A growing sense of anxiety is gripping business circles around the country regarding the Panama Papers and the political crisis they have plunged the country into. The system of transferring foreign exchange into and out of the country has been partially revealed by the papers, and is the subject of intense political debate, is widely used by business interests for a variety of purposes, and the fear is that an investigation could disrupt the entire apparatus for clandestine movement of funds.
High net worth individuals and businessmen routinely use offshore companies, largely to circumvent questions about the source of funds as well as taxes. The funds might have been legitimately earned, but in equal measure the money moving through accounts linked to offshore companies could have been accumulated through mis-declaration (underinvoicing or overinvoicing) or misappropriated from bank loans provided for working capital purposes from where they are siphoned abroad and then brought back in as personal cash.
Partially out of this anxiety, an argument has begun to do the rounds that under the country’s legal framework, the disclosures made in the Panama Papers cannot be investigated.
The law is designed to protect the transfer of foreign currency into and out of the country from scrutiny and it was, goes the line, originally put in place to protect the interests of foreign investors.
The law in question is the Protection of Economic Reforms Act of 1992. And one of those pushing this argument is Mehmood Mandviwalla, the Karachi-based corporate lawyer whose appearance before the Senate Standing Committee on Finance last week has convinced some people that the tools to investigate the funds moving through accounts controlled by companies in secrecy jurisdictions simply do not exist.
“There is a complete cloak of immunity for all foreign currency accounts opened between 1992, when this law came in, and 1999,” he told Dawn, but then quickly added that the “cloak of immunity” only covers scrutiny from tax authorities, and not proceeds of crime, being investigated by law enforcement personnel.
In the case of the Panama Papers, he argues “we are only talking about tax evasion, not terrorism” or anything else, for which he says there are plenty of applicable laws.
Moreover, the “complete cloak of secrecy” that he mentioned to the Senate Standing Committee, and on which none of the Senators questioned him, was lifted in 1999 by Ordinance XXI. He claims that all accounts opened before 1999 .continued to enjoy immunity from scrutiny, but the text of the ordinance suggests otherwise.
He then goes on to argue that nothing in the Panama Papers inquiry can attract clauses under the money laundering act, which he says only covers acts like “terror financing, kidnapping for ransom, gun running, proceeds of crime. Hiding your wealth is a tax offence, it is not money laundering”.
Moreover, he argues, no authority exists in any government department to acquire financial information from authorities of foreign countries because no treaty for exchange of information exists with any of the countries named in the Panama Papers.
THE OTHER SIDE: But other corporate lawyers are not convinced.
“All the authority needed to carry out an investigation of this sort is already there within the existing legal framework in Pakistan”, says Zahid Jamil, who has experience with investigations involving funds moving through offshore jurisdictions. “No new laws are needed, not even a judicial commission,” he argued.
“The bigger issue here is money laundering,” he counters, not tax evasion. “How did they get this money? That is the thing of interest.”
The right law, therefore, is the Anti Money Laundering Act (AMLA) 2010, amended as late as February of this year. Zahid is one of the first lawyers to successfully invoke the provisions of this law while he served as prosecutor in the Axact case, and knows it well.
The Schedule to the AMLA 2010 has a long list of “predicate offences” which can attract its provisions, and they include “[d]ishonest or fraudulent removal or concealment of property” as well as three sections of the Prevention of Corruption Act (1947). One of those relates to declaration of assets, and the other is “Possession of Property disproportionate to known sources of income”, in addition to many more.
“We don’t really need a treaty to have exchange of financial information,” he said. “The Financial Monitoring Unit (FMU) can send an ad hoc request, outside of any bilateral agreement, to any FMU in the world, and it will be honoured.”
He cited the example of NAB’s investigation in the Minwala case in 2007, involving the purchase of Boeing aircraft by PIA that were found to be defective. In this case “NAB went all the way across to Jersey, stood before a court and said `this money that you are dealing with is money that belongs to the government of Pakistan’, he recalled.
The foreign authorities cooperated and held that money for a very long time, but then NAB suddenly disappeared. That’s a separate story, but we have the capacity to get this kind of cooperation.”
He claims there are numerous such instances when Pakistani investigators have obtained the cooperation of authorities in a foreign jurisdiction, including secrecy jurisdictions.
Another example of an aggressive investigation into financial dealings of a public figure is the Asim Hussain case. At one point, the Rangers sent a letter directly to one department at the State Bank, instructing them to “circulate to all financial institutions, as well as foreign banks operating in Pakistan, to provide … information” about four individuals.
The letter was a highly unusual one. The State Bank is not a post office, and request for financial details, especially as intrusive as the ones requested in the letter, are not usually released without a court order.
But in that case, the State Bank complied within days, and forwarded the letter to all banks with an attached circular, which endowed the request with some legal clout, asking the banks that the request is “to be dealt with under the relevant laws.”
It did not ask banks to “ensure compliance” _ a standard practice in such circulars, nor did it state what the relevant laws are.
Faced with this ambiguity, the banks complied.
So today, when the deputy governor of the State Bank sits next to a smooth-talking corporate lawyer, and vigorously nods his head while the lawyer explains to a group of legislators why the law does not allow them to investigate any of the facts arising from the Panama Papers, it is worthwhile to bear in mind that not only are there different opinions on this matter, but precedents for obtaining extraordinary cooperation, within and outside Pakistan, also exist.
Published in Dawn, May 6th, 2016