The recent revelations about Pakistan by the International Consortium of Investigative Journalists (ICIJ) failed to capture the public attention, but it did expose the weakness of the government and its institutions responsible for regulating corporate and financial dealings.

The fact is that not much has so far been done to break the cycle of covert offshore investments despite freely accessible records of multi-billion dollars moving out to shadowy destinations.

“Had the government been committed to plugging the holes in the system, it would have formulated relevant laws and ensured their implementation to send a strong message of zero tolerance to the wrongdoers,” said a lawyer who wished anonymity.

After Paradise and Panama, Pandora Papers included a list of 700 Pakistani owners of companies registered in known tax heavens. The complicated webs of cross-ownerships used allegedly to hide actual beneficial owners in these firms generate suspicion regarding the source and purpose of such investments. The argument of legit money for legit reasons behind these shady entities at notorious places is a little hard to digest.

Other than exposing the weakness of the regulatory institutions, the recent spate of leaks seems to have failed to catch the public eye

The said list reaffirms the perception that super-rich Pakistanis trust this country the least. Else, they wouldn’t have parked a significant part of their wealth abroad or invested in high-risk low-return destinations.

When approached, officials of the relevant institutions were evasive. “The fact is that the government did little beyond verbosity and selective use of leaked info to target political opponents. For better insight, it could have dissected the list and investigated further to identify patterns,” commented an insider.

Unfortunately, the Federal Board of Revenue (FBR) and the Securities and Exchange Commission of Pakistan (SECP) folded when questioned about the ecosystem that facilitates offshore investors in Pakistan. A top corporate lawyer hinted at the involvement of bankers in this business, particularly those serving at senior positions in big banks with global operations.

“Who needs an accounting or a law firm when it could all be managed by your banker friend in Dubai or Singapore?” he mocked while dropping some names.

The heads of both the FBR and the SECP couldn’t take out time to offer comments, but the SECP did share rules that empower the key regulators to intervene.

“The Foreign Assets (Declaration and Repatriation) Act, 2018, (FADRA) was promulgated. As per section five of FADRA, any person may make to the FBR a declaration in respect of foreign assets acquired.”

“The provisions of Section 452 of Companies Act, 2017, requires that every substantial shareholder (holding 10 per cent shareholding/voting power) or officer of a company incorporated under the Company law, who is a citizen of Pakistan including dual citizenship holder whether residing in Pakistan or not having a shareholding in a foreign company or body corporate shall report to the company his shareholding or any other interest on prescribed form within thirty days of holding such position or interest and the company shall submit said information on Form-31 to the registrar. This information is for reporting purposes and any non-reporting or default in complying with requirements of this section shall be held liable to a fine of up to Rs25,000 only”.

The business leaders were defensive. Some attributed the trend to the sense of insecurity in high-net-worth individuals in Pakistan. “The trauma of the nationalisation of the 1970s left a deep mark on the psyche of the business class. The last generation lost faith in the country. It migrated to the West or started creating and retaining wealth offshore. My generation, which grew up hearing horror stories of people losing generational wealth overnight, likes to hedge by parking some wealth overseas. Tax evasion is woven into the business model,” commented a leading light of the business community privately.

Commenting on the offshore companies, he said, the “Anglo Saxon world created these structures for global expansion and tax minimisation/avoidance. They, however, became vehicles for maintaining illegal wealth, too.” Another businessman requesting anonymity reminded that the Americans and Europeans also use such companies “for inheritance ease”.

Ehsan Malik, CEO, Pakistan Business Council, defended his class and downplayed the leaks. “There would hardly be any high-net-worth Pakistani resident who could have but did not already declare their assets abroad. Hence, there is very little surprise in the Pandora Papers. Owning a firm in the British Virgin Islands is not illegal. Hiding it from the tax authorities is. There are many valid reasons to have offshore companies. The millions that are coming into Pakistan for start-ups is routed through these.

“The real revelation would be the properties owned by Pakistani residents in the UAE. This was not covered by the Pandora Papers”. He believes the facilitators would all be abroad, in places like London, Dubai, Singapore etc.

M Abdul Aleem, Secretary-General, Overseas Investors Chamber of Commerce and Industry, wrote back: “The Pandora Papers reconfirms the perception that persons loaded with money, including those having a position of authority and power, have been remitting their funds overseas, with or without disclosure to the tax and other regulatory authorities. It is good to note that the prime minister has immediately formed a task force to determine whether all the disclosures made in the Pandora Papers were in the knowledge of the regulatory authorities, like the FBR and the SECP. Till the report of the said task force is shared publicly and appropriate actions, if required, are taken, the matter is, in a way, sub judice”.

On the credibility of the ICIJ report, he said, “one hopes for full transparency in selecting journalists for investigations. It would be better had the public been informed about the criteria for the selection of the two respectable journalists from Pakistan.”

The ordinary Pakistanis are probably too busy working to survive or numbed enduring debilitating economic pain or have accepted corruption as an ugly reality of life. Whatever the case, they have given the proverbial two hoots to the Pandora Papers and the 700 people identified therein.

Published in Dawn, The Business and Finance Weekly, October 11th, 2021