Pakistan and the Panama Papers

The Panama Papers are “a blessing in disguise” … Watch Video

The paper trail from Panama to Pakistan is a long and mysterious one and it reveals much about Pakistan’s first family’s vast wealth and international property empire. The leaked documents, which are linked to dozens of venal “super rich” politicians, had even forced Iceland’s prime minister Sigmundur Davíð Gunnlaugsson to resign. Yet Ramón Fonseca argues his firm is the subject of a “witch hunt” and it has done nothing wrong; there is “more dirty money in New York and London,” he says. His claim is backed up by Bill Browder, who made his fortune in Russia but has since converted into an ardent Putin critic; owing to the former KGB head turning Russia into a kleptocracy, he says. Browder argues London is a “brothel” for dirty Russian money. He is equally adamant that Cameron’s anti-corruption drive is just “hot air”. This post captures and recalls our recent Panama Papers discussion.

Financial regulators and tax authorities worldwide have expressed huge interest in the disclosures in the papers because the International Consortium for Investigative Journalism (ICIJ) has created “a searchable database that strips away the secrecy of nearly 214,000 offshore entities created in 21 jurisdictions, from Nevada to Hong Kong and the British Virgin Islands.” Indeed, the gigantic leak of more than 11.5 million financial and legal records is clearly groundbreaking. The documents show the details of the manner in which the world’s political and economic elites have used “crime, corruption and wrongdoing, hidden by secretive offshore companies” to hoodwink tax authorities.

In light of the fact that the extraordinary revelations in the Panama Papers are an intensely debated issue in the country these days, on 26 May 2016, The Pakistan Institute of International Affairs (PIIA) organised a special discussion on the Legal and Business Aspects of Panama Leaks.

Justice Retired Shaiq Usmani, Sindh High Court, Syed Shabbar Zaidi, Senior Partner A.F. Ferguson & Company, Professor Tanweer Khalid and Agha Masood Hussain (renowned senior journalist and Former Sindh Minister for Local Government) were among the panellists. Honorary Secretary PIIA, Dr Syed Amjad Ali Saqib presided over the session.

Notably, the session was held at a time when prime minister Nawaz Sharif, who people are calling on to resign because of three of his four children’s potential connections to the international web of tax evasion because of their offshore wealth including flats in Mayfair near Hyde Park, has just undergone triple bypass surgery in London. Even with a quick and full recovery, the delicate political balance in the country will remain on a knife edge.

Reportage and commentary on the event are available below:

Mr Hussain said that there were more than 200 Pakistanis who had offshore companies in Panama. He added that some people he had spoken to had told him that they kept their money in offshore accounts owing to the unstable situation in the country, security threat as well as for tax evasion.

Dr Tanweer Khalid, a political scientist and faculty dean at Ziauddin University, said: “The Panama Papers are an important milestone in data journalism”. She said it took the journalists one year to investigate and verify the 11.5 million financial papers. She emphasised that the trove of documents we have come to know as the Panama Papers illustrate how wealthly individuals able to hide their personal financial information.

While offshore business entities are often not illegal, reporters found that some of the Mossack Fonseca shell corporations were used for illegal purposes, including fraud, kleptocracy, tax evasion, and evading international sanctions. She said it was important to discuss the legal aspect of the Panama Papers to understand how the leaks would affect business and society. She added that according to the ICIJ some offshore companies seemed to have broken staged laws, violated trade sanctions and stand for political corruption.

Beside British Prime Minister David Cameron, 61 government officials and their family members’ names were under the international news media’s spotlight because of the revelations. Prominent figures include the former Sudanese president, the Emir of Qatar, the Prime Minister of Georgia, Prime Minister of Ukraine, family members of prime minister of Pakistan, officials of the Chinese government, the son of Malaysian prime minister and numerous others.

Mohammad Raza claimed that the Panama leaks were just the tip of the iceberg in terms of offshore accounts. “Panama is just one tax haven and this is information from just one firm,” he said, adding that there were several countries and several firms that should be looked into. He also discussed the foreign exchange regulation and income tax laws in detail.

He also said the information was incomplete as the whistleblower and journalists had only uncovered names – not their financial statements. He said that wide estimates suggested that there could be $70bn to $100bn kept away in offshore companies.

“This is a blessing in disguise,” he said, adding that now offshore companies and tax evasion could be discussed openly. Explaining his views further he remarked:

Any company formed outside Pakistan is offshore – but we are talking about companies set up in tax havens such as the Isle of Man etc … These are mostly shell companies – this means that they don’t do any business or have money in the country where they have been registered.

Syed Shabbar Zaidi said from Pakistan’s perspective the leaks represent the tip of iceberg of assets because disclosure is limited only to the information revealed by just one of the companies providing such services. According to Mr Zaidi, the estimated assets held by Pakistani citizens in offshore companies is estimated to be around $70 to $100bn, based on information publicly available. He also defined in detail the Protection of Economic Reforms Act promulgated in 1992. Under that act every citizen of Pakistan could open a foreign currency account and was free to hold and transfer from that account. This Act later opened doors for Pakistani people to transfer their money abroad, easily.

Agha Masood Hussain spoke about the six reasons identified by international journalists for the elite’s decision to put their money in the offshore companies of Panama. Predominantly, it is kickback money: which morphs into forms of money laundering, over invoicing, under invoicing, money for drugs and very important money gone there to support terrorism.

He discussed in detail the reasons for transfer of money by Pakistanis abroad. These include unjust attitude of our tax collection authorities towards them, deteriorating law and order in Karachi, political and social instability in the country, extortion by political parties, no respect of law, as law enforcing authorities are as corrupt as anybody else.

Justice Retired Shaiq Usmani stated the companies who welcome criminal sources have this philosophy:

You can trust us not to steal your money, but, you can also trust us to turn a blind eye to, if you want to steal someone else’s money.

This is how these companies operate, he said and argued that these days you can transfer your money by touch of button. Notably, Panama and other similar countries have secrecy laws. Arguably, they have strong reasons never diverge any information at any cost, as the offshore companies are in their countries interests. Asked by the audience regarding whether he thought the money sent abroad is still there, he pithily remarked:

There is no way you can have that money back to Pakistan. What is done is done, what is lost is lost, what stolen from us will never come back. What we could have done, this is an ideal opportunity for people of Pakistan to make laws so that this could not be done again. [The] Judicial Commission is a waste of time.

His position is in lockstep with that of the Chief Justice of the Supreme Court or Pakistan, Anwar Zaheer Jamali, who argues that for a commission to take shape Parliament must first enact express legislation for this purpose. Similarly, the terms of reference must also be settled. Chief Justice Jamali said that otherwise the:

Formation of Commission of Inquiry under the Pakistan Commission of Inquiry Act 1956 (Act VI of 1956), looking to its limited scope, will result in the constitution of a toothless Commission, which will serve no useful purpose, except giving bad name to it.

When the Panama leaks hit the headlines in Pakistan, people became very emotional, said Justice Usmani, adding that people forgot that offshore companies had existed even before the 1970s to avoid taxation.

He explained that anyone could open an offshore company; the problem started when people who ran your company used public money and parked it there. For the last several years, he said, this had been happening in Pakistan and other countries.

The former judge discussed how offshore companies were a species/variant of limited liability companies. He explained how people avoided tax and how it became easier to keep money earned through illegal means such as corruption and criminal activities in offshore accounts.

He added that Panama was just one place people had offshore companies, other places include British Virgin Islands, Cayman Islands and Bahamas. These places, he explained, were tax-free havens as they had ultra lax tax laws; and secrecy laws restricting the governments from sharing names. He said that 75 per cent of the world’s shipping industry vessels were owned by offshore companies. In conclusion, he therefore remarked:

What is the hoopla about? This is just 500 people who didn’t pay their taxes. There are more than 500,000 people here who haven’t … What is lost is lost. That money is not going to come back. What the government and lawmakers should have done after the leaks is pass laws and regulations to make sure it didn’t happen again.

Secretary PIIA, Dr Syed Amjad Ali Saqib also graced the event and gave vote of thanks to the distinguished panellists. A large number of PIIA members and citizens from different walks of life attended this discussion, which was followed be question-answer session.

Analysis and Comment

The scope of the Panama Papers is huge. For example, they even implicate the major international banks in facilitating the regime in Damascus – which is, quite rightly, seen by many as one engaging in killing its own people.

To sum up, in the aftermath of the revelations, among other things:

  • The White House called for tax evasion to be dealt with globally and the Obama administration took a series of important steps to combat money laundering, corruption, and tax evasion;
  • Germany announced new rules for a national transparency register in relation to the disclosure of owner identity of offshore companies;
  • Pakistan’s prime minister Nawaz Sharif called for the establishment of a judicial commission to evaluate whether or not his family was involved in illegal activity, but as seen above the fate of the commission is unclear at best as the judiciary has not accepted the invitation extended by the executive; and
  • British prime minister David Cameron announced a joint task force to investigate the scandal. Her Majesty’s Revenue and Customs experts, who have tracked down £2 billion from offshore tax dodgers since 2010, are already investigating 700 current leads they have with a link to Panama.
  • Cameron, whose late father’s name was dragged through the mud in the aftermath of the scandal,  has committed to provide resources to ensure that the files are fully investigated, once shared with HMRC, including initial new funding of up to £10 million to support the taskforce’s work

In addition to our own analysis, this post extracts news from the articles on our event in Dawn and on LiveRostrum.

Recent coverage of PIIA events is available below:

Posted by Editor. For the banking and finance aspects of the Panama Papers, see the Editor’s paper Changing Banking for Good: Counting the Costs of Market Misconduct.


Filed under Constitution 1973, Courts, Criminal Justice, Criminal law, Discussion, Events, Mossack Fonseca, Pakistan Horizon, PIIA, Politics

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