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Pakistan has always been short of foreign exchange and it will remain so in the unforeseeable future. However, on account of poor governance and flawed tax regime, substantial taxed and untaxed funds in rupees remain available with Pakistanis. These rich Pakistanis have a natural desire to transfer their declared and undeclared assets outside Pakistan for business and personal purposes.

A substantial part of such funds accumulates due to corrupt practices. The issue in simple terms is that money in rupees is required to be made in dollars available outside Pakistan. It is not the question of tax as is wrongly understood; it is the question of foreign exchange regime.

In my numerous articles since 2015 and earlier, I have repeatedly stressed that Pakistan’s biggest problem is abuse of the exchange regime that has drained capital out of Pakistan. I wrote in 2017 that Pakistanis own over $ 120 billion outside Pakistan. This figure was much less than $ 200 billion claimed by Ishaq Dar. Through this article I want to inform Pakistanis that their honeymoon with regard to availability of foreign exchange is over. They are warned not to use informal means such as ‘hawala’ for this purpose. With Financial Action Task Force (FATF) and other such proceedings, the liberation on that count has ended.

From 1992 to 2018, there was no problem in sending and holding foreign exchange out of Pakistan. This was so because of the Protection of Economic Reform Act 1992 and its legitimate child the Foreign Currency Account (Protection) Ordinance 2001. In 2018, this right was restricted to persons being ‘filers’. On December 16, 2021 even for the ‘filers’ that right was limited to $ 100,000 per annum per person. Now Pakistanis cannot send foreign exchange out of Pakistan more than this amount without the explicit approval of the State Bank of Pakistan.

Rich Pakistanis and people having corruption money are very worried. They are creating problems for the government. They want either the revival of the old regime or create so much chaos that distinction between good and bad money, etc., and identification of sources are camouflaged. In this process, many people in the media are purportedly creating confusion and chaos. In my view, there is no confusion and Pakistan as a policy, whether wrong or right, has decided that transfer of funds outside Pakistan will be regulated.

In this respect, there is always a counter argument that all such regulatory measures are useless as funds can be sent outside Pakistan using the informal system of ‘hawala’. Through the present article, I am advising Pakistanis not to use ‘hawala’ for such purposes as we are living in a different world after the FATF and other such measures by western economies. The reasons are explained in the following paragraphs:

In the case of ‘hawala’ the value is transferred out of the country without any movement of funds. A person in Dubai credits my account whereas I credit his nominee’s account in Lahore. This is simple ‘hawala’. Pakistan will always be prone to this menace as there are remittances of $ 30 billion which are sent to Pakistan. A fraction of 10% of the said amount is enough to deal with the ‘hawala’ requirements.

A simple question is that when ‘hawala’ is so easily available then how any regulation in foreign exchange will operate. The answer is very simple: ‘Hawala’ is only the availability, if possible, of funds outside Pakistan but it does not provide any identification of the sources from where such funds have been received. Now the banks even in Dubai and other places who had liberal regimes are not allowing credits in the bank accounts without such identification. The situation in Canada, the UK and the US is even more strict.

Those who consider that accumulation of assets or remittance of fees of their children outside Pakistan by ‘hawala’ is kosher are playing with fire. Time is very near when all such assets and expenditures will be exposed with severe consequences. In 2016 and 2017 when I used to say that under Common Reporting Standards (CRS) assets placed outside Pakistan will be located people used to take it lightly. Now I know many persons are facing grave consequences for undisclosed and undeclared assets outside Pakistan reported by CRS. Same is my advice for ‘hawala’ transactions.

It is my earnest submission to my countrymen to avoid such transactions as time is not far when all such transactions will be exposed with severe consequences. Such actions will not be initiated by our officials but by foreign authorities where such assets are presumably being parked for a safe future.

I would also advise the State Bank of Pakistan to ease the transfer of taxed money out of Pakistan. The condition of being a ‘filer’ is being abused as we are aware that there is no authentication to the fact whether or not a ‘filer’ has such funds in his or her declared wealth statement. It is therefore suggested that a statement be obtained by the bank remitting the funds that the sum forms part of the taxable income and the wealth statement.

To conclude, I state that people should refrain from using ‘hawala’ for transferring their assets out of Pakistan and in this manner they will never be able to identify the source of their assets outside Pakistan, which are prone to confiscation if foreign authorities, as expected, enforce their laws. It is better to be examined by your regulator rather than an alien regulator who may be ruthless as proven by history.

Copyright Business Recorder, 2022

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