Retrieving illlegal money from swiss accounts

[xenia]

With help from the Swiss
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Untaxed funds belonging to Pakistanis and lying in Swiss banks can now be retrieved.

By Huzaima Bukhari & Ikramul Haq


ON Oct 1, the Swiss parliament passed the Return of Illicit Assets Act (RIAA) — a historic law aimed at facilitating developing countries like Pakistan to recover billions of dollars shifted to the alpine state by unscrupulous persons.

It is now possible to retrieve untaxed funds belonging to Pakistanis lying in Swiss banks by seeking information under Article 25(1) of the Convention of Avoidance of Double Taxation with Switzerland (commonly called the tax treaty) as has been done by a number of countries in recent months.

Article 25(1) of the tax treaty between Pakistan and Switzerland says: “The competent authorities of the contracting states shall exchange such information (being information which is at their disposal under their respective taxation laws in the normal course of administration) as is necessary for carrying out the provisions of this convention in relation to the taxes which are the subject of this convention. Any information so exchanged shall be treated as secret and shall not be disclosed to any persons other than those concerned with the assessment and collection of the taxes which are the subject of this convention. No information as aforesaid shall be exchanged which would disclose any trade, business, industrial or professional secret or trade process.” The tax treaty makes its obligatory on Swiss tax authorities to disclose to the Federal Board of Revenue (FBR) how much tax was paid on bank profits by Pakistanis maintaining accounts in Swiss banks.

These accounts remained undeclared in Pakistan. Resident persons in Pakistan are legally required to declare their total world income and claim tax credit on any doubly taxed income. But the plunderers and looters of national wealth, beneficiaries of politically motivated loan write-offs, rent-seekers and tax evaders have illegally placed huge funds in Swiss banks and that remain untaxed in Pakistan.

Nearer home, the Indian government has already taken steps to recover the hidden, ill-gotten wealth of its citizens lying in Swiss banks. Ever since reports emerged of Indians having accounts in tax havens like Liechtenstein and the success of governments like the US in accessing these accounts, New Delhi has been working zealously to retrieve funds from the Swiss banks.

A new treaty has been signed between India and Switzerland, aimed at fighting tax fraud. According to the Swiss foreign minister deposits of Indians are close to $1.4tr in Swiss banks. Earlier, parliamentarian Ram Jethmalani testified before the Indian Supreme Court that the government could not claim immunity from disclosing documents related to black money which is no less than $1,500bn.

According to Mark V. Vlasic, who worked on the Haiti/Duvalier asset recovery team, “over the last 20 years the Swiss government has returned more than $1.5bn in assets of criminal origin — including assets from some of the most famous kleptocrats in history such as Sani Abacha of Nigeria, Ferdinand Marcos of the Philippines and Carlos Salinas of Mexico. Despite these recoveries, the process of recovery was complex and tedious — marred by international treaties and complex local laws.” Under the RIAA traditional impediments have been removed — the Swiss government would now have to only show that funds in Switzerland deposited by an alleged corrupt official are significantly larger than what could have credibly be earned in office, and that the country from where these originated was known to be corrupt.

The onus of proving legality of the money would lie on the allegedly corrupt official, rather than Switzerland. If the official is unable to prove the legitimacy of his/her Swiss assets, they would be confiscated by the Swiss state.

According to the World Bank’s estimates, the crossborder flow of proceeds from criminal activities, corruption and tax evasion is between $1tr and $1.6tr per year, about half of which comes from developing and transitional economies. According to experts, some influential and rich Pakistanis have hidden accounts to the tune of millions of dollars in Switzerland.

The FBR should seek information under the Convention of Avoidance of Double Taxation to retrieve and tax these amounts.

An amount of $200bn — four times the external debt of Pakistan — appears to be plausible as every fifth rupee transacted in Pakistan is black. According to various studies, the volume of black money generated in fiscal year 2008-09 alone was no less than $40bn.

This is not final. It does not account for kickbacks in arms deals, foreign trade, smuggling and foreign exchange racketeering, trade in narcotics and other criminal activities undertaken by terrorist outfits. Conservative estimates show that underground money generated through smuggling in narcotics alone is estimated at $30bn per annum.

Pakistan’s tragedy is that money for industrial/business growth and public benefits is scarce, but a colossal unaccounted for cash supply is circulating in the economy in search of further underground gains or remitted abroad through illegal means.

Pakistanis spend billions in buying property abroad without paying any tax in Pakistan. Tax evasion gets doubly compounded as it necessitates increased tax burden on law-abiders.

The ugliest face of ill-gotten money emerges in the corridors of political and administrative power. Pakistan is passing through the worst financial crisis of its history — a crisis of resources manifested in huge budgetary deficits.

After mass devastation caused by unprecedented floods, we need extra revenues of Rs500-600bn for rehabilitating the victims. Under these circumstances, untaxed billions parked in Swiss banks should be retrieved using the helpful nature of the RIAA.

Before approaching the Swiss authorities, the Pakistani government should introduce asset-seizure legislation to confiscate all undeclared and untaxed assets. For money lying in Swiss banks, information can easily be obtained from Switzerland.

India, the US, the EU countries and many other governments in Asia and Africa have done it successfully. The swift action of seizing money and property accumulated through corruption, tax evasion and the narco-arms trade can help the state raise sufficient funds for budgetary needs ridding us of external and internal debts.