Terror financing, money laundering and reforms

Prime Minister Imran Khan’s warning that he may abolish the Federal Board of Revenue (FBR) is timely but not necessarily the answer to the dismal tax collection and massive evasion. Even otherwise, abolition or suspension is no panacea for structural issues rooted in obsolete tax collection and other governance regimes. Even if FBR were to be replaced with a new organization, it would not guarantee success unless the laws governing the financial system are changed – a shift from extractive to a prospective regime based on trust and free of witch hunts by the taxmen. One must not forget that the entire FBR machinery – comprising at least 20,000-strong workforce of the Inland Revenue Service and Customs Service – blatantly colludes with private businesses such as import/export houses, private hospitals/clinics, wedding halls and industry to deprive the national exchequer of revenues and fatten their own accounts. They cheat their own institutions by acting as consultants to exploit the existing lacunas. Over- and under-invoicing is their invention, not of the businessmen. What will happen to these 20,000 employees if the FBR is disbanded? Fired? Wouldn’t it mean adding to a huge army of the unemployed? Or either reemploying or adjusting them somewhere else within the government? Wouldn’t it amount to only relocating the vultures to again flesh off the system from inside regardless where you place them. This is no answer to deep-seated problems. Pakistan, like many other economies, needs smart, IT-based solutions for encouraging voluntary tax payments, minimizing FBR-client contact, and thus increasing its revenues. We need softwares – and they are available world over – that can a) index all businesses to the national ID cards/passports, b) connect all private businesses to the FBR database, c) mandate all unusual/big business transactions through banks, d) integrate them with the FBR and the State Bank of Pakistan. The Financial Monitoring Unit (FMU) – supposed to be the fulcrum in tracking suspicious or unusual, unexplained big transactions – must be granted autonomy under professional technocrats. Under the current circumstances, this entity is largely useful. And the staggering transactions via fake accounts unearthed in recent months testify the incompetence or silence, if not collusion, of the FMU over issues involving mighty and the influential political and business personalities. Placing career baboos – who are mostly more concerned about pleasing their superiors and personal privileges – on top of such institutions is a self-defeating exercise. People who are hostage to certain, though outdated, work ethics, who are averse to at least correcting drafts on their own computers, people many of whom even don’t operate their own emails, are alien to the concepts of progressive and open governance. Very few officials take to writing themselves, though they love to decorate their tables with latest gadgetry including fancy laptops. As many as 40 reservations/recommendations (segregated in 11 outcomes performance benchmarks) expressed by the Financial Action Task Force (FATF) also provide the worrying context to the incompetence and ineffectiveness of the institutions such as FMU. The nine-member team of FATF’s Asia-Pacific Group (APG) visited Pakistan in October and left behind 40 recommendations to be included in an ‘Exit Report’ to curb terror financing and money laundering in Pakistan, which could help in de-listing Islamabad from its grey list in September 2019. Let’s not forget: FATF demands have been looming over Pakistan since 2012. What are all the big-wigs in the ministry of finance, FBR, the State Bank and FMU doing to address the concerns? What did it do to prevent dollar smuggling via major airports or via VVIP routes? Former SBP governor Ashraf Wathra had pointed this out but then went into silent mode once Ishaq Dar, the then finance minister, publicly snubbed him. A few names must be held accountable for negligence. They not only include a couple of former and serving finance secretaries but also the incumbent governor of the State Bank, who had headed the FBR and the Punjab finances before moving to Islamabad. The FMU heads too bear the responsibility for failures in detecting the massive money laundering that has been going on for years. Sincere, proactive and task-oriented work would probably have saved Pakistan the embarrassment of being put back on the FATF grey list in June. Secondly, the joint investigation team (JIT) currently pouring over scores of documents with regard to the money laundering via fake/benami accounts is likely to come up with dozens of recommendations on how to plug the leakages in the system. The JIT findings thus far amply demonstrate at least a dozen serious deficiencies in the country’s anti-money laundering and counter-terror financing laws and mechanisms. Thirdly, reforms will not come by under DMG officers – most of whom are hostage to an obstructive governance regime. They may be good for regulation watch and institutional memory but are usually unfit and disinclined to embrace new proactive and progressive ideas. The system needs management and financial professionals from the private sector to spearhead reforms through concepts such as mystery shopping, research-based strategies to identify flaws and propose remedies. Most of the current DMG officers who are past the mid-career or those close to superannuation will not deliver. Published in Daily Times, November 14th 2018.