The safe parking of funds in shell companies accumulated through corrupt practices and tax evasion is a global challenge and is not the problem of a single region or country. Some years ago, this problem came into sharp focus in many countries, including Pakistan, with the exception that in our country, the focused process of accountability intensified the political polarization, shaking the very foundations of the democratic dispensation. In other countries, necessary investigations were made, and the persons involved were punished. The people of Pakistan also widely wished that, in the wider interest of the country, the process of accountability should reach a logical conclusion, as a society with such a massive scale of corruption could not last long. People’s wishes in an underdeveloped society seldom turn into realities.
We may recall, during the financial crisis of 2007-2008 that hit the USA and many other major economies of the world, the attention of the powerful countries was drawn to the negative fallout of secrecy laws, regulations and innovative methods of banks to seek and retain clients providing safe havens for their ill-gotten fortunes, which equally focused on the business of shell companies to hide treasures of tax evaders, drug dealers, mafias and corrupt politicians. The banks and financial institutions involved in parking the tax evaded and illegitimate wealth were taken to task, and laws and systems to oversee the cross-border financial flows were revamped.
To the utter surprise of the international community it was found that safe havens for the outflow of the illegitimate funds were spread all over the world including the British territories and Dependencies (London in the middle surrounded by British Virgin Islands, Bermuda, Gibraltar, the Cayman Island, Jersey) USA (Delaware, Nevada, Wyoming) some European and Asian countries including Luxemburg, the Netherlands, Dubai, Hong Kong, Singapore. There were some less wealthy countries like the Bahamas, Mauritius, and Seychelles providing safe havens.
The USA Justice Department, during the 2008 financial crisis, summoned Swiss banking regulators, particularly some executives of the Union Bank of Switzerland (UBS), who were suspected of having helped American clients evade taxes. Earlier, they had imprisoned Bradley Birkenhead, one of the senior executives of UBS, for his role in laundering tax-evaded wealth from the USA. Mr. Birkenhead had made stunning revelations to the American Investigators. He described in detail a ‘culture of deception at the UBS which circumvented many countries’ laws and the bank’s own regulations, making use of encrypted computers and offshore shell companies to channelize the illegitimate funds.’ He also shed light on the clients of the bank, who included Silicon Valley entrepreneurs, Russian oligarchs, Arab Princes, Chinese industrial magnates, and politicians from developing countries, including Pakistan.
Mr. Birkenhead further revealed that his UBS colleagues used less sophisticated methods, like toothpaste tubes, to smuggle diamonds across borders for safe parking in the bank. He described the shell companies as facilitators of tax evasion, corruption, and organized crimes, undermining the rule of law and grossly contributing to financial imbalance and inequality in many societies, helping the ruling elite ‘to loot the treasuries of their countries and stash their spoils elsewhere, generating illicit cross-border financial flow of over $1trillion every year.’ They also found that Americans accounted for less than 2% of the bank’s wealth management division, handling $1.3trillion in 2007. The American share of this huge amount just ranged within $20billion.
Based in Karachi, the author is a former member of the Foreign Service of Pakistan and has served as Ambassador for seven years.
If we analysis the report of I M F about economy of country the corruption pointed by Monetary body must be addressed and curbed in the larger interest of country.
Offshore shell companies and jurisdictions are there for a reason, even if that reason may have expired when these were established by the concerned colonial powers and successor governments. Unless an international anti-corruption regime is established globally with institutions like the OECD and FATF monitoring and auditing it, corrupt leaders and bureaucrats from poor developing nations will continue to transfer proceeds of illegally obtained wealth out of their national monetary jurisdictions. Pakistan’s experience has shown that even if everyone knows a thief who committed theft in broad daylight, he cannot be punished because either the prosecution is weak, the evidence is insufficient or the court is either partial and politicised or unconvinced and not provided proof that a theft took place.
A good article by Ambassador Brohi as usual.