lawful means, duly corroborating with the customer’s profile and are not being used as a channel for transporting illegal money.
The process of seeking consent, certificate, and rejection of the information request by FBR is anomalous as well and in violation with international standards for customer due diligence. Linking of customer due diligence with filing of assets disclosure with FBR and then seeking information from a third party tantamount to barring the bank from performing its legal responsibility.
Being an important member of the United Nations and the seventh nuclear power, Pakistan could not establish sufficient capacity to cleanse itself from illicit money despite signing United Nations Convention against Corruption, UN Treaties, 1988 Vienna Convention on Drug Control (United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances), 2000 Palermo Convention on organized crime (United Nations Convention against Transnational Organized Crime, UNTOC and UN’s initiative [The Stolen Asset Recovery Initiative (StAR)]. Unfortunately, we earned a bad name in handling an assets recovery case that was taken up by the National Crimes Agency of United Kingdom against our property tycoon, Malik Riaz.
We need to realize that asset disclosure by public officials would not be sufficient to curtail misuse of public funds. We have to take some serious, concrete and practical steps to improve our governance.
We must improve, our investigative and asset-tracing skills, mechanisms for freezing, seizure, and confiscation and capacity/competence of our law enforcement agencies as well as judiciary in its understanding with regard to assets and criminal offense. The judiciary needs to be educated/trained to differentiate between evidentiary requirement and standards of proof. In the past, the courts’ decisions were in sheer violation of Article 10A of the Constitution of Islamic Republic of Pakistan as well as legal norms established for acceptance of evidence.
We should also focus on improving coordination between various law enforcement agencies for effective communication and exchange of information. The Mutual Evaluation Report 2019 of Financial Action Task Force (FATF) highlights this gap and considers it the main reason for not detecting illegal financial flows. The overlaying responsibilities or absence of clarity over their assigned duties is adversely affecting the performance of law enforcement officials.
The way forward for us is to improve our governance. It will help to curtail the misuse/abuse of public funds otherwise, we will keep on begging before friendly countries and global lenders. This will not strengthen the country’s financial health and economy but will certainly add to the miseries of the overwhelming majority of the citizens.
It is a fact that Pakistan received US$6 billion IMF bailout in 2019, which was later increased to $7 billion. However, the disbursements stopped in November 2022. Our foreign exchange reserves depleted to $3.7 billion, which are not even enough to cover three weeks of imports. In such a situation, Pakistan desperately needs to complete the ninth review and revive the stalled U$1.2 billion disbursements, and unlock foreign inflows. In this worse situation, no one sitting at the helm of affairs is ready for accountability to shoulder the responsibility of the current situation.
Dr. Ikramul Haq, Advocate Supreme Court, specializes in constitutional, corporate, media, intellectual property, arbitration, international taxation, IT, and ML/CFT-related laws. He is the author of many books on the law, economic and political history of Pakistan, drugs, arms, terrorism, and related matters. He has been studying phenomena of arms-for-drugs, narco-terrorism, and the global heroin economy since 1979 and authored Pakistan: From Hash to Heroin and its sequel Pakistan: From Drug-trap to Debt-trap. He studied journalism, English literature, and law. He is the Chief Editor of Taxation He is the country editor and correspondent of the International Bureau of Fiscal Documentation (IBFD) and a member of the International Fiscal Association (IFA). He is Visiting Faculty at the Lahore University of Management Sciences (LUMS) and a member Advisory Board and Visiting Senior Fellow of the Pakistan Institute of Development Economics (PIDE).
Abdul Rauf Shakoori, Advocate High Court, is a subject-matter expert on AML-CFT, Compliance, Cyber Crime, and Risk Management. He has been providing AML-CFT advisory and training services to financial institutions (banks, DNFBPs, investment companies, money service businesses, insurance companies, and securities), government institutions including law enforcement agencies located in North America (USA & CANADA), Middle East and Pakistan. His areas of expertise include legal, strategic planning, cross border transactions including but not limited to joint ventures (JVs), mergers & acquisitions (M&A), takeovers, privatizations, overseas expansions, USA Patriot Act, Banking Secrecy Act, Office of Foreign Assets Control (OFAC).