How to bring back illicit money stashed in foreign safe havens | Pakistan Today

How to bring back illicit money stashed in foreign safe havens

  • India too has much bitter experience

India says that its citizens have $60 billion in assets stashed abroad. Our government also is determined to get back assets worth $11 billion hidden in foreign safe havens. India was able to get full names of 50 offenders, and several others with name- initials that held Swiss accounts. The flight of money leaves no easy trail. It goes into foreign `havens’ through benami (nameless or surrogate) account holders.

Indians do not put all their secret money in Swiss banks. In recent years, Indians’ Swiss deposits have been dwindling. They put it in about 80 tax havens including British and US islands (offshore), Liechtenstein, Luxemburg, the Channel Islands, the UKs Offshore Territories such as Cayman Islands, British Virgin Islands, and Bermuda, besides Switzerland. Then, there are Asian tax havens like Hong Kong, Macao, Singapore, Bahrain and Malaysia, rather than Switzerland. While 31 per cent of the Indian wealth was kept in Switzerland, 53 per cent was held in Asian tax havens (as of 2015).

Indians feared Swiss banks may share their data with the Indian government. This fear is reflected in declining Swiss deposits. Money parked by Indians in Swiss banks rose 50 percent to about Rs 7000 crore in 2017 compared to2016. However, on the whole, Indian deposits have been declining since 2014 (diverting to Asian havens). As a blow to secrecy, or to check illicit deposits, Switzerland, in its federal gazette, have published names of Indian account-holders in two parts, one full names, and the other identifed by initials Several of these are believed based in Kolkata, Gujarat, Bengaluru, Delhi and Mumbai.

Pakistan relies on Tax Amnesty Schemes. These schemes discourage honest tax payments. Even IMF has expressed ennui on extending the deadline for the current Amnesty Scheme. Even offenders in India did not cough up a penny. Incentive schemes look better than legal mousetraps

In India, several companies now store their wealth as cash or bullion for fear of getting caught. Recently, India’s income tax department in Tamil Nadu recovered Rs 1 billion in cash and 90kg bullion in raids on 22 subsidiaries of a construction firm. India realised it was a Herculean job to get illicit money coughed up. As such, it devised new offence-compounding rules to deal with the Gordian Knot.

UN specified techniques to circumvent anti-money laundering legislation target: (a) Smurfing, that is breaking down a large volume of cash in amounts less than the threshold of the particular country’s reporting requirements, thereby avoiding the requirement to justify the transaction. Generally, the cash is exchanged for bearer cheques or international money-orders which are then deposited into the trafficker’s account by a go-between. (b) Making use of so-called front and shell companies in cashintensive concerns (retail outlets, etc). (c) Accounting techniques like over-invoicing of imports and under-invoicing of exports. (d) Repatriation of funds parked in offshore shell companies through the loan-back method. (d) Use of non-bank financial institutions like unregistered currency-exchange houses, monetization of gold, gems, diamonds and other precious metals. (e) Acquisition of sick companies. (f) Hawala transactions based on trust and confidentiality rather than paper work leaving no trail and bypassing regulatory mechanism of banking systems. The fraudsters utilize banking-system opacity and politicized financial-action task forces to their advantage.

According to international media, the money belonging to Pakistanis in Swiss banks far exceeds that of Indians (excluding dormant accounts of about $300 million). It is speculated that Pakistan could retire its entire debt (and even build some dams) if this money is repatriated. During 2013 to 2016, then Finance Minister Ishaq Dar (now a fugitive) held negotiations with Switzerland regarding hidden bank accounts, double taxation and granting Switzerland most-favoured-nation status. The upshot of the negotiations was that only accounts from January 2018 onwards could be investigated.

Pakistan’s Express Tribune dated 2 July 2016 reported `in a startling revelation, London-based investigative journalist James D Crickton has claimed former army generals Pervez Musharraf and Ashfaq Parvez Kayani possess multi-million dollar Swiss bank accounts’. The newspaper adds, `In his blog on World Press Platform, Crickton said he came to know that the two former army chiefs have several million dollars stashed away in Swiss bank accounts while he was investigating into offshore accounts of Prime Minister Nawaz Sharif’s family’. Pakistan became a priority region for counter terrorist financing, due to the presence of al-Qaeda and other terrorist groups, the porous Pak-Afghan border, and cash-based economy that often operates through informal mechanisms, such as hawala (hand-to-hand delivery). Despite freezing of over $10 million of al-Qaeda assets, Washington remained rueful. International attitude to India and Pakistan’s efforts smacked of blow-hot-blow-cold. In yesteryears, India was the bête noire. Now, focus is on Pakistan.

Money `flight’ techniques  include: (a) Under-invoicing/over-invoicing of exports and imports and getting the balance stored abroad (b) Kickbacks from major defense/civilian contracts (c) Smuggling of gold and illegal money (d) Hawala funds (e) Funds earned by entertainment industry, and sports icons, and (e) setting up trusts abroad. (f) Money is moved in a layering process through numerous shell companies located in tax havens mainly to hide the identity of the real beneficiary. As such, only a few culprits appear in leaks like Swiss leaks, Panama Papers, Bahamas leaks and Paradise Papers. (g) Unauthorized letters of undertakings in the absence of credit limits and collateral security.

Financial offenders are highly qualified, educated in foreign universities. For instance, Nirav Modi was an accomplished real estate lawyer. He developed a specialization in acquisitions and disposals of corporate vehicles and underlying real estate assets. He is an expert in private mergers, acquisitions and disposals in children’s nurseries, dental practices and other sectors. Even super-sleuths in India could not get back R. 11400 crore chipped off from Indian-Punjab Bank. The fraudsters abroad remained immune to enactment of the Economic Offenders Bill, extradition requests under and mutual legal assistance, and so on. A fugitive offender may seek political asylum, if he is not entitled to `indefinite leave’ to stay in a foreign country. Notwithstanding the extradition treaty with UK since 1993, it could get back only one offender. To check flight of money abroad and get ‘foreign’ money repatriated, Pakistan could learn from India. Unlike India, Pakistan’s enforcement bureaucracy lacks competence to deal with hydra-headed money launderers. A plethora of cases against the previous government’s bureaucracy has undercut their enthusiasm for bold steps. Pakistan’s bureaucracy acts hands in glove with politicians. Tax circulars and tax amnesty schemes are invented to whiten black money. Interestingly, even Nawaz Sharif, like Imran Khan, has no declared business. 

Pakistan could follow the Organisation for Economic Cooperation and Development’s regulations to bring back black money. It could learn a lot from India’s online information-exchange techniques, and offence compounding. Pakistan relies on Tax Amnesty Schemes. These schemes discourage honest tax payments. Even IMF has expressed ennui on extending the deadline for the current Amnesty Scheme. Even offenders in India did not cough up a penny. Incentive schemes look better than legal mousetraps.

The writer is a freelance journalist, has served in the Pakistan government for 39 years and holds degrees in economics, business administration, and law. He can be reached at [email protected]


  1. sheep head said:

    what about Asim Badwa’s illicit money? when they are getting back?

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