SARAS
South Asia Research and Analysis Studies

Commission should have a wider scope
Amjed Jaaved
6/20/2019

Tracing funny money is not easy
Our prime minister intends to constitute an enquiry commission to look into ballooning of debt burden over the past 10 years. Let it cover related benami, money-laundering or other pseudo-financial transactions also. While debt burden pauperized citizens, the offenders became richer.

Tracking debt balloon or other financial offences is not easy. Take Pakistan’s State Bank’s devaluation of the rupee in July 2017. Then Finance Minister Ishaq Dar (now an absconder), claimed the State Bank of Pakistan acted without his volition. He promised an inquiry within 10 days. The Dar-time devaluation inflated our debt burden by Rs 23 billion. Again, under the PTI government, the rupee happened to be devalued by 38 per cent, or Rs5.06, to an all-time low at Rs139.05 to dollar (increasing the debt burden by Rs 35 billion). Again, the government devolved blame on the State Bank. The hidden hand behind these devaluations remains to be ferreted out. Let the enquiry find out the beneficiaries.

Deja vu

In Keynesian macro-economics, `expectations’ do play a part. The man in the street and the shopkeeper do not expect well of the government. The government should not bite more than that it can chew. Take money laundering. Britain has refused Pakistan’s request to repatriate former Dar for financial offences. Our Money-laundering Act of 2015 could not bring back a penny of money stashed abroad.

UN’s focus: Money laundering is as old as human beings. Even 4000 years before Christ, Chinese merchants used to hide their wealth from their rulers so as to avoid confiscation. The merchants also invested their money in remote provinces and even outside China. Meyer Lanski (Capone’s accountant) was very successful in concealing his ill-gotten money.

To check flight of money abroad and get `foreign’ money repatriated, Pakistan could learn from India

The UN specified techniques to circumvent anti-money laundering legislation targets: (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 of the same organisation. (b) Making use of so-called front and shell companies in cash-intensive concerns (retail outlets, among others). (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 paperwork, leaving no trial and bypassing regulatory mechanism of banking systems. The fraudsters utilize banking-system opacity and a politicized financial-action task force to their advantage.

India’s efforts: Even super-sleuths in India could not get back Rs 11.4 billion siphoned off from the Indian-Punjab Bank. The fraudsters abroad remained immune to Enactment of 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. India focused on Mehul Choksy, Nirav Mallya, alleged bookie Sanjeev Chawla, and Tiger Hanif. Notwithstanding an extradition treaty with the UK since 1993, India could get back only one offender. India took several steps for tracking undisclosed assets, black money and closing the routes of tax-free movement of money with about 80 conduit states. It renegotiated tax treaties with Mauritius, Singapore and other tax havens that facilitate tax-free movement of money to and fro. It enacted the Undisclosed Foreign Income and Assets and Imposition of Tax Act in 2015 to get at black money from outside India. Information collected under FATCA and CRS (Common Reporting Standards) was provided to those countries that had signed tax information-sharing. The Special Investigation Team (SIT) on black money was formed in 2014.During 2015-2016, a penalty of 100 percent of transaction amount was provided in tax law for any real estate transaction in cash exceeding Rs 20,000.In June 2016, a new provision for tax collection at source on cash sales of products/services exceeding Rs 200,000 was introduced. Income Tax Declaration Scheme 2016 was launched to give immunity from domestic black money by paying 45 percent of taxes on declared income. Introduction of Benami Transactions (Prohibition) Act 2016 introduced with effect from 1 November 2016, introduction of GST in 2017, demonetization of high-value currency notes of Rs 500 and Rs 1000, were all tried.

Under the Benami Transactions (Prohibition) Act, those found indulging in benami transactions would find very difficult to escape once identified, as not only property will be confiscated but they would be subject to penalties and imprisonment. The law defined benami property as assets of any kind, whether movable or immovable, tangible or intangible, corporeal or incorporeal and includes any right or interest or legal documents or instruments evidencing title to or interest in the property and where the property is capable of conversion into some other form, then the property in the converted form and also includes the proceeds from the property which are the subject matter of a benami transaction or arrangement. No conduit/benamidar shall re-transfer the benami property to the beneficial owner or any other person. The transfer of such property shall be deemed to be null and void. Whoever is found guilty of the offence of benami transaction shall be punishable with rigorous imprisonment for a term which shall not be less than one year, but which may extend to seven years and shall also be liable to fine which may extend to 25 percent of the fair market value of the property.

Any person who is required to furnish information under this Act, but knowingly gives false information or furnishes any false document in any proceeding, shall be punishable with rigorous imprisonment for a term of imprisonment which shall not be less than six months but which may extend to five years and shall also be liable to fine which may extend to 10 percent of the fair market value of the property. Even where a person dies during the course of any proceeding under this Act, any proceeding taken against the deceased before his death shall be deemed to have been taken against the legal representative and may be continued against the legal representative from the stage at which it stood on the date of the death of the deceased.

To check flight of money abroad and get `foreign’ money repatriated, Pakistan could learn from India. Anyhow, offenders in India and Pakistan are yet to cough up a morsel.



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