“Panama leaks wrongdoing will be hard to prove” SBP informs Senate body

“The judicial commission formed to probe the Panama leaks has almost zero chance to prove any wrongdoing as there exists no law under which the government can seek information from the countries concerned about offshore companies”, the Senate Standing Committee on Finance was informed by the SBP earlier yesterday.

The committee was briefed by an official of the State Bank. He assured the Senators of extending maximum cooperation to the judicial commission for probing the leaks.

At the same time, the committee was informed that under the law, an individual can carry up to $10,000 out of the country. But permission from the State Bank was required in case an individual wanted to take an amount ranging between $10,001 and $5 million out of the country. And a special permission was required from the Economic Coordination Council (ECC) if the amount was in excess of $5m.

Presentation draws mixed reaction from members

But, amazingly enough, a law enacted way back in 1992 to promote business activities places no restraints whatsoever on taking foreign exchange out of the country. “There is no such restriction under the Protection of Economic Reform Act 1992,” the official told the committee.

The information took the legislators by surprise, prompting Senator Mushahidullah Khan to remark: “So there is nothing like money laundering from Pakistan.” And Senator Mohsin Leghari quipped: “So why are you holding model Ayyan Ali for carrying $500,000 out of the country?”

The queries placed the State Bank officials in an uneasy situation. Some of them simultaneously murmured that Ayyan Ali was not being charged for this very reason.

Regarding Panama leaks, the Deputy Governor of SBP, Saeed Ahmed Khan, told the committee that the central bank had no capacity to probe Panama leaks, but it would be ready to assist the judicial commission in its probe in whatever manner it was possible.

“And this assistance is practically nothing as you do not have the capacity,” Senator Ilyas Bilour said. His comments were accepted by all participants.

Tracking money trail

The Standing Committee was then briefed about offshore companies by a special invitee. He said that Pakistan had neither the legal framework nor was it part of international treaties in this regard.

“Tracking this money trail is next to impossible from Pakistan,” said Mehmood Mandviwala, a corporate lawyer who is the first cousin of Saleem Mandviwala, the body’s chairman.

According to Mehmood Mandviwala, several places around the world were known as ‘treasure islands’ because they served as a haven for offshore companies.

These places flourished as tax havens because there were no laws to enable a government to obtain records from governments under whose writ these islands were located, the lawyer said. “But all offshore businesses are not illegal,” he added.

“The biggest number of such spots is in British Virgin Islands, which house more than 40 per cent of the world’s offshore companies.”

The committee was informed that almost half of the world’s trade was conducted through these offshore companies and one-third of the global wealth was parked with them.

“At the same time, the Protection of Economic Reform Act 1992 was similar to an offshore company,” Mr Mehmood Mandviwala said. “It allows any Pakistani or foreign investor to take money out of the country without restriction.”

He said lawyers would invoke this act in courts everywhere, including in Pakistan, to defend clients against charges of money laundering.

“In addition, the biggest challenge for any inquiry commission will be to get information from authorities concerned where these offshore companies are based,” Mehmood Mandviwala said.

The committee was informed that Pakistan had treaties for the exchange of information related to criminals with just five countries: Tajikistan, Uzbekistan, Sri Lanka, China and Turkey.

“Technically this is useless when it comes to money laundering or offshore companies.” Senator Mohsin Leghari said, “So we cannot ask any country to tell us about the owner of a company even if we know the details.”

Major hurdle

The second hurdle, according to Mr Mandviwala, was that information obtained through the Panama leaks were all stolen from a lawyer’s office.

“What will be the weight of this stolen data in a court of law,” he wondered. “Admissibility will be a serious issue in any court as these leaks happen to be the privileged information of a lawyer.”

The silence was interrupted by Senator Mushahidullah, who said that those creating a hue and cry were unaware of the law. “Now tell me the difference between forensic audit and a normal audit?”

Mr Mehmood Mandviwala said that forensic audit was not possible without the legal cover of bilateral and multilateral treaties.

“So these people are only trying to scare people like me with these jargons,” Senator Mushahidullah said.

Addressing the chairman of the committee, the senator observed: “Sir, your cousin is a marvellous man. I unknowingly criticised him at the start.

“Now, Mr Lawyer, please tell us about the UN convention that people are talking about nowadays.”

The committee was told that there was a UN convention against corruption, but it mainly targets “politically engaged persons”, and it was technically difficult to prove that the money parked abroad was ill-gotten and belonged to anybody else.

However, he suggested, Pakistan should become a member of the Organisation of Economic Cooperation and Development, whose 60 members include some known as tax havens. These countries would start sharing information about account holders next year. India, he recalled, had become its signatory and would be able to draw details of bank account holders from September next year.

There was a mixed reaction from members towards the end of the presentation. Those belonging to the PPP and PTI betrayed gloomy looks, whereas the Senators from the treasury benches were beaming with relief and satisfaction.

The committee’s chairman then came up with a question for the lawyer: “Why did the PM of Iceland resign if there is nothing to prove.”

But before he could answer, Senator Mushahidullah observed: “They are a different sort of people. Since there is nothing but ice in that land, it needs some warmth to stand up and face a situation.”

Meanwhile, speaking on behalf of the Securities and Exchange Commission of Pakistan, commissioner Tahir Mehmood told the committee that there were 192 companies in Pakistan in which offshore companies were making investments. “We have found that many companies are investing in offshore companies and it is a routine matter.”

Read : Panama Papers’ data to be made public on May 9