ISLAMABAD: Investigations against 270 influential people accused of laundering un-taxed money into accounts and assets abroad, involving tens of billions of rupees, have come to a halt due to legal challenges to the Intelligence & Investigation Directorate of the Federal Board of Revenue (FBR).

In a judgement issued by the Lahore High Court in January, the power of the I&I directorate to conduct investigations into laundering of tax-evaded wealth have been suspended.

The individuals involved were flagged by the State Bank’s Financial Monitoring Unit (FMU) for possible money laundering in certain transactions, and their cases forwarded to the FBR for investigation. It is believed that 80 per cent of those involved are business tycoons and the remaining 20pc are politicians.

Probe into laundering of tax-evaded wealth halts

A detailed breakdown of the investigation showed that 57 individuals were based in Karachi, around 25 cases involve individuals from Lahore, 18 from Islamabad and the rest from Hyderabad, Peshawar, Faisalabad and Multan.

Since the extension of investigation power, the I&I directorate of the FBR has recovered Rs10bn in the past one and a half years. In one case, around Rs6.5bn was recovered from one Karachi-based industrialist after a case was registered against him under Anti-Money Laundering Act 2010. The industrialist agreed to pay in return for withdrawal of charges.

The FBR fears that it could have to issue up to Rs10bn in refunds if the anti-money laundering mandate is not restored to the directorate.

On June 9, 2016 the federal finance ministry extended the scope of the Anti-Money Laundering (AML) Act to the I&I directorate through Statutory Regulatory Order (SRO) 611. The SRO was issued without the approval of the federal government.

In August 2016, the Supreme Court ruled that all fiscal notifications enhancing the levy of tax being issued by the secretary revenue division or the minister would be against the law if they were not approved by the federal government. It was further clarified that the federal government means the federal cabinet.

Since then it has become law that all previous notifications be struck down in this regard, which were not issued through formal channels or re-routed through fulfilling legal formalities in the wake of the apex court’s order.

For protecting the previous SROs, the FBR had introduced a revalidation section in the four laws—income tax ordinance, sales tax, federal excise and customs laws—to extend legal cover to previous SROs through Finance Act 2017.

A senior tax officer told Dawn all the FBR SROs were covered by the amendments. However, he said the SRO611 was issued by the finance ministry and it was their responsibility to protect it.

Since then, the I&I Directorate of the FBR has been using the power extended to it under the SRO for initiating proceedings under the AML Act (2010) against people who have been flagged as possibly having laundered tax-evaded money. If a person admits to having evaded tax, he or she is then required to deposit the due amount in the respective regional tax office (RTO).

However, in case the individual denies any criminal liability, proceedings are launched against him or her. The law allows the confiscation of property, as well as the lodging of FIR against any individual refusing to pay due tax. The provisions of the AML Act (2010) have significantly increased the powers of the tax authorities compared to the older legislation under which such cases had to be proceeded under. As a consequence, allegations of abuse of these powers are also heard from business leaders.

But the proceedings under the law came to an end when the Lahore High Court suspended the operations under the SRO611. The SRO was struck down on the charges that it was issued by a federal finance ministry without the express approval of the federal cabinet.

The judgment in the case was announced in January 2018. Ever since the use of AML power of the I&I Directorate has been suspended.

Implication of the suspended SRO

The matter could impact the review by the Financial Action Task Force (FATF), the inter-governmental body that sets global standards against illicit finance, which decided to place Pakistan on its ‘grey list’ in the last week of February.

In the wake of this decision, the Federal Investigation Agency (FIA), National Accountability Bureau (NAB), Anti-Narcotics Force (ANF), and the I&I Directorate – all agencies that have been extended the authority to investigate money laundering with relevant underlying predicate offences under the AML Act (2010) – have been asked by the FATF to submit a compliance report based on a pre-evaluation questionnaire by April 9.

This will be followed by a visit of a technical team to evaluate the steps taken by authorities in Pakistan for combating money laundering and terror financing.

Interestingly, the SRO was suspended at a time when the international body is already questioning Pakistan’s abilities of cracking down on people who have allegedly laundered money abroad without paying taxes on it.

At the domestic level, the influential people have already been using their connections to stop proceedings in these cases under the AML Act. Many letters were sent to the federal government seeking to take away the investigative power conferred on the I&I Directorate.

But the actual outcome of these reports came following the investigation by the I&I department who booked many people for tax evasion and transfer of un-taxed money.

The FMU reports gained importance recently because of the fact that I&I directorate has all details, including assets and investments of individuals. It is because of this fact that the elites are blocking probe into these cases.

Published in Dawn, March 25th, 2018

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