Money with no name
THE tax authorities have lately apprehended close to Rs25bn that have been transferred between various locations within the country by parties that otherwise have no known sources of income.
A pattern has emerged through these actions, in which vast sums of money can be seen moving between Karachi, Quetta and Malakand in nine specific bank accounts.
Read: FBR unearths Rs20bn illegal bank transfer, withdrawal scam in KP
Tax officials are reluctant to discuss the case on record, but have confirmed that the transactions are an example of ‘smurfing’, a term used to describe actions that seek to disguise the beneficial ownership of money.
When the authorities moved to examine the identity of the people in whose names the accounts have been opened, they found that no record of them exists with the tax authorities. Yet vast sums could be transacted through their accounts.
The episode shows the hazards of a vast cash economy and the undocumented sector in which our financial system has to operate.
As the authorities pursue the people involved, they will likely find themselves falling deeper down a rabbit hole that could possibly even connect with funds that relate to illicit activity or terrorism. At that point, dilemmas multiply and the complexity of enforcement actions also increases.
As the source of the funds is revealed in more detail, it could bring other law-enforcement bodies apart from the tax authorities, into the picture, perhaps even triggering a terror-financing alarm. At the moment, though, the matter is purely an issue of tax enforcement.
Such actions present a deep dilemma, or powerful trade-off, for the authorities.
The more they rely on enforcement actions to track and trace such funds — that have escaped the tax net or have been derived from or are meant to advance illicit activity including terrorism — the more their actions choke the financial system.
Additionally, given the ease with which alternative channels can be found for remitting money within the country outside of the formal financial system, greater enforcement today can simply mean more money staying outside the financial system altogether.
In part, it is this dynamic that has led us to a situation where currency in circulation today has grown massively since the government began clamping down on the use of the financial system by the non-filers of tax returns.
Five years ago, the total cash in circulation in the economy was about one-third of the total amount of deposits held by the banks. Today, that ratio has risen to 43pc, a very large figure for five years only.
The complexity of the task ought to be self-evident.
The government must arrest the growth of the cash economy, while simultaneously safeguarding the financial system from bad money. And it will take more than enforcement actions to make this happen.
Plight of Rohingya
EARLIER this week, the International Court of Justice heard accusations against Myanmar for breaching the 1948 genocide convention through its military that left no stone unturned in its efforts to uproot, torture and massacre the Rohingya community in the country’s Rakhine state. The ICJ took up the matter after Gambia filed a case on behalf of a number of countries. The three-day hearing began with a 30-minute speech by Nobel Peace Prize laureate Aung San Suu Kyi in which she defended the military that had kept her under house arrest for several years. She called the case against Myanmar “incomplete and incorrect”, stating that the violence in Rakhine state had been triggered by an armed insurgency that dated back centuries. Ms Suu Kyi — who has been declared complicit by the UN in the targeted violence against the Rohingya community in 2017 that resulted in their mass exodus to Bangladesh — admitted that disproportionate force might have been used at times, and said that if the soldiers were found guilty they would be held responsible. What was striking in her speech, however, was the complete omission of the word ‘Rohingya’ when referring to the violence-hit community. The name came up only once when Ms Suu Kyi called out the Arakan Rohingya Salvation Army for attacking government forces.
It appears that Ms Suu Kyi has completed her transformation from a human rights icon to a leader complicit in crimes described by the UN as having “genocidal intent”. Meanwhile, the ICJ has also said that its prosecutors were granted permission to investigate the alleged crimes against the Rohingya. Though the investigation and verdict may take years, the process itself reflects global concern over the crimes against humanity committed by Myanmar’s armed forces. It is in such international realisation that the hopes of the beleaguered community reside. Let’s hope that due process results in justice for the hundreds of thousands of Rohingya who have suffered in the worst possible way for no fault of their own.
THE Human Development Index 2019, released by UNDP last week, should cause alarm in government circles. Pakistan has dropped to the 152nd spot, ranking below other South Asian countries. In fact, its overall development score is 13pc below the South Asian average. The report gives a disturbing view of Pakistan’s myriad development challenges, indicating that the country’s poor score was due to its high infant mortality figures, a low rate of enrolment and retention of children in schools, and high gender inequality in households, schools and health sectors. The extent of this inequality can be gauged from the UNDP’s multidimensional poverty index: out of 541m poor people in all of South Asia, 75m alone live in Pakistan. Even more astounding is the fact that out of these 75m poor people, 40m are children. In effect this means that every third child in the country is poor. Similarly, huge gaps in gender inequality stymie the country’s progress on development. According to the report, 11pc of girls in South Asia are poor and not in school. However, in Pakistan’s case the number is as high as 27pc. Moreover, around 23pc of children aged up to four experience intra-household inequality in terms of nutrition in South Asia; again, in the case of Pakistan the figure is more than 33pc.
Other development challenges are evident as well and include the high maternal mortality rate, stunting in children and low literacy rates — all well-known. However, this report sheds light on important connections between various development indicators that give a more comprehensive picture of the many weak links which have hampered development in this country for decades now. Terms such as ‘youth bulge’, ‘poverty-stricken people’ and ‘out-of-school children’ are used abundantly in the political and development discourse, but often our solutions to complicated development issues lack depth, and our understanding of the existing linkages leaves much to be desired . For example, poor learning outcomes in schoolchildren cannot be tackled without addressing rampant malnutrition in pregnant women and children below the age of five. Similarly, malnutrition is also strongly linked to disease outbreaks such as measles. The authorities in Pakistan need a perception shift vis-à-vis development issues and available or applicable solutions. One can only hope that the new report, which is useful for future policymaking, is noted by Pakistani leaders and leads to alterations in the existing remedies for the betterment of the population.