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Retrieving Swiss money

Huzaima Bukhari & Dr. Ikramul Haq

According to Business Reorder of July 8, 2014, the Chairman of Federal Board of Revenue (FBR) is likely to lead a delegation to Switzerland 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.”

Pakistan’s DTA with Switzerland signed in 2005 and enforced in 2008 vide Article 25(Exchange of information) reads as under:

“The competent authorities of the Contracting States shall exchange such information (being information which is at their disposal under their respective taxation laws in the normal course of administration) as is necessary for carrying out the provisions of this Convention in relation to the taxes which are the subject of this Convention. Any information so exchanged shall be treated as secret and shall not be disclosed to any persons other than those concerned with the assessment and collection of the taxes which are the subject of this Convention. No information as aforesaid shall be exchanged which would disclose any trade, business, industrial or professional secret or trade process.

2. In no case shall the provisions of this Article be construed as imposing upon either of the Contracting States the obligation to carry out administrative measures at variance with the regulations and practice of either Contracting State or which would be contrary to its sovereignty, security or public policy or to supply particulars which are not procurable under its own legislation or that of the State making application”.

The above provision of DTA does not facilitate exchange of information about accounts of Pakistani nationals. Historically, Switzerland was not sharing this kind of information with any country—its banks earned notoriety for hiding looted and untaxed funds from various parts of the world. However, 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—http://www.oecd.org/ctp/exchange-of-tax-information/120718_Article%2026- ENG_no%20cover%20(2).pdf. The United States, Germany, France, United Kingdom, the Netherlands, Qatar, and India after incorporating revised Article 26 of OECD are reaping notable tax revenue gains and receiving capital back from Switzerland. 

We wrote a number of articles in these columns since 2010 asking the government to approach Switzerland for re-negotiating the DTA, but matter was delayed by politicians. It is hoped that before leaving for Switzerland, the FBR team will re-read these. Surely, it will help them in understanding how the other countries retrieved billions from Switzerland. We have cited examples of many countries and quantum of funds they had received. Some of these articles are:

  1. The Swiss accounts, Business Recorder, September 9, 2013.
  2. German-Swiss tax pact: lessons for Pakistan, Business Recorder, April 13-14, 2012.
  3. Unearthing hidden accounts, Business Recorder, November 18, 2011.
  4. Swiss ‘Return of Illicit Assets Act’: we can get billions back, Business Recorder, October 1, 2010.

Apparently, after reading the above, FBR moved a summary for re-negotiating the DTA with Switzerland, but the PPP government did not respond. At least three summaries moved from time to time were kept under the carpet. The reason for this was discussed in detail in ‘The Swiss accounts’, Business Recorder, September 9, 2013. Former President, Asif Ali Zardari, got his $60 million moved from 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.

Undoubtedly, full credit goes to the present government to pursue the issue of re-negotiation of DTA with Switzerland, for which the federal cabinet gave approval on September 20, 2013. Hopefully, the upcoming round of talks in the last week of August 2014 will be successful. Once Article 26 of OECD Tax Model is inserted, Switzerland would provide the details of bank accounts of Pakistanis on fulfilment of certain conditions. The facts show that since 2010 the bulk of shady funds have been moved away from Swiss banks. The fear is that now the exercise will not yield the desired results. It shows the delay was well-planned though crafty politician are taking credit of positive action as well to hoodwink the people!

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.” 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 Minister 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.

The figure of US$ 200 billion (Pakistan’s GDP in 2013-14 was $237 billion), relied by Finance Ministry, is based on statements appearing in newspapers and no official confirmation from Swiss government is available. It is worthwhile to mention that even one-third of it, if received as tax evaded or retrieved as looted funds, can wipe of all our external debts—around $61.8 billion as of today.

Mr. Dar did not mention or comment on report of The Times of India [June 21, 2013] which says: “when it comes to money in Swiss banks, Pakistan has a slight edge over India with total funds amounting to 1441 million Swiss francs [$ 1.31billion] held there by Pakistani individuals and entities. However, this was the lowest level for such funds ever since Switzerland’s Central Bank began compiling this data in 2002 and was less than half of the record high amount of over 3 billion Swiss francs [$ 4.18 billion] recorded in 2005. The previous record low of 1.95 billion Swiss francs [$ 2.06 billion] was seen in the year 2010. In their local currency, the total funds held by individuals and entities from Pakistan in Swiss banks stood at about Rs. 1.5 trillion as on December 31, 2012.”This report confirms that huge amounts have already been shifted from Swiss banks to other safe heavens by Pakistanis. Why were our governments sleeping over it since 2005 when deposits were as high as $418 billion or in 2010 when these were $206 billion?

Citizens want to know why assets worth billions are kept abroad by many rich and mighty Pakistanis, including bosses of PML-N in the names of their siblings. Many want the Finance Minister to refute with evidence charges of investment by his son Ali Dar with Indian billionaire Madhu Bhindari in HDS Group in UAE [http://pkpolitics.com/discuss/topic/nawaz-sharifs-son-in-law-investing-billions-in-uae]. Nation expects that before signing the revised DTA with Switzerland, he will enlighten them about the story, ‘The truth about Rs.3.48 billion Sharifs loan default’, published on April 9, 2013 in The News [http://www.thenews.com.pk/Todays-News-13-22152-The-truth-about-Rs348-bn-Sharifs-loan-default].    

Amid a global squeeze on tax evasion, money laundering and blatant outflows of capital, Switzerland’s 11 largest banks 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. 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 are begging for bailouts from the IMF while trillions untaxed are lying abroad. Whether Mr. Ishaq Dar fulfills his promise made in the National Assembly to retrieve and tax these gargantuan hidden funds by taking tough measures or not, only time will tell. If he does so, the entire nation will be indebted to him.


The writers, tax lawyers and partners in law firm, HUZAIMA & IKRAM (members Taxand: www.taxand.com), are members of Adjunct Faculty of Lahore University of Management Sciences (LUMS). They can be contacted at info@huzaimaikram.com

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