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Falling prey to ‘Halal’ investments

August 04, 2013
Lal Masjid posted a notice denying any involvement in the illegal scheme. -Photo by Ishaque Chaudhry
Lal Masjid posted a notice denying any involvement in the illegal scheme. -Photo by Ishaque Chaudhry

ISLAMABAD: “I was blinded by the false promises made by friends who had invested money in Modaraba (an Islamic investment system) for I was made to believe that by doing so, I would be following the path of the Prophet (PBUH).”

This was how Mohammad Ejaz, who runs a local restaurant in Saddar Rawalpindi, explains who he ended up investing in an illegal investment venture operated by Mufti Ehsanullah of Rawalpindi.

By investing Rs500,000 in the ‘Islamic’ venture, Ejaz hoped to reap the benefits of both worlds with a single transaction.

However, soon after he made his investment in the beginning of this year, he found out that the National Accountability Bureau was investigating the investment venture.

Within months, the venture was found to be illegal and shut down.

Ejaz also found that many such ventures existed across the country in which people invested money with clergy, thinking it to be Islamic and interest-free only to find out later that these ventures were illegal and perhaps even shady operations.

Background conversations with NAB officials and others have revealed that these ventures are basically operated by a network of clergy, which ensured the faithful of the spiritual benefits and hefty returns (for example Ejaz was promised Rs8,000 per month on every Rs100,000 deposited) and though investors were provided documentation verifying their ‘investment’, the transactions were illegal and the investors had little idea about where the money was being invested and in what sort of businesses.

But people were lured in because the clergy promised a lucrative deal that was devoid of interest and other ‘impurities’ which they argued were present if the money was kept in banks or invested in regular companies.

The investors were assured that the profits would also be reaped from Halal sources.

Like other investors, Mr Ejaz was attracted by the holy talk especially as the people who headed these people were Muftis (in hierarchy of Sunni Islam, a Mufti is highly educated cleric).

The main contact between the investors and muftis were the directors of the companies, who were operating the venture. These directors tended to be active preachers. This made interaction with potential investors easier.

The director through whom Mohammad Ejaz invested the money was a local preacher in Rawalpindi who operated out of a small office at Choor Chowk, Rawalpindi.

All this came to light when NAB started to look into Mufti Ehsan, the head of the venture Ejaz had invested into.

Codenamed the ‘Mufti Scandal’ within NAB, the Bureau nabbed the Mufti behind the operation and imprisoned him for two months after which he offered to pay Rs450 million in exchange for his freedom. Another Rs100 million are still to be recovered and Ehsan’s name has been placed at the Exit Control List (ECL).

In order to reclaim their investments, some 85 investors, including Mr Ejaz, had filed a written application with the NAB about a month ago.

However, not all investors in these illegal ventures were as lucky.

When this scandal came to light, another similar venture, run by Mufti Osama, fell apart because its operators ran away fearing investigation. Those who had invested in it have now lost their money.

According to NAB officials, Mufti Osama, the operator of this illegal Modarba business, escaped to United Arab Emirates (UAE) along with the investors’ money.

He belongs to Southern Punjab and is said to be linked to Lal Masjid (Red Mosque). However, the Lal Masjid management denies this.

Furthermore, a NAB official said Mufti Khalid, the partner of Mufti Osama who lured people to invest in the Islamic business, was also close to the Lal Masjid.

Originally from Fatehjang, the cleric holds sway over major seminaries in Rawalpindi and Islamabad, he added.

The building of the Mosque has now posted a message stating that they had nothing to do with such investment schemes. Maulana Abdul Aziz has regularly denied any links with such Islamic investment schemes.

How the scandal came to light

The bureau took up the case in March this year after queries were made by several depositors regarding the legality of such investments, and a formal complaint was registered by the Securities and Exchange Commission of Pakistan (SECP).

The vast majority of these depositors are not only educated but also relatively well off businessmen – some of them had invested up to Rs10 million.

“We were driven by a combination of religious fervor and greed. We fell for the catchy slogans of the clergies,” Mr Ejaz said.

The investments by the depositors had been acknowledged by Mufti Ehsan in written form, as he stamped and signed the deposit forms.

At the moment, NAB is scrutinising their documents after which they may get their original investment back from the Rs550 million that Mufti Ehsan paid up.

In the letter to NAB, the SECP stated that seven companies were involved in the illegal business, but none of these were registered with the government and their accounts had not been verified by any certified auditor.

“We were concerned about the illegal deposits made by the general public, and as such operations are prone to fraud, they needed to be closed down,” said a senior official of the SECP.

He said the episode started when certain people asked the State bank and the SECP whether or not the micro-investment programmes initiated by the clerics were registered. “They wanted to know whether investments in such schemes were legal or not,” the official said.

However, subsequent investigations by the NAB revealed that the ventures were illegal and the companies were not even registered.

Mufti Ehsan was the operator of Spadix Pharma Company and Fayyazi Group of Industries according to the documents with NAB. However, Spadix Pharma is not operational while other factories of the Fayyazi Group, such as one factory in Gujranwala for producing sanitary ware, were non-functional.

Mufti Ehsan told NAB that the depositors’ money had been invested in various profit-making businesses abroad, including trade of gemstones in Thailand and Honk Kong, and the investments were done without employing any banking channels.

However, NAB has not bothered to verify his claims about his overseas businesses or look into Ehsan’s claims of transferring money out of the country without using legal banking channels.

Similarly, a NAB official said Mufti Ehsan also transferred money to Dubai on behalf of clients for a commission.

The NAB however failed to forward this case of illegal money transfer to the Federal Investigation Agency (FIA) even though Ehsan had acknowledged his involvement.

“The clergy have declared almost everything, including banking, taxation, business laws and even departments, un-Islamic or based on western principles,” said a NAB official, adding that such propaganda was hurting the economy.