The Supreme Court of Pakistan on November 15, 2024, heard after a lapse of more than six years, Suo Motu Case No. 2 of 2018 on ‘Maintaining of Foreign Accounts by Pakistani Citizens Without Disclosing the Same/Paying Taxes’, started on February 1, 2018. The constitutional bench adjourned the hearing asking the Federal Board of Revenue (FBR) and Federal Investigation Agency (FIA) to file reports within two weeks. After many hearings, appointing of committees, and seeking assistance from some leading lawyers and experts in international public law, international treaties related to corruption and tax fraud, fiscal, business, and finance, the case remains unconcluded today—see details in a previous column published on April 6, 2024.
The Constitution Petition No.72 of 2011, filed by Muhammad Ali Durrani, former Senator, and ex-minister, involving many common issues, was attached with a suo motu case [order dated June 12, 2018, reported as PLD 2018 Supreme Court 686]. Since the filing of this petition 13 years back, instead of retrieving looted wealth and untaxed assets stashed abroad, exposing and punishing the culprits, unprecedented immunities and amnesties extended, assuring “complete confidentiality” through unconstitutional laws, first by the government of Pakistan Muslims League (Nawaz)—[PMLN] and then by the coalition government of Pakistan Tehreek-e-Insaf (PTI).
The laws relating to assets whitening and tax amnesties, promulgated during the pendency of Suo Motu Case No. 2 of 2018, are ultra vires of the Constitution of the Islamic Republic of Pakistan, 1973 [“the Constitution”] on many grounds. These were challenged by Muhammad Ali Durrani through a miscellaneous application in Constitution Petition No.72 of 2011, but no action was taken till January 14, 2019, the last date of hearing in the case, before it is now taken up by the constitutional bench on November 15, 2024.
Muhammad Ali Durrani, through Advocate of Record, requested the constitutional bench to appoint a new counsel sometime. Retired Chief Justice of Lahore High Court, Mian Allah Nawaz, who filed a petition on his behalf is now unwell and bedridden.
The Supreme Court while taking up Suo Motu Case No. 2 of 2018 noted: “It has been common knowledge for years that a large number of Pakistani citizens, who are residents of Pakistan and are maintaining accounts in foreign countries without disclosing the same to the authorities competent under the laws of Pakistan or paying taxes on the same in accordance with law. Prima facie, it appears that such money is siphoned off without the payment of taxes through illegal channels and represents either ill-gotten gains or kickbacks from public contracts. Such money creates gross disproportion, inequality, and disparity in the society, which warps economic activity and growth, and constitutes plunder and theft of national wealth”.
The nation wants looted wealth back, not just putting the looters behind bars, later allowed to be released on bail or even go abroad for medical treatment, and finally quashing the cases
The policy of appeasement towards corrupt practice, looting, and plundering of national wealth, spread over the last many decades, has culminated in the syndrome of defeatism that “nothing can be done”, hence amnesties! In other words, defeatism as a mindset has developed as a national syndrome — where the beneficiaries of tainted money successfully shift the entire blame on weak administration and existing laws. The question arises when there are glaring inactions, why corrective and remedial measures have not been taken? For example in the case of Nawaz Sharif and Asif Ali Zardari, and many others, the much-needed action of freezing assets under section 12 of the National Accountability Ordinance 1999, was never taken.
The nation wants its looted wealth back, not just putting the looters behind bars, later allowed to be released on bail or even go abroad for medical treatment, and finally quashing the cases. Nothing has been done on the front to retrieve untaxed and/or looted wealth for which Suo Motu Case No. 2 of 2018 was initiated more than six years ago. In cases of financial crimes, the real issue is the retrieval of looted money and tax on untaxed assets. This has not been done even in a case where the Supreme Court asked for action against the Attorney General in 2010 for withdrawal of Pakistan’s claim of $60 million in para 177 to 179 of the case reported as Dr Mobashir Hassan and other v FOP and others in PLD 2010 SC 265. Tragically, even after 14 years, the order remains unimplemented and the accused once again enjoys immunity under Article 248 of the Constitution.
In the wake of Panama, Bahamas, Paradise, and Swiss leaks and the changed global scenario, many countries started exchanging information and taking stringent measures against tax evasion, plundering of national wealth, looting public funds, corruption, money laundering, and terrorist financing. Unfortunately, in Pakistan, asset whitening schemes were offered to cause a loss of billions to the national exchequer.
It may be recalled that while addressing a press conference on October 4, 2018, the Special Assistant to then Prime Minister on Accountability, claimed that details of more than 10,000 properties owned by Pakistanis were traced in Dubai and England and declared it “a huge success”. He said: “We have formed a task force which will ensure the money sent abroad is brought back”. He elaborated that assets detected could be divided into two categories; belonging to public officeholders and common citizens.
Debate about the retrieval of stolen/plundered/untaxed assets stashed abroad by Pakistanis elicited heated arguments and bitter controversies, especially after the constitution of a task force by the newly-formed federal cabinet in its maiden meeting on August 20, 2018, chaired by the Premier. The controversies in the Press were related to figures quoted by official and unofficial quarters and the application of various laws/procedures/methods for retrieving funds. The issue became popular in TV talk shows in the wake of the Supreme Court’s suo motu action on February 1, 2018, on assets stashed abroad, a matter that is still lingering.
The estimate of hidden assets abroad of Rs43 trillion, according to a report by journalist, Zahid Gishkori, published on August 8, 2018, created a heated debate. He quoted reports submitted to the Supreme Court by the Federal Investigation Agency (FIA), State Bank of Pakistan (SBP), FBR, Security and Exchange Commission of Pakistan (SECP), and other institutions.
As expected, SBP, FBR, FIA, SECP, etc in the very first hearing on February 15, 2018, of Suo Motu Case No. 2 of 2018 showed “helplessness” in retrieving untaxed money and stolen assets claiming that “the existing laws are the main impediment in their way”
For many, the figure of Rs43 trillion appeared to be outlandishly exaggerated. They compared it with the recorded GDP of around $286.7billion. Some analysts said that the critics were not taking into account the monstrous size of the parallel economy that generated outflows of $10-12 billion annually. SBP told the Supreme Court that during fiscal year 2017-18 alone, outward remittances from foreign accounts were $15.25 billion. If on average $8 billion were sent abroad annually from foreign currency accounts alone — the total amount since the introduction of the Protection of Economic Reforms Act 1992, facilitating such transactions till 2018 could not be less than $50 billion — it was believed that about the same amount was sent abroad through non-banking channels taking advantage of Foreign Currency Accounts (Protection) Ordinance 2001.
It may be recalled that way back in 2013, the Senate of Pakistan in its recommendation to the National Assembly for improving the Finance Bill 2013-14 specifically emphasised the need for a law that could enable the State Bank of Pakistan to obtain details about money held by Pakistanis in overseas accounts. The National Assembly alone had the power to pass the Money Bill under the Constitution and did not pay any heed to it. Even in the wake of Suo Motu Case No. 2 of 2018, the perpetual inaction on the part of state institutions, mainly the Parliament to remove protective laws continued. Our legislators (sic) even in the wake of Panama, Bahamas, and Paradise Leaks, offered unconstitutional amnesties.
The Senate Committee on Finance, Revenue, and Economic Affairs on July 28, 2015, raised the issue of foreign remittance for the purchase of a hotel in London and asked the SBP about the prevailing regulations and limitations of outward remittances for investment abroad. It was claimed in a report that the SBP, in its letter dated August 24, 2015, to the Senate committee stated that the request for the investment abroad by a Pakistani was processed and considered in terms of applicable laws and policies. “However, any investment abroad of $5 million or above required approval of Economic Coordination Committee”. This was not conveyed by SBP to the Supreme Court in its reply to Suo Motu Case No. 2 of 2018.
As expected, SBP, FBR, FIA, SECP, etc in the very first hearing on February 15, 2018, of Suo Motu Case No. 2 of 2018, showed “helplessness” in retrieving untaxed money and stolen assets claiming that “the existing laws are the main impediment in their way”. Strangely, they never suggested to the government that loopholes in the existing laws be plugged in and that laws be enacted to counter the loss caused to the national exchequer by undesirable outward remittances. What was the role of the Parliament in the bleeding of the national economy due to the unlawful flight of money? All this was discussed in detail in an op-ed, ‘Suo motu on foreign assets’ (Business Recorder, February 9, 2018).
In a hearing before the Senate Standing Committee on Finance on January 9, 2018, a spokesperson for the FBR said: “information about old cases cannot be obtained” under the revised convention with Switzerland, “but we will try our level best to get past information as well, specifically bank accounts details of Pakistanis held in Swiss banks”. The FBR has neither made public nor submitted before the Supreme Court how many requests were made under the revised DTA.
The FBR’s spokesperson told the Senate: “We have requested the Swiss government to include the name of Pakistan in the list of countries for exchange of information, which has been endorsed by the Swiss Parliament”. Strangely, the government took such a long time to renegotiate the revised tax treaty with Switzerland and even after signing the same made no progress in getting details of money stashed there to speak of retrieving the lost revenues.
In 2010, in an article, (With the help of Swiss, Dawn, October 11, 2010), it was pointed out that “nearer home, the Indian government has already taken steps to recover the hidden, ill-gotten wealth of its citizens lying in Swiss banks. Ever since reports emerged of Indians having accounts in tax havens like Liechtenstein and the success of governments like the US in accessing these accounts, New Delhi has been working zealously to retrieve funds from the Swiss banks”. It was suggested that, “Before approaching the Swiss authorities, the Pakistani government should introduce asset-seizure legislation to confiscate all undeclared and untaxed assets. For money lying in Swiss banks, information can easily be obtained from Switzerland”.
As expected, the above suggestion went unnoticed as far as our governments and Parliament were concerned. In the wake of the publication of the above article, FBR moved a summary for re-negotiating the tax treaty with Switzerland, but the coalition government did not respond. At least three summaries moved from time to time were swept under the carpet. The reason for this was discussed in detail in ‘Retrieving Swiss money’, (Business Recorder, July 25, 2014), and in an article here.
In the meantime, Asif Ali Zardari, conveniently got his $60 million moved from the 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. Interestingly there has been no denial till date that he did not own the money, as is the case with Nawaz Sharif, who admitted possessing properties in London by his son through offshore companies when he was minor but refused to reveal the money trail.
The so-called expert selected by the PTI government, who worked with the National Accountability Bureau (NAB) for some time, had no idea about retrieving funds from abroad under bilateral/multilateral tax treaties signed by Pakistan.
He could not think beyond Mutual Legal Assistance (MLA) or the Stolen Asset Recovery (StAR) Initiative, a partnership between the World Bank Group and the United Nations Office on Drugs and Crime (UNODC) to support international efforts to end safe havens for corrupt funds.
The most viable method to retrieve untaxed funds was and still is to seek actionable information using the OECD Multilateral Convention (MLI) signed by Pakistan on September 14, 2016, enabling FBR to officially receive information about offshore accounts/assets of Pakistanis with effect from September 1, 2018. We can also still utilise the Swiss Tax Administrative Assistance Act (TAAC) of 2012 which facilitates all countries to extract information on tax dodgers. The European Union member countries, the United States, and many other countries recovered billions through ‘taxation agreements’ to retrieve the past funds siphoned off — an action that also checkmated any such future losses. Debate and actions for retrieval of untaxed assets from this perspective are missing in our discourse.
Instead of following the above path, the government of PML-N under Khaqan Abbasi and Miftah Ismail resorted to amnesties even after getting actionable information from the UK and elsewhere. Only 5,363 individuals ultimately availed the Foreign Assets (Declaration and Repatriation) Act 2018, and disclosed foreign assets worth Rs1,009 billion with tax payment of $375.5 million.
The FBR on November 7, 2019, confessed before the Standing Committee on Finance and Taxation of the National Assembly that the governments of PTI and PML-N in their amnesty schemes of 2018 and 2019, respectively, extended benefits of Rs61.4 billion to 191 billionaires who were caught owning undeclared offshore assets.
About 56 people, whose data was shared by the OECD, availed the PTI’s tax amnesty scheme and declared Rs31.8 billion worth of assets. They paid only Rs1.7 billion and got a relief of Rs20.6 billion
While the FBR did not disclose the names of the beneficiaries (as both the governments of PTI and PML-N provided legal cover to keep the names secret of the beneficiaries), it was admitted by then Director General of the Directorate of International Taxes of the FBR, Muhammad Ashfaq that definite information was available against them under Automatic Exchange of Information (AEOI) initiative of the Organisation for Economic Cooperation and Development (OECD).
As many as 135 people, named in the OECD database, availed the 2018 tax amnesty scheme of the PML-N and declared Rs62.4 billion in assets. They paid only Rs2.9 billion. Whereas, their actual liabilities without the tax amnesty could have been Rs43.7 billion, getting a relief of Rs40.8 billion from the last government.
About 56 people, whose data was shared by the OECD, availed the PTI’s tax amnesty scheme and declared Rs31.8 billion worth of assets. They paid only Rs1.7 billion and got a relief of Rs20.6 billion. Of the remaining cases, Muhammad Ashfaq told the Standing Committee that the FBR assessed 115 cases, raised the demand of Rs4 billion, and recovered Rs1 billion. The total tax collection in 325 cases against $5.5 billion worth of foreign assets caught by the OECD web was only Rs. 5.6 billion or 0.64% of the traced assets, he added.
Mohammad Ashfaq disclosed that among the beneficiaries were a few politicians who did not qualify in the definition of “office holders” as provided in money whitening schemes! So corruption in their case was legalised after a lapse of 10 years under money whitening schemes even though the National Accountability Bureau Ordinance, 1999 provides otherwise.
The PTI government earlier had been proudly taking credit that it had received information of around 152,000 bank accounts owned by 57,450 Pakistani nationals, having $7.5 billion in bank deposits. The bulk of this information was received much before PTI came into power. Premier Imran Khan, before giving amnesty on the insistence of many, especially Shabbar Zaidi, the then-FBR chairman, time and again expressed determination to bring back the looted and untaxed money. Later, he conceded before the forces of loot and plunder.
Through tax agreements, the USA secured over $11 billion in backdated taxes and fines from Swiss bank clients and obtained documentary evidence to penalise lawyers and other facilitators. We lost a chance for similar recoveries in 2014 when the tax treaty was renegotiated with Switzerland. Since 2014, huge funds have been transferred from Switzerland to many offshore centers—details are available in ‘Pakistani cash in Swiss banks pulled out’, (The Express Tribune, February 22, 2017), Secretive Swiss banks face new crackdown, (Independent, January 3, 2017), and HSBC files: Swiss bank hid money for suspected criminals, (The Guardian, February 12, 2015).
The way forward is to properly utilise OECD’s ‘Multilateral Instrument’ for retrieving evaded taxes vis-à-vis assets stashed abroad. For recouping corrupt money by public office holders, the procedure under the United Nations Convention Against Corruption (UNCAC) can be adopted—details are available in the Text of the petition about recovery of looted money, (The News, November 1, 2011).
The Supreme Court on the next day of hearing of Suo Muto Case 2 0f 2018 and Constitution Petition No.72 of 2011, should be properly assisted by the FBR and FIA in the light of the above facts. It is high time that we should take concrete measures to recover the looted wealth of the nation rather than lament over our past mistakes. While many countries have regularised the past through bilateral agreements, multilateral initiatives, and seeking the help of specialised agencies, we are still debating on how to further succumb to those who have consistently violated the laws of the land, created assets beyond their means, and have always escaped punishment taking refuge under anti-people laws and/or frequent amnesties.