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Hunt for black money

Despite the fact that nearly one third of population in Pakistan lives below the poverty line and millions of mothers and children remain undernourished, there is no will to crack down on black money stashed at home and abroad

Hunt for black money

Thomas Pogge, Professor of Philosophy and International Affairs at Yale University, Director of the Global Justice Program, President of Academics Stand Against Poverty (ASAP), and member of the Board of Directors of Global Financial Integrity (GFI), has estimated that 18 million people die each year of economic deprivation and causes stemming therefrom. His calculation is based in good part upon estimating the number of people dying from preventable diseases. GFI estimates that US$1 trillion a year of illicit financial flow drains from developing countries into western accounts.

GFI’s estimate is based on balance of payments and balance of trade data filed by governments with the International Monetary Fund (IMF), the same data that is used by millions of people every day in making decisions about investments, loans, interest rates, exchange rates, and more. This estimate is still considered conservative as it does not include major components of illicit outflows, which do not show up in official statistics.

The question raised by Professor Pogge is: “18 million people dying a year are around 50,000 people a day. US$1 trillion a year is roughly US$3 billion a day. On this day, how many of the 50,000 people will live, if the US$3 billion stays home?” This question is of fundamental importance as humanity faces a global challenge with respect to curtailing illicit financial flows, achieving greater transparency in the global financial system, and by doing so, improve the lives of billions of people around the world.

Pakistan, where annually over $10 billion escapes taxation and siphoned off outside the country, nearly one third of population lives below the poverty line and millions of mothers and children remain undernourished. Yet, there is no will to crack down on black money stashed at home and abroad. Raymond Baker in his book, Capitalism’s Achilles Heel: Dirty Money and How to Renew the Free-Market System, alleges that “during the 1980s and early 1990s, given Sharif’s political control of Punjab and eventual prime ministership of the country, Ittefaq Industries grew from its original single foundry into 30 businesses producing steel, sugar, paper, and textiles, with combined revenues of $400 million, making it one of the biggest private conglomerates in the nation. As in many other countries, when you control the political realm, you can get anything you want in the economic realm.”

Pakistan’s finance minister can learn a lot from his Indian counterpart who has shown resolve to crack down on illegal assets stashed abroad.

He also alleged that upon his loss of power the “usurping government published a list of 322 of the largest loan defaulters, representing almost $3 billion out of $4 billion owed to banks.” He says: “Like Bhutto, offshore companies have been linked to Sharif, three in the British Virgin Islands by the names of Nescoll, Nielson, and Shamrock and another in the Channel Islands known as Chandron Jersey Pvt. Ltd. Some of these entities allegedly were used to facilitate purchase of four rather grand flats on Park Lane in London, at various times occupied by Sharif family members. Reportedly, payment transfers were made to Banque Paribas en Suisse, which then instructed Sharif’s offshore companies Nescoll and Nielson to purchase the four luxury suites.”

Pakistan is still ruled in the same manner by Sharif Brothers, as there is no will to counter tax evasion and illegal outflows — both are in fact protected under so-called Protection of Economic Reforms Act of 1992 and section 111(4) of the Income Tax Ordinance, 2001.

In the meantime, it is reported in the Press that the Swiss government has decided to auction valuable jewellery allegedly belonging to former President Asif Ali Zardari, kept in the name of his wife. Swiss authorities confiscated the ornaments during investigations into graft allegations against Zardari. The set includes a necklace, a bracelet, a pair of earrings and a ring.

François Roger Micheli, counsel from the Python and Peter legal firm that represented the Pakistani government before the Swiss Tribunal that had ruled that the jewellery set did belong to Zardari or the legal heirs of Benazir, reportedly wrote to the Pakistani government conveying his recent discussions with the Geneva prosecutor, according to whom “if no one claims ownership of the ornaments, then the Swiss authorities would auction them.” The Geneva prosecutor has provided the Pakistani government with a clear-cut option: publish the names of the legal owners in the official gazette and convey the same to the Swiss authorities. The government of Pakistan has so far shown no interest at all.

The Pakistani government has been in litigation in this case since November 7, 1997, with the claim that the ornaments priced at 117,000 pounds at the time of purchase were part of $13.5 million in commissions given to two Swiss companies SGS SA and Cotecna Inspection SA on September 29, 1994 during the second tenure of Benazir’s government. Zardari had publicly declared through his spokesman that the jewellery set belonged to neither Benazir nor him. The present government is not at all interested in bringing back the money and untaxed assets of Pakistanis lying abroad as elaborated in detail by us in these columns.

The Indian government on the contrary has shown firmness in retrieving untaxed money by presenting on March 20, 2015 in Lok Sabha a law — ‘Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015.’ The bill provides that such income or assets will be taxable at the maximum marginal rate. Beneficial owner or beneficiary of foreign assets will be mandatorily required to file return, even if there is no taxable income. The concealment of foreign income and assets will be non-compoundable and offenders will be punished with rigorous imprisonment up to seven years and penalty at the rate of three times of taxes evaded.

An Indian Express report recently revealed that 1,195 Indians were in the list of clients who held accounts in HSBC bank’s Geneva branch from 2006-2007. Reacting to the report, Finance Minister of Indian, Arun Jaitley, said the government has completed assessment of 350 foreign accounts while tax-evasion proceedings have been initiated against 60 account holders.

The government of India realises that it faces a huge challenge on illicit money front that hurts the economy each year. Recent analysis from GFI shows that in 2012 (the most recent year for which data is available) India’s illicit outflows were approximately $95 billion. To put this figure in perspective, in the same year, the combined total of foreign direct investment and foreign aid flowing into India was under $26 billion. Moreover, the 2012 illicit flows figure is nine times higher than the country’s outflows in 2003. And, for the 10-year period ending 2012, the nation lost $440 billion in illicit capital.

The figures for Pakistan are equally disturbing. The latest World Bank data (2014) shows that 60.2 per cent of Pakistan’s population lives on $2 a day. Pakistan’s position in the Human Development Index (HDI) was 136 out of 177 countries. 40 per cent of Pakistan’s urban population was found living in slum areas, but rupees 120 million were spent on buying two BMW-76 Li High Security Sedans for the prime minister. Rs16.4 million were spent on repair and maintenance of the Prime Minister’s House alone.

Pakistan’s finance minister can learn a lot from his Indian counterpart who has shown resolve to crack down on illegal assets stashed abroad that are fuelling poverty in India as is the case in Pakistan. But many say he will never do so, especially when the great business empire of his multi-millionaire son (who is also son-in-law of prime minister) was built from questionable sources. Till today no declaration is made by our finance minister to show how funds for investment in HSD Group were transferred abroad, without paying any tax in Pakistan, and if money was earned abroad, as he claimed, why the same had not been declared in his asset declarations filed from time to time to Election Commission and FBR.

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