Trouble in Paradise

Paradise Leaks exposes monarchs, crocodile-tear jerking “end global poverty” celebrity campaigners

Ozer Khalid November 21, 2017
The Paradise Papers also include far more information about US citizens, residents, and companies than previous ICIJ investigations, with at least 31,000 persons or parties identified.

Trouble lurks in Paradise. For the tax avoiding wealthy elites, the flames of Hell in Paradise are re-ignited anew. “Paradise Leaks” represent an eerie déjà vu of the Panama Papers debacle. Dante`s scorched Inferno might yet be destined for many high-profile Pakistani politicos and industrial tycoons, previously deemed above and beyond the law.

After the scandal-strewn Luxembourg and Panama leaks (which ousted a Pakistani prime minister), the latest Paradise leaks, shared with Germany`s broadsheet Süddeutsche Zeitung and released by the Inter¬national Consortium of Investigative Journalists (ICIJ), nakedly exposes morally reprehensible tax deductibles and opaque offshore structures where money is dubiously siphoned away from public authorities in austerity-laden times when social inequality is unacceptably rampant.

The Paradise Leaks, leaving nary a stone unturned, exposes monarchs, crocodile-tear jerking “end global poverty” celebrity campaigners, corporate multinational behemoths and no less than 135 model Pakistani citizens, including high-profile household names, from politicians and captains of industry to a former prime minister.

As with the Panama Papers, the FBR has empowered their intelligence and investigation wing to issue notices to all Pakistanis identified in the Paradise leaks. Each person sent a notice will thereafter be given 15 days to answer the queries raised via the FBR.

FBR sources confirm that 19 of the 135 Pakistani citizens and their financial shenanigans are to be “deeply probed”  from off-the-book accounting transactions, to bank account details, to companies of which they are legal beneficiaries of and money transfer records. Only six names have been released to the FBR. The FBR seeks crucial intelligence from regulators such as the Securities and Exchange Commission of Pakistan (SECP), the State Bank of Pakistan (SBP) and the National Database Registration Authority (NADRA).

As evidence surfaces to light, the FBR seeks to launch action against relevant high net worth individuals (HNWIs) under the laws governing tax theft, suspicious activity reporting (SARs) and anti-money laundering (AML).

However, the ICIJ will only divulge the data of HNWIs currently holding “public office” or individuals deemed to be in the “public interest”, and other names (of private citizens, no matter how unsavoury or wealthy) won’t be revealed to nation-states, as journalists cannot be “accessories” to state prosecutors/tax officials. Journalism follows a code of ethics whereby sources, especially those “off the record” must be protected. Pakistan’s very own Protection of Journalists Act of 2014 underscores the importance of protecting sources.

So the FBR cannot rely on the ICIJ and will have to conduct a lot of the investigation themselves. The FBR’s hands are also tied, for instance, they cannot investigate cases older than six years. Such statutory time limits merit revision. Furthermore, it was the Supreme Court, not the FBR, that dislodged a former sitting prime minister. Watchdogs need sharper teeth or they remain “paper tigers”.

One way to obtain details of the Pakistani citizens implicated is via the Organisation for Economic Cooperation and Development’s (OECD) multilateral machinery pertaining to the exchange of information on financial assets. The OECD’s 2014 “Common Reporting Standards” mandate comprehensive guidelines on financial transaction and tax transparency, so it is in Pakistan`s best interest to forge closer ties with the OECD, and further intensify regulatory harmonisation with the OECD’s Common Reporting Standards.

Pakistan has not yet signed any treaties with the countries labeled as “safe havens” to dodge taxes, for instance Jersey, the British Virgin Islands, Guernsey, the Cayman Islands, Bermuda, Bahamas, etc.  Pakistan must urgently promulgate enforceable treaties with the nine well-known tax havens, without which getting concrete evidence about tax dodging remains a distant mirage.

Haroon Akhtar, the prime minister’s revenue adviser, requested tax havens to share information but to no avail. Shaukat Aziz, a former Pakistani PM, named in the Paradise Papers is not a Pakistani “resident” and as per FBR’s very lenient income tax policies for non-residents may invoke immunity. The FBR and competent authorities are well advised to tighten the laws pertaining to “non-residents”, especially those who have held positions of high public office in Pakistan. Why should a “privileged few” greedily avoid what they clearly owe back to society, when their own employees and customers pay their fair share?

Tracing the money that rightfully belongs to the treasury’s coffers should not be the FBR’s sole responsibility. NAB, the Senate Standing Committee on Finance, the SECP, the SBP and NADRA can all intelligently co-create an Offshore Leaks Database in Pakistan and mount an intelligence-sharing campaign to shed crucial light on the shadowy world of offshore tax opacity. Global tax harmonisation, cross-border alignment in reporting standards, tougher sanctions on transfer pricing are other helpful measures.

Under current law, a Pakistani resident may create an offshore company and park the money there “after” having paid all the taxes on it in Pakistan, failure to do so constitutes illegal tax “evasion” (tax “avoidance” remains  legal). A more critical legal precedent must be set on tax “avoidance”.

In the 1990s, the State Bank of Pakistan forex rules rendered it illegal for a Pakistani resident to operate an offshore account, as accentuated in the Rockwood estate or ‘Surrey Palace’ case. Perhaps it is time for our State Bank to reconsider that rule as the gaping schism between the “rich and the rest” widens.

Taxes in Pakistan, despite multiple efforts, remain a burden of the working  classes. The richest in society bear a moral responsibility to set the highest standards of ethical conduct. This is what is sorely lacking, in Pakistan and beyond. In matters of accountability no official, irrespective of political stripes, should be spared. In matters of tax transparency we must remain “political atheists” to take culprits to task.

If tax evasion is “legal”, it doesn’t make it “moral”. A closer alignment between law and morality is sought. Pakistan already suffers from a highly inelastic tax base, the national budget loses billions of rupees annually through legal tax avoidance. These billions could perhaps have been spent on health, education and to feed the starving millions.

The Rousseauvian social contract in Pakistan has come unstuck. It is high time for a new social contract between the state and our citizenry, where trust equity is restored through equitable income redistribution, accountability and fiscal transparency.

Published in The Express Tribune, November 21st, 2017.

Like Opinion & Editorial on Facebook, follow @ETOpEd on Twitter to receive all updates on all our daily pieces.

Our Publications


Striver | 3 years ago | Reply Excellent, informative article. My understanding is that Pakistan has already signed up to the OECD's Automatic Exchange of Information (AEOI). Whether Pakistani banks have started sending out letters to their "report-able account" holding customers under the CRS (Common Reporting Standards). It would be interesting to see how FBR deals with dual-nationality Pakistanis. They love their residence cards. Furthermore, most tax authorities around the world can go back 20 years if the individual or business is suspected of fraudulent activity or money laundering. They can go back even further. I suspect the 6-year rule in Pakistan is intended in the first instant to protect our "politicians". There is an easier way out politicians could have taken money out of the country, than the methods they use, Problem is devious means of earnings leads to choosing devious means to protect them.
Replying to X

Comments are moderated and generally will be posted if they are on-topic and not abusive.

For more information, please see our Comments FAQ