Money laundering: collusion of political elites & bankers

Pakistan is currently conducting its largest ever crime investigation, the largest money-laundering and fake accounts enquiry of its history if not of the region. This investigation is a telling comment on the discretion that the nexus of influential politicians and bankers used in the most unscrupulous way to skim off public funds and launder kickbacks. This As new fake accounts with billions worth of transactions keep emerging every now and then, some 39 accounts (originally 29) involving a whopping Rs.50 billion (at least) remain under sharp scrutiny of investigators – all drawn several state institutions – Federal Board of Revenue (FBR), Securities Exchange Commission of Pakistan (SECP), Federal Investigation Agency (FIA), State Bank of Pakistan (SBP), Financial Monitoring Unit (FMU) inter alia. Every day they delve into trails of accounts, their owners, and end up in hours of communication with concerned bank officials to identify or ascertain the nature of crime i.e the sources of unusual cash transactions (CTR) and suspicious transactions (STR) from a couple of banks worth billions. At the center are Summit Bank, the Sindh Bank and a couple of other private banks. It is a herculean attempt to reach criminals with the help of the crime committed via fake accounts. It is like unmasking the vultures who have been chipping away precious public money through deceit. As officials began tracking the 29 accounts – most of which are located in one bank alone – they stumbled upon another two dozen accounts – either fake or dubious that had been used for transactions of massive funds – often tens of millions released in cash off just a phone call. The number of accounts belonging to companies or individuals associated with the Omni Group alone has already crossed the 100 mark. The number of individuals being interrogated has crossed 800. Officials – through forensic exercises – have already determined the fakeness of all these accounts i.e. accounts opened either in the name of poor people, or people who don’t exist in the world any more. Revelations thus far have been staggeringly shocking; auditors, set to complete the task by December under the Supreme Court instructions, have sofar detected number of serious flaws in the regulatory and compliance framework – which the vested interest thoroughly abused. Many questions arise out of these revelations a) what has the legally autonomous FMU, located in the SBP, been doing all these years? b) Was it in the know of things? If independent, why does the Finance Minister handpick the DG of the FMU? c) Did the private banks in question, legally bound to report to FMU any transaction of more than two million rupees, comply with the SBP regulation? d) Even if not reported, such transactions appear on the FMU radar any way. e) Of what good is the FMU if failed in detecting and reporting these unusual transactions to the SBP? f) Will managers of respective banks be charged with non-compliance, and asked why did they not report massive cash withdrawals to FMU, while they tease the majority of clients to death for compliance with regulations? g) Why did the FMU keep mum on not initiate action against these the banks that allowed staggering cash withdrawals without the due process? h) Now that it has been established that accounts were opened in the absence of their holders, why has the SBP not initiated its own inquiry and punished those banks where “Bay Naam” accounts were being operated? i) Why the head of an extremely important entity like FMU is appointed by the finance minister? All these questions lead to one big answer; cold collusion between the politically mighty persons and banker friends. No surprise therefore that during the Ishaq Dar era whenever the SBP board of governors would discuss critical reform matters or take crucial confidential decisions, they would be subverted through leaks to media, obstructing implementation in many cases. The board of governors has in fact been compromised ever since the federal secretary finance has been made a member of it, with the result that the secretary keeps intervening in the Bank’s finance management system, often citing political considerations as the reason for his objections. The SBP therefore is virtually a hostage to the finance minister, something that the World Bank and the IMF have also been wary of. SBP insiders say that if allowed to act independently and with merit, the State Bank would have dealt with many of Financial Action Task Force (FATF) demands more effectively. The irony, however, is that well-connected influential bureaucrats and cronies of politicians keep trumping competent professionals and experts. The central bank is not immune from this culture of cronyism either. Quite mind-boggling that even the current FMU chief, notorious as “incompetent” among his colleagues, is the choice of the finance minister Asad Omar, who disregarded many in-house experts on money-laundering and preferred this official with wobbly experience in human-resource only. SBP officials insist that the bank’s troubles began when Dr. Ishrat Hussein was appointed the governor, who would always consult the finance ministry before taking monetary policy related decisions. The induction of the secretary finance to the Board of Governors made the governmental interventions even worse, they say. Former governor Ashraf Wathra was a case; once he told reporters that ” foreign currency was leaving the country from all international airports .. there is need to tighten control on these installations – including checking of all VIPs” finance minister Ishaq Dar snubbed him so harshly that the governor never dared again to speak in Dar’s presence. All those who lorded over the ministry of finance and the State Bank in the last decade, bear the blame for this rot. The government needs to fix the responsibility of this and initiate strict merit-based and transparent mechanisms to defeat the collusion among powerful elites and the bankers. This will also take care of some of the FATF demands. Published in Daily Times, November  9th 2018.