March 20, 2006	Monday	Safar 19, 1427

ECONOMIC crimes have increased dramatically in recent years as is evident from newspapers reports. One reads about a person embezzling funds from a bank or company, another about a person accepting kickbacks for political favours and a con man swindling people through fraudulent means or about a person dealing in illegal products (drugs, alcohol and tobacco).

The State Bank of Pakistan (SBP) regulates foreign exchange / currency through Foreign Exchange Regulations Act, (FERA)1947, especially under its Sec 8. The government introduced Sec 4 of the Protection of Economics Reforms Act (PERA), 1992 under which citizens were free to bring, sell or withdraw foreign exchange.

No law-enforcement agency (LEA) was allowed to question the out going passengers regarding the source of income and export of foreign exchange.

The LEA were helpless if a person had committed embezzlement, money laundering or theft and still wanted to transfer that money through baggage.

The PERA initiated under IMF advice and the other financial agencies, in order to boost the economy artificially, cost Pakistan $9 billion since PERA’s introduction. The open market exchange rate in 1992 was $1for Rs24 which by May 28,1998 rose up to $1 for Rs64 resulting in the dollarization of the economy during 1997-1998.

When Pakistan joined the nuclear club in 1998 and economic sanctions were imposed on it and because of tension between Pakistan and India, the President of Pakistan declared an emergency and promulgated an ordinance called “Foreign Exchange Temporary Restriction Ordinance, (FETRO) 1998” on May 28,998 which suspended the right to sell, hold, withdraw foreign exchange and as such the right enjoyed by the citizens under the PERA 1992 with withdrawn.

In the light of “the provisions of FETRO, the State Bank issued certain notifications regarding foreign accounts and foreign currency circulating in Pakistan’s economy. The FETRO 1998 dated May 29, 1998 empowered the SBP to frame rules regarding foreign exchange, hence SRO 1017 (I) 98 dated 21.7.1998.

The F.E circular No 41 of 1998 is an example issued by the SBP under Sec 8 (2) of Foreign Exchange Regulations Act 194 regulating foreign currency when section four of Protection of Economics Reforms Act 1992 was not available at that timer.

According to this SRO 1017 (I) 98 dated 21.7.199 (F.E Circular No 41. of 1998), a threshold was set up by the SBP under which Pakistani travellers could carry up to $10,000 or equivalent foreign with them and if somebody needed more than that amount he/she had to approach the authorised dealers/ scheduled banks for making T.Ts, bank drafts, transfers etc. This helped in monitoring money used in terrorism or drugs etc.

However on 26.9.1998 the government introduced Foreign Exchange Temporary Restriction Act (FETRA) 1998 which replaced FETRO issued on 28.5.1998. This Act came along with retrospective effect from 28.5.1998 so that those changes made in the light of the ordinance issued on 28.5.1998 stood protected. The Sec 2 of this Act clearly stated that foreign currency accounts held on May 28, 1998 stand seized and the right to bring, hold withdraw and taking out foreign exchange shall remain suspended.

But along with that in section 4 (1) and (2) of the Act dated September 26,1998, the SBP was empowered to frame rules regarding foreign exchange held in new foreign currency accounts opened on 29.5.1998 which the SBP had made( e.g. F.E Circular No 12, 17, 18 and 25 of 1998), meaning thereby that this Act has perspective effect from May 29,1998 and onwards.

And also in order to regulate foreign currency which was flowing in the economy in hard cash form, SRO 1017 (1) 98 dated July 21,1998 (F.E Circular No 41 1998) was issued. The SRO 1017 (I) 98 is fully protected under this Act. Though this Act is still operative because it has never been repealed by any other legislative enactment. However the LEA and other institutions including the SBP seem to be unaware of its implications.

In 1999, under the Provisional Constitutional Order, an ordinance was introduced which amended PERA, 1992 and was called, “Foreign Exchange. Amendment Ordinance dated December 17,1999 thus by introducing section 4 (2) (1) foreign exchange purchased from, an authorized dealers / commercial banks are protected though the wording of this Act is limited but if it is read with Temporary Restrictions Act 1998 and SRO 1017 (1) 98, may be, the situation becomes more clear for the enforcement agencies and the SBP regarding the transfer of foreign currency.

The source of money has to be legal as pointed out in Sec three of the Ordinance dated 17.12.1999 where all immunities against any enquiry from the Income Tax Department or any other Taxation Authority as to the source of financing of the foreign currency are withdrawn and no more available to citizens of Pakistan meaning thereby that LEAs and Taxation Authorities can question any body as to the source of financing income. This must be read with section 2 S, where currency is a notified item, and section 16 of the Customs Act 1969.

Though the government tried to stop drainage of dollar by invoking various laws, no law could be effectively enforced. The PERA, 1992 was introduced to boost the economy or to become an Asian Tiger or under the concept of “open economy” but in return it cost Pakistan more than $9 billion.

On the other hand, after 9/11 events, the FBI and other law-enforcement agencies of the US started monitoring the accounts of more than $5000. And thus the flight of capital returns back to its original destination i.e. Pakistan and since then $1 equals to Rs60. However, the moment clouds of terrorism vanish, US and the western polices change, the flight of foreign exchange may begin again.

The SBP is the custodian and the caretaker of foreign exchange which should be given full discretion and authority to make laws regarding foreign exchange under the FERA, 1947.

Meanwhile, PERA 1992 should be abolished or at least be amended so that LEAs such as customs acquire full discretionary powers under allied Acts and laws to curb the menace of money laundering.