• Senators cross to find Rs75bn money laundering through invoicing in solar panels import
• SBP officials asked to attend next committee meeting

ISLAMABAD: A Senate panel on Wednesday expressed serious displeasure over finance ministry’s failure to even hold a meeting with Azad Jammu and Kashmir (AJK) government in three weeks, let alone address their ‘genuine’ grievances, and assured the AJK premier that they would not allow any discrimination in provision of divisible pool resources and net hydel profit on power projects to the territory.

The meeting of the Senate Standing Committee on Finance and Revenue also conveyed annoyance over caretaker finance minister Dr Shamshad Akhtar’s absence from the meeting convened after taking her consent for a briefing on prevailing macroeconomic conditions.

Senators were also flabbergasted to learn that around Rs75bn worth of trade-based money laundering had been confirmed through import of tax-free solar panels by massive over-invoicing while genuine imports like medicines and vegetable oil had been crippled because of curbs in opening of letters of credit (LCs).

The committee meeting, presided over by Senator Saleem Mandviwalla, was also attended by AJK Prime Minister Anwarul Haq. At the outset, the senators enquired if the Ministry of Finance and AJK had held meeting promised on August 30 to resolve complaints of the AJK government over financial cuts.

Finance Secretary Imdadullah Bosal regretted it could not take place and he had just spoken to the AJK secretary for a huddle on Monday or Tuesday and “try to resolve their issues keeping in view our fiscal constraints”.

Senators wondered why the meeting had been convened and the AJK prime minister and his staff called all the way from AJK when the caretaker finance minister did not turn up or had not engaged with the AJK government despite commitments made on August 30.

They said the AJK prime minister had raised legitimate complaints and given the importance of Azad Kashmir, it was unfortunate that the federal government appeared to be in default not only financially but morally as well.

AJK PM Haq said the widespread support from the senators and political parties since his last appearance before the Senate committee had helped cool down tempers in Azad Kashmir as people had been protesting across the region.

He said his demands were simple, explaining that AJK had a 3.64pc share in divisible pool resources and in case of revenue shortfall the fiscal cuts should be in proportion to its share like the four provinces. It was unfair to see when revenue collections are higher than the targets, cuts were applied to AJK’s share, he regretted. He said he had trust in the Senate committee and political parties in Pakistan and the people of AJK expected a fair treatment.

The panel then constituted a sub-committee led by Senator Abbasi to engage with the ministries of finance, power and water and all other stakeholders in the matter and submit a report at the earliest so that the finance committee could take the matter to an early conclusion with the federal government support.

Money laundering

The Federal Board of Revenue (FBR) presented a report to the committee on misuse of solar panels by a few companies for “massive money laundering” apparently with the connivance or negligence of the banks that failed to comply with State Bank of Pakistan (SBP) regulations pertaining money laundering.

The report said the solar panels had emerged as a high-risk item for over-invoicing and trade-based money laundering (TBML) due to their duty/tax-free import status and the absence of sales tax on local supply.

Between 2017 and 2022, there has been a massive increase in solar panel imports, accompanied by the emergence of dummy companies exploiting duty/tax-free imports for illicit financial activities. About Rs75bn worth of solar panels were allegedly imported from China but payments routed to the UAE or Singapore and all these panels were sold in the domestic market at almost half the price they were imported.

A recent FBR audit led to the identification of over-invoicing in 6,232 Goods Declarations (GDs) of 63 importers while the total amount of over-invoicing detected was around Rs69.5bn.

Subsequently, two FIRs were registered against M/s Bright Star Business Solution (Pvt) Ltd and M/s Moonlight Trader (SMC) Pvt Ltd — both operating from the same building in Peshawar and vanished from the scene. “These two importers were involved in over-invoicing, obstruction to audit, and using illicit funds for imports in violation of Customs Act, 1969”, said the report, adding they transferred Rs72.83bn out of Pakistan in connection with solar panel imports. The combined over-invoicing in 2,718 import GDs amounted to Rs37.76bn with imported values being abnormally high.

Sales tax declarations revealed that the solar panels, initially imported at Rs72.83bn were sold locally for a significantly lower value of Rs45.61bn. This inconsistency demonstrates clear over-invoicing at the import stage.

“It needs in-depth probe as to how commercial banks allowed such fictitious companies to transfer colossal funds without carrying out due diligence and KYC (know your customer) risk ratings of the SBP that resulted into the transfer of Rs72.86bn out of Pakistan in violation of SBP regulations,” the FBR chairman and member customs demanded in writing.

They said the red-flag indicators that SBP required the banks to issue suspicious transaction reports etc were not adhered to. “It is apparent that the banks failed to apply those red-flag indictors while dealing with fictitious solar panel clients/customers”.

The Senate panel sought a complete year-wise breakdown of transactions and imports along with names of the banks and asked the SBP leadership to attend the next meeting for a detailed view.

Published in Dawn, September 21st, 2023