Betraying people & democracy -By : HUZAIMA BUKHARI AND DR IKRAMUL HAQ

Today prominent members of the cabinet as well as Punjab cabinet ministers are not only using the state's resources (our tax money) and time on defending the Prime Minister and his three children in legal matters that are entirely of a personal nature rather than on improving the appalling governance in their respective ministries. During the PPP tenure cabinet members also spent evenings defending their leaders' past and ongoing financial misdemeanours-Ugly preponderance of politics, Business Recorder, November 21, 2016.

Regardless of the poor economic growth, rising inequalities, internal and external security threats and energy crises, extraordinary funds are made available to our rulers to ensure a life of luxury and comfort for them. The rulers even after getting all facilities, blatantly and brazenly abuse public funds, and through cronies shamelessly counter any move for accountability. Due to loot and plunder, the country is ensnared in a deadly debt trap. According to National Data Summary, released by the State Bank of Pakistan, ooverall debt and liabilities have reached an all-time high of Rs 22 trillion, Rs 8 trillion added by the present government alone since 2013. Reckless borrowing, lavish spending, untruthfulness and untrustworthiness are attributes of our rulers. Adding insult to injury, the government accuses the over-taxed Pakistanis of tax evasion in media campaigns by using taxpayers' money!

On October 18, 2015, an English daily published a report, wherein it was revealed that President Mamnoon Hussain "paid Rs 6 million from taxpayers' money as tips during his foreign tours while Prime Minister Nawaz Sharif gave away Rs 3.7 million of government money as Eidee to the lower staff of the PM's office." In addition to the misuse of Rs 6 million as tips, the Presidency also made "irregular payment" of Rs 5 million from the Contingent Grant for the establishment of Community Center at the Presidential Estate Colony, according to the audit report by Auditor General of Pakistan.

The objections by Auditor General raised a very pertinent and important question: It was not personal money but public funds that was abused. The questions that remains unanswered is that why didn't our rich Prime Minister pay ex-gratia from his own pocket and why did the President of Pakistan thought it fit to spend public money the way he liked rather than the specific purpose for which it was allocated? The President and Prime Minister had no right to pose as philanthropists by misusing taxpayers' money. Nobody raised the issue as to whether they could still hold public office after such a blatant breach of trust (misusing public money)?

As expected, none moved on the basis of the Auditor General's report for impeachment of the President under Article 47 of the Constitution or removal of Prime Minister under Article 63(2) read with Article 62(f) for openly misusing taxpayers' money. Even the Opposition did not bother to move a resolution in the Senate or National Assembly against President or Prime Minister in the light of report of Auditor General of Pakistan.

Tragically, public officeholders openly defy law and indulge in corrupt practices, but the relevant laws of the land do not come into operation against them as pointed out by the Supreme Court of Pakistan in a number of cases [see latest order in Suo Muto Case 17 of 2016]. This is a highly lamentable situation for any country!

In his rejoinder filed in the Supreme Court in Constitutional Petition No 29 of 2016 [Imran Khan vs Mian Nawaz Sharif & others], the incumbent Prime Minister has claimed that he has no business connection whatsoever with his sons. Interestingly, in his tax declarations, Nawaz Sharif showed huge amounts received as "gifts" from son. How can a beneficiary of "gifts" claim he has no connection with the money! Hussain admittedly gifted $1,914,054 to Nawaz Sharif in tax year 2011. It is also admitted in a rejoinder that Hussain is not a national tax number holder of Pakistan. This gift was taxable in the hands of Nawaz Sharif as per section 39(3) of the Income Tax Ordinance, 2001, which reads as under:

"Subject to sub-section (4), any amount received as a loan, advance, deposit for issuance of shares or gift by a person in a tax year from another person (not being a banking company or financial institution) otherwise than by a crossed cheque drawn on a bank or through a banking channel from a person holding a National Tax Number shall be treated as income chargeable to tax under the head "Income from Other Sources" for the tax year in which it was received".

The plain reading of above provision shows that any amount received as "gift" should be treated as income if received other than through a crossed cheque or through a banking channel from a person holding a National Tax Number. It is admitted in rejoinder by Hussain Nawaz that he was not NTN holder in Pakistan. Nawaz Sharif thus avoided tax of over Rs 32 million on this amount that is still payable with default surcharge of 12%. The same is the position for tax year 2012, 2014 and 2015 where tax is overdue on such gifts of Rs 266 million, Rs 239 million and Rs 215 million, respectively, received by remittance from a person not holding a National Tax Number.

Wealth statements of Nawaz Sharif and Maryam Safdar show frequent exchange of gifts. In tax year 2010, Maryam Safdar had no agricultural land. She became owner of two agricultural properties in tax year 2011 and 2012 through gifts received from father. Her agricultural income is actually income of Nawaz Sharif under section 109 of the Income Tax Ordinance, 2001 as he purchased agricultural lands for dependent daughter in 2011 that she allegedly purchased back in 2012 from gift by father (in substance a sham transaction). She admittedly had no sources of her own for buying these properties. This fact she herself admitted in a TV telecast that "neither me nor my mother or siblings have any assets in Pakistan what to talk of abroad. I live with my father".

Hussain Nawaz has claimed in a concise statement that he is owner of Mayfair flats since 2006 through direct transfer from royal family of Qatar, and that sister is only a trustee. Interestingly, this fact was not in the knowledge of Maryam Safdar in 2011 when she joined a TV telecast at her own to refute the charges of ownership of any property in London in the name of any family member! Every trust in the UK is required to be registered with Her Majesty Revenue & Customs (HMRC) by filing application on a prescribed form. HMRC issues a Unique Tax Reference (UTR) number and every year, the trustee is required to file income tax return of trust. Did Maryam ever file any return in the UK as trustee? If so the evidence to this effect should be produced.

The fact is that following queries from the Financial Investigation Agency (FIA), British Virgin Islands (BVI) vide letter of June 12, 2012, Mossack Fonseca & Co (BVI) Ltd invoked the Anti-Money Laundering and Terrorist Financing Code of Practice, 2008 to grill Minerva for information about Nescoll and Nielson. Through separate letters dated June 22, 2012 for both the companies, after inquiry from Minerva Trust & Corporate Services Ltd, Mossack Fonseca revealed that both companies owned UK properties and that "beneficial owner is Mariam Safdar whose address is Saroor Palace, Bazoue al eman st, Ruwais, Jeddah, Kingdom of Saudi Arabia".

The claim by Hussain Nawaz that reporting office misunderstood the beneficial ownership that vested with him and that his sister (Maryam Safdar) was just a trustee needs to be substantiated by an independent record. The production of mere private agreement of trust (that is in the nature of Will rather than trust) is not sufficed. It needs to be highlighted that the reporting officer of Mossack Fonseca in his letters in respect of Nescoll and Nielson verified facts from original record and sent copy of 'Register of Directors'. In both the companies, the letters say: "The directors are Minerva Officer Limited and Corporate Officer Limited whose address is P.O. Box 218, 43/45 La Motte Street St. Helier JE4 8SD Jersey. A copy of Register of Directors is attached for ease of reference".

The letters by J. Nizbeth Madura, Reporting Officer of Mossack Fonseca & Co (BVI) Ltd, confirm that in each company "two shares have been issued" and "copy of Register of Shareholders is attached for ease of reference". The fact of "two shareholders", conveyed to FIA (BVI), contradicts claim of Hussain Nawaz that he was single beneficial owner. In this case, there should have been mention of one shareholder alone. The fact of obtaining loan by the companies from Deutsche Bank Geneva is also mentioned where Maryam Safdar purportedly signed documents as beneficial owner and not as a trustee. It is specifically mentioned by Mossack Fonseca in its letters that "we are not in receipt of the name(s), contact details and physical address of the Settler, Trustee and Beneficiary of any Trust(s) connected to or concerned" with these companies. This disclosure clearly contradicts the claim of trust by Hussain Nawaz.

The important question is why the fact of trust, if it existed, was concealed from BVI authorities. Interestingly, these properties, as beneficial owner or trustee, did not find any mention in declarations of Mariam Safdar in her tax returns and declarations before Election Commission by her spouse. It gives rise to the suspicion that trust deed between two individuals, Hussain and Maryam, without registration with Registrar of Land and HRMC, ever existed.

The question that baffles everybody's mind is: Why did the family opt to use tax havens to buy properties directly or through Qatar royal family when investment was from legitimate sale proceeds of steel mills in Dubai and/or Jeddah? Both companies, Nescoll and Nielson, registered in BVI way back in 1993 and 1994 respectively, have ordinary and bearer certificates, to conceal real owners and investment. The significance of "beneficial owner" and "bearer certificates" in offshore companies needs to be explained. According to BVI offshore law, "a shareholder is a person (individual or corporate), in whose name shares in a particular offshore company are registered". So, it is basically what the name suggests, the "holder" of shares. However, in some situations the shareholder may hold shares for the benefit and on behalf of another person (such shareholder would be called "nominee shareholder"). In such instance, the other person, who would accordingly be the real owner of the shares, is the beneficial owner. The beneficial owner is the person who is the real, de-facto owner of the shares, "entitled to all gains, profits and benefits accruing to such shares".

It may also be noted that even if you choose to configure your BVI company with bearer shares, the law requires that all bearer shares are "immobilised", meaning that the Share Certificates must remain with a Licensed Custodian, together with a written indication as to the actual identity and address of the owner of such shares. Therefore, you actually lose the main advantage of bearer shares, namely the ability to quickly and anonymously transfer the ownership of the shares. Most banks in the world would refuse opening account for an offshore company with bearer-shares what to speak of giving loans. In the case of Nescoll and Nielson, the offspring of Prime Minister secured a loan of 7 million from Deutsche Bank against four flats in Park Lane ['Pakistani PM's children raised 7m against UK flats owned offshore', The Guardian, April 5, 2016]. This fact confirms that the story of transfer of property by Royal Qatar family in 2006 through bearer certificate has no legs to stand.

In view of International Business Companies (Amendment) Act, 2003, which was passed by the British Virgin Islands' Legislative Council on April 17th, 2003, several changes were made in regard to bearer shares and Director requirements for International Business Companies (IBCs). After this law made effective in 2003, the claim of transfer of Mayfair flats through delivery of bearer certificates by royal family of Qatar in 2006 is highly questionable.

In the case of bearer certificates, the owner of such shares was to provide the Custodian:

-- The full name of the beneficial owner of the shares.

-- The full name of any other person having an interest in that share or a statement to the effect that no other person has an interest in the share.

-- Any other information as may be prescribed by the BVI government.

Bearer shares not deposited with an approved custodian under the BVI law were deemed "disabled" after this law. The record produced in 2012 by Mossack Fonseca to FIA, BVI, did not mention deposit of any 'bearer shares' or ownership of the same by any member of Qatar royal family ever as claimed by Hussain Nawaz. The record given by Mossack Fonseca clearly mentions that Maryam Safdar has been the beneficial owner of both the companies. Since her address was that of Saroor Palace, it means ownership was prior to 2006. It dismantles the Qatari linkage produced by Hussain Nawaz.

Democracy cannot flourish in a society that lacks leaders who possess qualities of truthfulness and trustworthiness, and are irked by accountability. Our Prime Minister is not only hiding behind offshore secrecy, but taxpayers' money, a public trust, is being utilised for his defence. This case is against him and family for allegedly amassing wealth beyond means. It does not justify use of public funds by the government for his defence. This kind of abuse of public funds attracts reference under Article 63(2) of the Constitution. Unfortunately, the abuse of public funds is not confined to Prime Minister in jalsas (public gathering) by announcing schemes without the approval of cabinet and Parliament, a number of his zealous defenders are blatantly and brazenly abusing taxpayers' money using official resources for his personal defence to prove them more loyal than the king.

Majority of our elected members are declaring meagre incomes as compared to their living standard. It is high time that they should start a process of accountability within the Parliament. On moral grounds, many members of PTI, presently fighting cases against the alleged corrupt practices of the rulers, need introspection. They have been getting salaries and perquisites even after tendering resignations and some received full amounts as arrears on return. It is alleged in a report, Imran plays truant in lower house, The Express Tribune, November 21, 2016, that Imran Khan, petitioner in the case against Nawaz Sharif in Supreme Court, "continues to draw salaries and other privileges an MNA paid out of the national kitty" though he attended less than 6% of total sittings. Nawaz Sharif, though not getting any cash emoluments but enjoys unprecedented benefits of the post, hardly comes in the National Assembly and/or Senate.

Democracy is no doubt a system of choice of modern day to represent the will of people, but devious and disingenuous leaders like ours are instrumental in discrediting it. National Assembly every year approves funds of billions of rupees for luxuries of members, maintenance of palatial houses of President, Prime Minister, Governors, Ministers, expensive cars, army of servants and foreign trips, but not enough for the welfare of people. This extravaganza and unscrupulous use of taxpayers' money is a criminal act as ordinary Pakistanis pay billions as taxes and get little in return, while rulers pay meager amounts and enjoy unprecedented luxuries. This aspect of corruption and accountability is still not being debated in public domain.

(The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at the Lahore University of Management Sciences (LUMS). The opinions expressed within this article are the personal opinions of the authors. The facts and opinions appearing in this article do not necessarily reflect those of the newspaper and Business Recorder does not assume any responsibility or liability for the same)

Posted on Dec 07, 16 | 11:20 pm