KARACHI: A director of a local bank, recently acquired by Bank Islami Pakistan Ltd (BIPL), was involved in a number of scams including money laundering and misuse of public money, DawnNews reported on Friday.

During the show titled “Exposed”, the anchor Shiraz Hasnat, revealed that the Khadim Ali Shah Bukhari (KASB) Bank, recently acquired by Bank Islami, for a mere Rs1000, had a director who was involved in money laundering.

The scam came to light as Bank Islami, after the acquisition, evaluated KASB's accounts and found the reason behind the latter’s financial crisis was a huge money laundering scam, in which the advisor to the Chairman KASB Bank, Nasir Ali Shah Bokhari was involved.

Bokhari allegedly laundered money to various countries with the help of a fake company, Worldtel Asia Limited, which was registered and set-up in the Cayman Islands on April 17, 2000, and was later renamed as Silk Route Investments on February 18, 2004.

The company, and the bank accounts were registered under the name of a Singaporean national, Shahzad Fakhar Ashfaq, who allegedly worked as a front man for Bokhari.

According to the complaint filed by Bank Islami with the Federal Investigation Agency (FIA), Silk Route Investments opened five bank accounts in KASB Bank, four in foreign currency and one in Pakistani rupees. The bank's director, Nasir Bokhari, through these bank accounts laundered over Rs5 billion to China, Germany and Iran.

DawnNews correspondent Javed Chaudhry told the host and the audience that the complaint filed by Bank Islami states that many a times money was received through a self cheque, which Fakhar never took himself, which is a clear violation of international banking standards.

“One more thing, no one objected upon the dissimilarity in account holder's signatures on passport, cheques and other documents, as they did not match," he said during the show.

The reporter further said that Bank Islami has requested the FIA to enter Bokhari’s name on the Exit Control List (ECL), but no action has been taken so far.

When asked, Barrister Ali Rana, another guest in the show said, “Although it is easier for FIA to make arrests while a suspect is in Pakistan, the agency can send a written request to Interpol for issuance of red warrants for the accused, who have fled the country in any case.”

Malik Bostan, Chairman Exchange Companies Association of Pakistan, was also contacted regarding the case, who claimed that all the exchange companies in the country are working legally.

"However, we need strict banking laws to stop money laundering. Companies only need to aquire permission from State Bank of Pakistan (SBP) to transfer money. This permission is not required for personal account holders.”, said Malik Bostan.

"Pakistan’s law enforcing authorities have recently turned quite active to curb money laundering," Khaliq uz Zaman, former Director FIA believes, “Although there has been no decline in such cases.”

KASB Bank Ltd was acquired by Bank Islami Pakistan Ltd (BIPL) on May 07, after the federal government’s approval.

KASB Bank had been in trouble since 2009 as it failed to meet the Minimum Capital Requirement (MCR) and Capital Adequacy Ratio (CAR). The case became complicated when a Chinese company showed interest in buying the bank but the request was turned down by the SBP.

However, in a press briefing in May, the SBP clarified that the Chinese company neither had the required capital nor was willing to show its credential as required by the SBP’s fit and proper condition needed to run a bank.

The merger made Bank Islami the 11th largest bank in the country with a network of 317 branches in 93 cities across the country and more than 600,000 customers.

Related: BankIslami takes over KASB Bank

Nasir Ali Shah Bukhari responds

In a statement, Nasir Ali Shah Bukhari of the now-defunct KASB Bank strongly denied allegations of money laundering, terming them part of a "malicious campaign".

"The nefarious characters who want to flourish in life through exploitative means have attempted unsuccessfully to tarnish my image," said Bukhari.

Bukhari was one of the main sponsors of KASB Nank that the State Bank of Pakistan amalgamated with Bank Islami.

Bukhari's statement countered that SBP "made no effort to know the credentials of the Chinese firm" which it had said lacked the required capital and was unwilling to show its credentials.

"In fact, the firm submitted a detailed plan to the SBP and the local Chinese embassy was aware of this plan."

Bukhari also defended his personal reputation, saying his tax returns show he has brought money into the country. “It is categorically stated that I or any company owned by me do not own any property or any other assets outside Pakistan or hold any bank deposits abroad.”

Countering allegations of siphoning off depositors' money, Bukhari's statement said "Iranian deposits earned Rs4.6 billion additional profits for the defunct KASB Bank besides Rs2.6 billion for the State Bank of Pakistan."

"SBP has already cleared the KASB from allegations in its inspections report. So much so, the amalgamation scheme prepared by the SBP and subsequently approved the Ministry of Finance also did not mention any wrongdoing. The only reason that was given for the amalgamation was the deficiency of capital adequacy ratio," said Mr Bukhari

Iranian deposits

Bukhari explained that the Iranian deposit is a liability owed by the bank to the account holder who has the right to withdraw any of the deposited funds, as set forth in the terms and conditions of the account, whether through cheque, cash or debit authority. The account holders can also give a mandate or instructions to bank for utilization or transfer of his deposits as specified therein.

In the case of Iranian deposits in foreign accounts maintained with KASB Bank, operated with consent of State Bank of Pakistan, the rates were at nominal and close to zero. This money belonged to Iranian account holders and payments made were done on the direction as mandated on behalf of the account holder.

Payment to Silk Route Investments (SRI) was made on the account holders’ directive as per arrangements between them as client and Silk Route Investment.

Bukhari said that there was "no truth" in the claim that the depositors money was siphoned off. "The bank was only a conduit and not a beneficiary of any arrangements between the account holders. All payments were routed through the Bank as per the mandate of the account holder."

He said that the defunct KASB Bank did not open accounts of any UN-sanctioned company. "All accounts were opened with full knowledge of SBP. All the accounts mentioned in the complaint were opened after completion of all formalities as prescribed by SBP and those mentioned in Foreign Exchange Manual."

He said that all the deposits were received through official and approved banking channels with SBP's knowledge. These accounts were “current” in nature (current accounts) and no return was payable by the bank to them.

"Furthermore, all accounts of non-resident persons were opened under State Bank of Pakistan’s Foreign Exchange Regulations as listed in the State Bank of Pakistan’s Foreign Exchange Manual."

"By mobilising interest-free Iranian related deposits, the KASB bank earned an income of Rs4.627 billion from September 2011 to December 2012, out of which forward cover cost of Rs2.1 billion was paid to SBP. Besides this, the KASB bank also benefited additionally in terms of reduced cost of funds due to interest-free current account deposits, to the tune of approximately Rs4.5 billion till May, 7 2015."

Bukhari noted that BankIslami is still benefiting from the interest-free deposit of Rs19.5 billion since May 7, 2015, while BIPL has been earning on daily basis, earning over Rs1.2 billion in the last 12 months.

He emphasised that the KASB Bank incurred no cost to mobilise deposits, generating huge revenues instead, and that no payments were made to Silk Route Investments by the bank from its expense accounts or from its earnings from utilisation of these funds.

Bukhari claimed that the dollar investment had helped State Bank and the federal government ease pressure on the rupee at a time the foreign reserves were depleting. He also explained that no account holder had accused the bank of any wrongdoing with regards to transactions, and that an external auditor had reviewed the bank's record.

"No observation of any kind was raised by the external auditor on these entries and transactions," he said,

"SBP never directed the management of KASB Bank to make provisioning for any alleged loss pertaining to Iranian-related deposits."

Account transfers

Bukhari added that customers were within their rights to utilise the deposits in their accounts as they wished. "By transferring of funds from the depositor’s account to SRI, and within the normal banking rules and regulations, there can be no justification or basis to say that transfer of such funds had caused some kind of loss to the bank."

In this arrangement between two parties, the only party that could possibly claim incurring any loss because of this transfer of funds is the depositor whose account was being debited.

Cause of complaint

"The BIPL complaint is based on an afterthought by SBP after filing of court cases by me and other shareholders and also when NAB included KASB Bank merger fraud among the list of mega frauds submitted to the Supreme Court of Pakistan," said Mr Bukhari.

He said that the extensive media coverage and filing of court cases against the unlawful merger of KASB Bank with BIPL panicked the BIPL and SBP management.

He said that the SBP directed BIPL to initiate legal proceedings against ex-sponsors of the defunct KASB Bank and their associates in a letter dated August 28, 2015 and that BIPL was aware of the payments to SRI.

"It is wrongly claimed by BIPL in their complaint that after the merger it was found that payments were made to SRI. The fact is that BIPL was fully aware of it when they carried out due diligence of the bank before amalgamation."

Bukhari termed the allegation of money laundering ridiculous. “How can it be money laundering when the funds received were from a government of Malaysia company (Petronas) for purchase of oil from a government of Iran owned company (NICO)”, questioned Bukhari.

He said that the BIPL was trying to drag sovereign nations into a controversy, which may also hurt Pakistan’s foreign policy objectives.

"By leveling money laundering allegations, it seems that the BIPL suggesting that government of Malaysia and government of Iran were involved in money laundering," said Mr Bukhari.