Trail of hidden wealth of Sharifs #PanamaPapers @icijorg

Trail of hidden wealth of Sharifs #PanamaPapers


The members of ‘House of Sharifs’, who are facing allegations of tax avoidance, flight of capital, money laundering and corruption in the wake of the Panama Papers, claim “we have been billionaires since 1940s”. However, returns filed by them with Federal Board of Revenue (FBR), declarations made before Election Commission of Pakistan (ECP) and court cases speak otherwise. In recent speeches by the Prime Minister, it was averred that his family lost industrial units in the then East Pakistan, besides confiscation of Ittefaq Foundry by Zulfikar Ali Bhutto. He told the nation that his father in the aftermath of nationalisation of Bhutto tried his luck in the United Arab Emirates where he set up a steel re-rolling mill. It is true that a factory was set up abroad, but Mian Muhammad Sharif returned home within a year or two after its operations. Obviously in such a short time, he could not have earned millions after losing everything to what termed “cruel act” of Bhutto! The reality is that lady luck smiled on the Sharifs after General Zia-ul-Haq returned them Ittefaq Foundry without any payment and his appointment as Finance Minister of Punjab in 1981. Later, he became Chief Minister of Punjab in 1985, served as Caretaker Chief Minister and re-elected for the slot in 1988. In 1990, Nawaz Sharif was elected as Prime Minister of Pakistan-a position he is currently holding for the third time.

In 1981 when Nawaz Sharif was picked up by General Zia as finance minister of Punjab, the family owned only one re-rolling mill. In coming years, the business empire of the family expanded “marvellously”: Ittefaq Sugar Mills (1982), Brothers Steel (1983), Farooq Barkat (Pvt) Ltd (1985), Brothers Textile Mills (1986), Brothers Sugar Mills Ltd (1986), Ittefaq Textile (1987), Ramzan Buksh Textiles (1987) and Khalid Siraj Textile Mills (1988). According to record produced by National Accountability Bureau (NAB) in Supreme Court of complaints/references pending against Premier and his family members, in the wake of becoming Chief Minister of Punjab in April 1985, Nawaz Sharif under the patronage of General Ghulam Jilani Khan and General Zial-ul-Haq, allegedly made assets beyond means. It was during 1981 to 1989 that the ‘House of Sharif’ received generous loans from banks for “extraordinary expansion”. But strangely, even after all this extraordinary expansion in business, wealth tax returns filed by all members of the ‘House of Sharif’ till 1990 showed net wealth of less than Rs 50 million!!

In 1992, Information Wing of Pakistan People’s Party (PPP) released an account of alleged corruption of the Nawaz government in a booklet, The Plunder of Pakistan. A spokesman for the then ‘House of Ittefaq’ said in a counter statement that the group “has obtained loans worth Rs 4.420 billion only from the commercial banks contrary to Salmaan Taseer’s claim of Rs 12 billion”. According to the spokesperson of Ittefaq Group, they had only 14 companies with assets of Rs 6 billion.

The H.U. Beg Committee, set up to investigate the allegations of concentration of wealth, however, ‘identified’ 19 companies in the Group with assets worth Rs 10 billion. The units in Ittefaq as identified by H. U Beg Committee included three listed companies, 12 unlisted public companies and 4 private limited companies. In a press conference of March 2, 1994, Khalid Siraj, a cousin of Nawaz Sharif, claimed that the assets of the seven brothers were worth Rs 21 billion. During the rule of General Zia, the net wealth of the ‘House of Sharif’ increased manifold. At a press conference, held on August 3, 1989, Shahbaz Sharif admitted the assets of the Group at Rs 3.6 billion. However, the report of the Co-operative Scam Tribunal estimated the Group’s assets in 1989 at Rs 6 billion. It is alleged by adversaries of the Sharifs that hidden (untaxed) wealth of billions was siphoned off during Zia’s era, and large part of it was parked outside Pakistan. After passing the Protection of Economic Reforms Act, 1992 on becoming Prime Minister on November 1, 1990, it is alleged in a report prepared by Rehman Malik that attempts were made to legalise the hidden wealth by opening fake accounts, details of which are available in Mian Muhammad Abbas Sharif and 2 others v Federation of Pakistan through Secretary, Ministry of Interior and 2 others [1995 PCr LJ 1224 Lahore High Court]. This case alleges how the ‘House of Sharif’ in 1992 took refuge under Protection of Economic Reforms Act, 1992, a law aimed at whitening tainted (untaxed and/or illegal) money.

During his first tenure as Prime Minister (November 1, 1990 to July 18, 1993), the business empire of the ‘House of Sharif’ thrived on project loans from foreign banks as well as working capital from the local banks. Foreign currency accounts allegedly fake, were used to whiten untaxed money and secure loans/advances from banks. The following purported facts, reproduced verbatim from Mian Muhammad Abbas Sharif and 2 others v Federation of Pakistan through Secretary, Ministry of Interior and 2 others [1995 PCr LJ 1224 Lahore High Court], are worth consideration:

(i) “On 26-8-1992 fake account in the name of one Sulman Zia, resident of Main Bazar, Sahiwal, was opened in Habib Bank Limited, AG. Zurich, Lahore, with an initial deposit of US $168. Fake account in the name of Muhammad Ramzan resident of House No 5, Street No 6 of Sant Nagar (Lahore) was opened in Habib Bank Ltd, AG Zurich, Lahore, with initial deposit of US $300. Subsequently, both of them were issued dollar bearing certificates worth US $750,000 cash by Union Bank Ltd against cash proceeds of Travellers Cheques encashed through American Express, New York.

(ii) A fake account was also opened in the name of Kashif Masood Qazi (Account No 260133-91) in the Bank of America by having transferred the amounts of aforesaid two fake accounts. Another fake Account No 199936-091 in the name of Mrs Nuzhat Gohar Qazi, the wife of Gohar Masood Qazi, resident of Nisbat Road, Lahore was opened in the Bank of America. Ultimately, approximately an amount of US $0.5 million was transferred to the account of Kashif Masood Qazi from the account of Mrs Nuzhat Gohar Qazi.

(iii) The aforesaid accounts were found to be fictitious. The Directors of Messrs Hudabiya Engineering (Pvt) Ltd in collaboration with the bank officials of Habib Bank Limited, AG Zurich, Lahore and Bank of America, Lahore, under the influence of Mian Muhammad Nawaz Sharif (former Prime Minister), dishonestly and fraudulently managed to open aforesaid fake accounts/benamis for subsequent creation of loan amount to Rs 60 millions by the Bank of America, Lahore, in favour of the said Company, against the fake account of Kashif Masood Qazi. All these under hand methods were adopted to utilise their black money for securing wrongful gains”.

The counsel for Hudabiya Engineering (Pvt) Ltd did not refute the above transactions but took the plea that “Messrs Hudabiya obtained [a] loan of a few crores of rupees against the accounts opened in the name of Kashif Masood and other mentioned in F.I.R. No 12/94 and Mrs Sikandara Masood Qazi and other in case of F.I.R. No 13/94.” According to the counsel, “this was a simple money transaction between the parties that is to say Messrs Hudabiya, aforesaid account-holders and the bankers voluntarily and with each other’s consent.” He claimed that that there was no question of “committing fraud and cheating in the affairs”. It is a matter of fact that the Qazi family later on clarified that they had nothing to do with the foreign currency accounts opened in Pakistan and that they were cheated-A shoddy track record, The News, April 16, 2016. According to the British newspaper Independent [Pakistan PM ‘made millions in UK’, October 20, 1998]: “….money was laundered through “fictitious bank accounts” and, using family business interests, was siphoned into offshore accounts”.

The Counsel of State took the plea that available facts proved beyond any doubt that fake accounts were opened to whiten black money for securing wrongful gains. The Division Bench of Lahore High Court held as under:

“A citizen of Pakistan has protection of law in case, he opens foreign exchange account having the facility provided by the Protection of Economic Reforms Act, 1992, but cannot avail the protection of law with a view to make his black money as white by adopting the process of opening fake accounts, mentioned above. We, therefore, maintain that the prosecution has prima facie case to substantiate the allegations levelled against the accused.”

Later, a larger bench of Lahore High Court in its judgement, authored by Justice Malik Muhammad Qayyum, in the Hudabiya Engineering (Pvt) Limited v Federation of Pakistan and 6 others 1998 PTD 34, held as under:

“On consideration of various provisions of the Protection of Economic Reforms Act, 1992, we have reached the conclusion that so far as foreign currency accounts are concerned, the holders thereof, have complete immunity from inquiry and scrutiny and complete secrecy must be maintained in respect of those accounts which cannot be violated by any agency or functionary. That being so, neither the Income Tax Authorities nor Federal Investigation Agency had any jurisdiction to hold any inquiry in respect of the transactions in the foreign currency accounts nor could the same be made basis of criminal prosecution.”

The larger bench of Lahore High Court adjudicated the issue purely on technical grounds and did not give any verdict on the accusations of money laundering using section 5 of Protection of Economic Reforms Act, 1992, levelled in FIRs. The fact of using foreign currency accounts was not refuted by the counsel for Hudabiya Engineering (Pvt) Ltd. The Court quashed the case ignoring the purported fact that there was sufficient evidence available that account holders were either fake or had no connection with the business affairs of company.

The larger bench of Lahore High Court in Hudabiya Engineering (Pvt) Limited v Federation of Pakistan and 6 others [1998 PTD 34] also ignored that benefit of section 5 of the Protection of Economic Reforms Act, 1992 could have been taken only by the persons who purportedly opened foreign currency accounts and not by the company and its directors. It was incumbent on the directors under corporate governance not to take benefit of any tainted funds. On the contrary, the company and its directors sought refuge under a special law to hide untaxed and undeclared money.

The Supreme Court of Pakistan clearly laid down in the Ishaq Ahmad Sheikh v The State [2000 SCMR 814] that:

“……the complete secrecy even in section 5(3) [of the Protection of Economic Reforms Act, 1992] is not in respect of all “transactions in the foreign currency accounts”; imply that there can be some possible exceptions to the generalised protection and cover. Neither section 5(3) nor section 9 [of the Protection of Economic Reforms Act, 1992], therefore, would spell out secrecy where a penal act or omission is involved though even in such regard the initiative, aid and assistance of the relevant Court, as in section 94 of the Criminal Procedure Code, has a direct bearing. In other words the secrecy would be complete and even total except for the limited purpose permitted by such a Court as aforementioned”.

The above judgement of Supreme Court of Pakistan confirms that the directors of Hudabiya Engineering (Pvt) Limited were wrongly absolved by the Lahore High Court under section 5 of the Protection of Economic Reforms Act, 1992 as they did not open foreign currency accounts in their own names and thus could not claim immunity. It was a clear case of “a penal act or omission” and, therefore, no secrecy could have been claimed as enunciated by the Supreme Court in Ishaq Ahmad Sheikh v The State [2000 SCMR 814].

There is another interesting angle that needs consideration. By availing cover of the Protection of Economic Reforms Act, 1992, the beneficiaries admitted tax avoidance/evasion and therefore they could not contest the elections as ordained in Article 62 of the Constitution of Pakistan. According to a Press report, NAB did pass on information to ECP in 2013 about references of money laundering, corruption and loan defaults pending against Nawaz Sharif, Shahbaz Sharif and other family members. Nawaz Sharif, Shahbaz Sharif and Hamza Shahbaz were allowed to contest elections after they secured stay against proceedings in accountability court. After coming into power, the cases of money laundering and corruption pending against them and other family members were quashed by Justice Anwar Ahmed of NAB Accountability Court on September 18, 2014 observing that even after 14 years, NAB failed to produce any witness. The witnesses (members of the Qazi family) could have been produced by NAB by seeking assistance of authorities of their residence to give the statements how fake accounts were opened in their names. Had it been done, conviction leading to disqualification of Premier and others was possible.

In the light of the above facts, the demand of Opposition, made on May 3, 2016 after two days’ deliberations, for an inquiry under a special law, the Panama Papers (inquiry and Trial) Act 2016, by a Commission to be formed, headed by Chief Justice of Pakistan, and comprising two other judges of Supreme Court nominated by him, was obviously not acceptable to the government as evident from the Press conference of Interior Minister and Law Minister on March 4, 2016. The deadlock between the Government and Opposition will ultimately help the corrupt and tax evaders to escape punishment. The right course as suggested in our earlier columns would be accountability of all officeholders in the Parliament. A House Committee of all parties should be formed to consider Terms of References (TORs), suggested by the government, Opposition and Supreme Court Bar Association. It should also investigate why NAB did not file appeal against the judgement dated September 18, 2014 of Accountability Court exonerating the members of the ‘House of Sharif’ from charges of money laundering and corruption. NAB authorities should also be questioned by the Parliament as to why they did not produce Sikandar Masood Qazi, Talat Masood Qazi, Nuzhat Gohar and Kashif Masood Qazi before the Accountability Court to testify how their names were used for opening fake foreign currency accounts.

The Parliament should also ask ECP how the Prime Minister and Chief Minister of Punjab were allowed to contest election in 2013 when it received information that the Sharif brothers at that point of time were loan defaulters of Rs 4.9 billion. They borrowed money from nine banks in 1994-95 and did not return the same till 2013 on the plea that NAB confiscated their properties which, according to them, were worth more than the amount of the loans. The question was not that of worth of properties but whether money was due or not at the time of contesting the elections. Law does not permit any loan defaulter (where payment is due for any reason) to contest the election unless payment is made. Admittedly, the Sharif family “paid Rs 5.22 billion by December 2014 under the head of all loans, mark-up, cost of fund and other charges payable by Ittefaq Foundries and a consortium of banks has issued clearance certificates in this regard”, as admitted by Shahbaz Sharif in a Press conference held in Lahore on July 8, 2015 as “a representative of the Sharif family”. This confirmed they could not contest election in 2013 when this amount was due.

The official record, the Panama Papers and judicial pronouncements, reproduced above, call for investigating the opening of fake accounts and their utilisation in business, illegal transfer of money, tax avoidance, political loan write-offs and corrupt practices by all public officeholders and not Nawaz-specific. Once this process is completed and those elected have been dealt with under the law, the other sections of society, especially those who are running the affairs of the state should also be probed. If anybody is proved guilty before the Parliamentary Special Investigative Committee, he/she should be proceeded against under Articles 62 and/or 63 of the Constitution of Pakistan as well as proceedings under National Accountability Bureau Ordinance, 1999. The NAB Ordinance was made effective from 1st January 1985. It is pertinent to mention that Nawaz Sharif took oath as Chief Minister of Punjab on April 9, 1985!

(The writers, lawyers and partners in HUZAIMA, IKRAM & IJAZ, are members of Adjunct Faculty of Lahore University of Management Sciences (LUMS). The view expressed by them i this article are not necessarily those of the newspaper)

Copyright Business Recorder, 2016


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