Finance Minister Senator Ishaq Dar in recent days has expressed the government’s firm conviction to bring back untaxed money of “US$ 200 billion” stashed in Swiss banks by Pakistanis. The Chairman of Federal Board of Revenue (FBR) is scheduled to lead a delegation to Zurich from August 26 to 28, 2014 to re-negotiate and upgrade treaty on Avoidance of Double Taxation [DTA] with Switzerland for this purpose. Everybody is discussing the figure of US$ 200 billion which is a myth — totally imaginary and baseless.
Strangely, the Ministry of Finance submitted in writing before the National Assembly in response to a question by Dr Arif Alvi of Tehreek-e-Insaf that “total amount lying in Swiss banks is $200 billion”. This figure has been contested by Khurram Husain in his column ‘Number in the news’ in August. In our article, ‘Our money, their banks’, The News on Sunday of July 7, 2013, we quoted The Times of India of June 21, 2013, which claimed that Pakistanis in 2013 had funds amounting to Swiss francs 1441 million [Rs1.52 trillion]. It was claimed that this was the lowest level — less than half of the record high amount of over Swiss francs 3 billion [Rs4.18 trillion] reported in 2005. The Times of India further claimed that in terms of Pak rupee, “the total funds held by individuals and entities in Swiss banks were Rs1.5 trillion as on December 31, 2012”.
Even if we believe that the story of The Times of India is correct — though no reliable sources is cited by it — the figure cannot be more than US$1.5 billion. It is now for the government to prove that the quantum is US$200 billion.
According to a research released on 22 July 2012, rich individuals and their families have as much as $32 trillion of hidden financial assets in offshore tax havens, representing up to $280 billion in lost income tax revenues and share of Swiss banks in this is nearly $7 trillion.
Estimating the extent of global private financial wealth held in offshore accounts — excluding non-financial assets such as real estate, gold, yachts and racehorses — the study puts the sum somewhere between $21 and $32 trillion. The research was carried out by James Henry, former chief economist at consultants McKinsey & Co for Tax Justice Network, which campaigns against tax havens.
The report by James Henry highlights the impact on the balance sheets of 139 developing countries of money held in tax havens by private elites, putting wealth beyond the reach of local tax authorities. The research estimates that since the 1970s, the richest citizens of these 139 countries had amassed $7.3 to $9.3 trillion of “unrecorded offshore wealth” by 2010.
The lost tax revenues, implied in this report, are huge — large enough to make a significant difference to the finances of many countries. This study is good news from the perspective that the world has located a huge pile of financial wealth that might be repatriated to contribute to the solution of most pressing global economic problems. Many countries have already taken concrete steps to retrieve lost taxes by signing agreements with countries where hidden wealth is lying.
Pakistan will have to strive hard to bring back looted and untaxed money from abroad. The FBR’s team in Zurich will face a daunting task as the new law passed by Switzerland on August 1, 2014, Tax Administrative Assistance Act (TAAC), does not in any way give free access to Swiss bank accounts. The government of Pakistan after modifying DTA with the Swiss government will have to produce credible and watertight requests for information to demonstrate that any information it wants from Switzerland has ‘foreseeable relevance’ to a criminal investigation into tax dodgers in Pakistan, according to Article 26 of Organisation for Economic Co-operation and Development’s Model Tax Convention, of which Switzerland is a signatory.
TAAC significantly reduces the chance of tax dodgers to withdraw their assets and vanish before they can be prosecuted. So, all is not lost for countries like Pakistan. TAAC is the outcome of Switzerland’s acceptance of the demand of Global Forum on Transparency and Exchange of Information for Tax Purposes, a body set up to monitor the crackdown on tax evasion on behalf of the OECD and the G20. In Jakarta last November, the Global Forum asked Switzerland to meet international standards of transparency and allow group requests and stop tipping off tax cheats about impending investigations.
The governments in Pakistan, unfortunately, are not taking any action against tax cheats at home. Even private efforts to invoke extraordinary jurisdiction of Supreme Court and High Courts to retrieve looted wealth and untaxed money have not been fruitful. The Supreme Court in 2012 and 2013 declared the petitions filed by some individuals as “non-maintainable.” Presently a writ is pending in Lahore High Court on this issue, but there is slow progress.
On the contrary, the Indian Supreme Court, in its historic decision of July 4, 2011 in the case of Ram Jethmalani and Other v Union of India reported as 2011 PTR 1933 (S.C. Ind), ordered to form a ‘Special Investigation Team’ (SIT) to supervise the government-led investigations into black money of Indians lying abroad. The Congress government did not implement it and went into review. However, the government of Narendra Modi after coming into power in May this year immediately constituted SIT and started negotiations with Switzerland.
The FBR team before leaving for Switzerland must study the judgment of Indian Supreme Court in the case of Ram Jethmalani and Other v Union of India [2011 PTR 1933 (S.C. Ind)] as it gives detailed guidelines how to retrieve stolen wealth and untaxed funds lying in offshore tax havens.
Since 2010, many countries have taken steps to recover hidden, ill-gotten wealth stashed in Swiss banks. Over the last many years, the Swiss government has returned more than US$11.5 billion in assets of criminal origin, including assets from some of the most famous kleptocrats in history such as Sani Abacha of Nigeria, Ferdinand Marcos of the Philippines and Carlos Salinas of Mexico.
According to the World Bank’s Stolen Asset Recovery initiative estimates, the cross-border flow of proceeds from criminal activities, corruption and tax evasion is between US$1 trillion and US$1.6 trillion per year, about half of which come from the developing and transitional economies. After five years of foot dragging, Nigeria got back US$700 million of its plundered wealth back from Switzerland and Philippines recovered its US$684 million looted by Ferdinand Marcos. After 18 years of litigation with the Swiss authorities, the Filipino authorities had finally managed to get their money back.
Furthermore, between August 2001 and 2004, Peru recovered nearly over US$180 million stolen by its former spy chief Vladimiro Montesinos from several jurisdictions, including Switzerland, Cayman Islands and the United States.
With the TAAC in action, recovery from Swiss banks can be little easier provided the government shows sincerity in taking action against tax dodgers. Before taking up the matter with the Swiss, the government must pass asset-seizure legislation at home in respect of money unlawfully remitted from Pakistan otherwise no Swiss authorities will take us seriously. The world is fully cognizant of the way our rulers protect tax evaders and plunderers of national wealth at home.