• Home
• Video
• Books by Ikram Sehgal
• About

Recovery of Illegal Wealth

Making money illegally has become institutionalised. To break that cycle, a concerted effort must be made to recover illegal wealth so that the acquisition of wealth illegally attracts exemplary punishment. Wealth that is not declared is illegal, or whether it be held in one’s own name, relatives, proxies, nominees, dummies, etc or in the name of individuals/groups, business entities, etc. For any wealth declared there has to be a source of income, an income on which commensurate tax must have been paid. For wealth traced out that is not declared, there can be only one rule of law, confiscation by the State without recourse to any caveat. Illegal wealth is usually kept either in a real estate within the country, though abroad it is mostly in numbered accounts or under the cover of offshore companies in UK and elsewhere. After years of fruitlessly chasing after people in the traditional way of searching for assets of the rich who had the money to finance the use of smart tax lawyers and accountants to keep money in safe tax havens, the US Internal Revenue Service (IRS) has now switched over to collecting information about the lifestyle of individuals and calculating tax thereof. This change in modus operandi has made it increasingly difficult for people to enjoy their wealth without coming under the censure of the tax-man. Theoretically this could be possible in Pakistan but our Income Tax Department which has checking of tax evasion as their primary reason for existence has more individuals within the department with illegal wealth than any other commensurate group of individuals, except maybe in comparison officials of Customs and Excise and/or Immigration. Without fear of discovery retribution thereof, the show of wealth is so blatant that one tax man displays at least four “Chughtai” miniatures prominently in his house, each painting worth over Rs.2-3 lacs. Obviously we cannot expect our tax-men to blow the police whistle on themselves or on whom they consider their own (for a price, of course).

There have to be priorities in the chasing of illegal wealth. Illegal wealth must first be classified into (1) mega-wealth i.e. those who have acquired wealth far in excess of their declared income, above US$ 12.5 million (Pak Rs.500 million approximately), (2) super-wealth, between US$ 5-12.5 million (Pak Rs 200 million to Rs.500 million) and maxi-wealth, upto Rs.200 million i.e. US$ 5 million. A few are in the super-mega class  i.e. US$ 1 billion and beyond. Illegal wealth within Pakistan will rarely be in bank accounts or either in one’s own name. It will invariably be held in real-estate, stocks and shares, in industries, etc. A far greater amount is invariably held abroad through various sleight-of-the-hand structuring, however Pakistanis (and Indians and Bangladeshis) tend to keep a substantial amount in banks and other financial institutions in numbered accounts. Many corrupt bureaucrats lost their ill-gotten life-savings when BCCI crashed. Different teams must go after priorities set, within Pakistan and abroad. In Pakistan, the FIA made an excellent headway in tracing out the wealth looted by the cooperatives, finance and investment Companies in the 80s but the poor depositors did not get even a fraction, most went into the pockets of corrupt FIA officials. The lifestyle of our Income Tax, Customs, Excise and Immigration staff can be assessed from the real estate records in the posh areas in Karachi of KDA Schemes 1 and 5, PECHS, Defence, Bath Island, etc. One will find an inordinate amount of property in the names of females and children. How can they justify the type of income that can afford such valued real-estate ?

Laws have to be framed to include freezing and confiscation of all assets if wealth is found to be declared incorrectly. Government agencies can only carry out their duties in a sincere and honest manner intermittently. Performance depends upon the individuals and their motivated and/or vested interest. We must employ chartered accountants to trace the linkage between defaulting loans and acquired wealth. Most of those having illegal wealth have some “connection” due to relationship, friendship, patronage, etc. which has to be overcome with some influential person or agency, whoever gives them protection. It is necessary to get private sector enterprise to do the needful, when the incentive is lucrative enough one will be surprised as to what wonders can be achieved. Private sector enterprise seldom forsakes profits for “connections”, not that it cannot happen but it is that much less likely. A private sector company engaged in carrying out due diligence and credibility reports for and of corporate entities as well as investigating insurance fraud was given a particular individual’s wealth tax returns to verify as a test exercise recently. The test target was an industrialist, a major force also in the financial sector. He was the beneficiary of consistently obtaining tax refunds based on tax deduction at source, with the result he was hardly paying any taxes, in fact the public exchequer was paying him! He had listed nine properties in real estate all over the country but even a cursory check on his real-estate holdings showed that in Karachi only he had twelve or more properties listed in his name and/or the names of his wife and sons (who at that time had no such means of income). Armed with the fact that he was cheating in his real-estate declarations, towns and cities country-wide were researched for information. Real-estate showed up in many towns, including huge 200-500 acre farms in Sheikhupura, Jahanian, etc. When the list of properties went over 40, the exercise was terminated because the point had been made. If a dedicated team of professionals is given a good enough incentive (maybe 10-15% of what they trace and government manage to recover) as full payment for services rendered, they can perform far beyond the capabilities of the public sector. The government agencies neither have the means, the know-how or the motivation and if they did they would be more inclined to go into “business” on their own. Government having decided to allow detective agencies to function in the private sector, test cases of individual bureaucrats who are clearly living beyond their projected livelihood as persons of limited income may be taken up as test cases.

For tracing out and recovery of illegal wealth abroad, local private security companies can be hired by the government and given the task of employing counterparts in foreign countries instead of governments getting involved in the act themselves. There are two phases to this exercise, one is the tracing out of wealth and the other is of recovering it. For tracing out wealth abroad, sufficient funds will have to be earmarked by the government to employ credible investigators. This is only a calculated risk, information being much more easily available abroad than in Pakistan where a data-base is almost non-existent. The government should make out a list of 50 to 100 of the most known corrupt, whether in the public or private sector, and earmark funds for an all-out “asset search” as it is called in foreign investigation circles. Private foreign investigation companies usually charge very reasonable fees but then tend to spend a colossal amount under the head of “expenses”. They have to be monitored by professionals. Such expenditures may be “capped” by giving whoever is selected a “flat” price contract with adequate mobilisation expenses. For recovery of the traced out wealth an incentive scheme can be worked out which gives a percentage of the actual wealth recovered as service charges if recovery is actually made as full payment for services rendered. This would cover the expense for private security investigators, lawyers, chartered accountants, etc in actual recovery.

A “Commission for Recovery of Illegal Wealth” must be set up on the lines of the “Presidential Commission on Good Government” (PCGG) made by the Philippines President Corazon Aquino as her first act (Executive Order No.1 dated Feb 28, 1986) as President, an act that showed her sincerity and consistently with her commitment for meaningful accountability. A full-time Chairman of the Commission, a number of Commissioners were appointed, and the PCGG tasked with the recovery of illegal wealth (1) within the Philippines and (2) abroad. The primary focus of their campaign were clearly defined by name while adequate funds were placed at the Commissioners disposal. Other than immunity under the law, the Commissioners had the power to force anyone to testify on threat of getting them incarcerated under contempt of court laws. They had the power to apply the same contempt laws to seek relevant information from any government agency which would have such information. They had the legal cover and the authority to seek the help of foreign governments to help recover assets illegally held abroad. They had the power to freeze all assets of the targeted people and confiscate such assets if found of all individuals suspected of abetting or associated with those living beyond their means of income. The Order had to be amended a number of times to be perfected because Corazon Aquino was venturing into uncharted territory. The world environment today encourages governments to try and recover wealth looted by their citizens, whether in the public or private sector. Despite the travails of going into the unknown, the Filipinos have recovered several billions of US dollars and this re-injection of liquidity into the economy has had tremendous effect. With the Filipino precedent as a strong beacon, why cannot we venture to recover our illegal wealth without further delay, both within and outside the country? After all, most of the people rumoured to have made millions and billions have declared their income and submitted their wealth tax returns showing their total worth as being relatively very little. A law must be made that makes it obligatory for all Pakistanis to sign over all wealth in excess of their declared wealth to the Government of Pakistan. No one (inclusive of foreign governments) will be able to object when it is proven that wealth that was accumulated was not from any known source of income. The PM recently spoke about his firm commitment to recover the looted wealth, we must take him at his word and wait for the necessary laws to be framed and given due constitutional cover, sooner rather than later !

Did you enjoy this post? Why not leave a comment below and continue the conversation, or subscribe to my feed and get articles like this delivered automatically to your feed reader.