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Banks under stringent regulatory framework

With the growing menace of drug trafficking, money laundering and financing of terrorist outfit, all around the world governments want to keep a complete trail of money being transferred to and received from different countries. The rules have been made more stringent after 9/11 and imposition of economic sanctions on certain countries. Pakistan faces doubled-edged sword because of being the ‘Frontline partner in the war against terror’ if often accused of being a safe haven for the terrorists and remittances being a major source of foreign exchange. However, it has been often felt that a lot of money is coming into the country through ‘Hundi’ system, which on one hand proliferate undocumented economy and on the other hand raises concerns that ‘anti Pakistan’ elements are providing funds to the ‘breeders of terrorists’ who have been assigned the mandate to spread anarchy in the country.

Since Pakistan suffers from acute shortage of foreign exchange due to exports being highly insufficient to finance imports, all the successive governments have been encouraging influx of foreign exchange by not asking any question about the source of funds being received. Though, experts have often highlighted the need to check the details of individuals and charitable organizations receiving US dollars in hundreds and thousands, especially to ensure that these are not involved in any anti state and terrorist activities. The US administration often identifies those outfits and instructs governments, including Government of Pakistan to freeze accounts of such entities but the business continues ‘as usual’. In Pakistan, some of the quarters often raise fingers towards those outfits involved in anti-Pakistan activities, having their main offices in many of the developed countries. Recently, these concerns got some credence when posters of ‘Free Balochistan’ appeared in Switzerland.

Many geopolitical analysts say that the US creates and supports rebel groups in various countries in the name of ‘change of regime’. Two of the most blatant examples are Iraq and Syria, where rebel groups are fully supported, supplied funds and arms to topple the governments. Yet another example is the recent referendum demanding creation of an independent Kurdistan. The Kurd rebels got control over some oil fields in Iraq and started accumulating dollars by exporting stolen Iraqi oil. The support of Turkey for Kurds often becomes questionable because facilitating Kurds to export Iraqi stolen oil tantamount to supporting of rebels. After the outcome of referendum, Turkey threatened to stop loading of oil of Kurd rebel, but has not stopped it as yet. This supports the impression that Turkey is supporting those who are adamant at splitting Iraq.

The Government of Pakistan (GoP), through State Bank of Pakistan (SBP) has been implementing rules to control the menace of money laundering. However, it is often felt that elites, business tycoons and religious leaders succeed in defeating the laws. It is known to all that political leaders have millions of rupees deposited in Switzerland. Two basic questions arise, how these people have succeeded in transferring the looted money to Switzerland and why the Swiss government does not stop influx of this looted money in the country.

According to an analyst the performance of two of the government offices becomes highly questionable; these are Federal Board of Revenue (FBR) and Federal Investigation Agency (FIA). FBR is responsible for ensuring that people make proper disclosure of their income and also pay tax as per rules. However, it seems either the FBR staff is incompetent or just keep the eyes closed, if the palms are greased. This statement gets credence if one looks at the number of tax evaders in the country. The experts say that NADRA has very elaborate database and it is also willing to share it with tax collection regime, but FBR seems least interested in utilizing NADRA data. However, the inefficient tax collection regime never misses any opportunity to say that it does not have the resources to catch the tax evaders. The same also goes true about FIA, which lacks initiative and even if it is assigned the responsibility to investigate any case of corruption or embezzlement in any financial institution the Agency takes months and years. Names of two of the six ‘Big Banks’ hit headlines of newspapers for the alleged corruption. The decisions by the concerned authorities are likely to wipeout a significant percentage of their shareholders’ equity. Such incidences not only bring bad name to the country but also shatter the confidence of small shareholders and depositors. According to an analyst, “Our investigation agencies lack competence to investigate white collar crimes. They just want the accused to sign a confession by applying third degree torture. The result is that when the case is brought for hearing in the court of law, often the accused say that they were forced to sign the confession”.

After undertaking a thorough overview of the situation, one may conclude that the local laws are sufficient to identify financial crimes, cases of money laundering and embezzlements and punish the criminals. Since Pakistan is a member of the international community, its financial institutions also have to follow international accounting standards, make appropriate disclosures and abide by the laws of the countries in which they are operating.

According to an analyst, “the SBP may be doing an excellent job in ensuring that commercial banks follow its Prudential Regulations, make proper disclosures and even imposes penalties. However, often the central bank it is found incapable of implementing its own ‘Fit and Proper Criteria’ for the appointment of presidents of the banks and even senior officials. At times it appears that the autonomy of central bank is jeopardized and it is made subservient to Ministry of Finance. The outcomes become all the more pinching because the central bank is asked to inject additional liquidity to save the faltering banks from going delinquent. This tantamount to weakening the institutions, as it may benefit a few cronies but tarnishes Pakistan’s image internationally.

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