During hearings in petitions filed against Imran Khan Niazi and Jehangir Khan Tareen of Pakistan of Tehreek-e-Insaf (PTI) by Muhammad Hanif Abbasi of Pakistan Muslim League (Nawaz), a vital point came for discussion that has serious ramifications for election laws as well as disclosures for tax purposes. The counsel for Imran Khan and Jehangir Tareen argued that since their clients were not holding any share in offshore companies, therefore not obliged to declare properties/assets held by these entities. It is, however, often argued that in the case of shell companies, the corporate veil needs to be lifted and the investor made liable to declare and explain sources of all assets.
It is also argued that companies and shareholders are distinct entities does not apply to shell companies as these are established for tax avoidance and/or camouflaging wealth (ill-gotten or legitimate). Offshore companies can be for legitimate or illegitimate purposes. In most of the cases where individuals are real or beneficial owners the legitimate use is always questionable.
Both Imran Khan and Jehangir Tareen admitted holding properties/assets/funds abroad. Imran Khan never remitted money from Pakistan. Jehangir kept properties in the name of his children through an offshore company, managed by a trust. He claims that he gave them gifts from after-tax incomes-funds were sent abroad through banking channels about which complete money trail was provided. Imran Khan says that he has given full money trail whereas Nawaz Sharif and his children could not satisfy the Supreme Court about legitimacy of their investment in properties and businesses abroad.
In order to unveil the mystery of offshore companies, it is necessary to understand the significance of “beneficial owner” and “bearer certificates”. According to BVI offshore law, “a shareholder is a person (individual or corporate), in whose name shares in a particular offshore company are registered”. So, it is basically what the name suggests, the “holder” of shares. However, in some situations the shareholder may hold shares for the benefit and on behalf of another person (such shareholder would be called “nominee shareholder”). In such instance, the other person, who would accordingly be the real owner of the shares, is the beneficial owner. The ‘beneficial owner’ is the person who is the real, de-facto owner of the shares, “entitled to all gains, profits and benefits accruing to such shares”. In the case of Nawaz Sharif and offspring and for Jehangir Tareen and children these facts were not obtained by Supreme Court to reach the crux of the matter vis-à-vis correct declarations in nomination papers. Even Federal Board of Revenue (FBR) has so far been unable to pose these questions to persons whose names appeared in the Panama or the Bahamas Papers.
The Joint Investigation Team (JIT) has also failed to mention in its report [on the basis of which now references are filed by National Accountability Bureau (NAB)] that even if someone chooses to configure BVI company with bearer shares, the law requires that all bearer shares are “immobilized”, meaning that the Share Certificates must remain with a Licensed Custodian, together with a written indication as to the actual identity and address of the owner of such shares. Therefore, the person actually loses the main advantage of bearer shares, namely the ability to quickly and anonymously transfer the ownership of the shares. Most banks in the world would refuse opening account for an offshore company with bearer shares what to speak of giving loans. In the case of Nescoll and Nielson, the offspring of Prime Minister secured a loan of £7 million from Deutsche Bank against four flats in Park Lane [‘Pakistani PM’s children raised £7m against UK flats owned offshore’, The Guardian, April 5, 2016]. This fact alone confirms that the story of transfer of property by Royal Qatar family in 2006 through bearer certificate was fabricated.
In view of International Business Companies (Amendment) Act, 2003, which was passed by the British Virgin Islands’ Legislative Council on April 17th, 2003, several changes were made with regard to bearer shares and Directors for International Business Companies (IBCs). After this law was made effective in 2003, the transfer of Mayfair flats through delivery of bearer certificates by royal family of Qatar in 2006 was not possible.
In the case of Jehangir Tareen, the owner(s) of bearer certificates were to provide the Custodian the full name of the beneficial owner of the shares and full name of any other person having an interest in that share or a statement to the effect that no other person has an interest in the share. The Supreme Court asked Imran Khan and Jehangir Tareen to file the complete record of offshore companies/trusts but they purportedly failed to provide these vital documents to unveil the mystery shrouded around offshore companies. Needless to say in such circumstances, the ratio laid down in the case of Rai Hassan Nawaz v Haji Muhammad Ayub & others [2017 PLD 70 SC] squarely applies that “where assets, liabilities, earnings and income of an elected or contesting candidate are camouflaged or concealed by resort to different legal devices including benami, trustee, nominee, etc. arrangements for constituting holders of title, it would be appropriate for a learned Election Tribunal to probe whether the beneficial interest in such assets or income resides in the elected or contesting candidate in order to ascertain if his false or incorrect statement of declaration under Section 12(2) of the ROPA is intentional or otherwise.”
Our onshore leaders have offshore properties and to avoid disclosures under election and tax laws they pay heavy fees to costly advisers for “additional secrecy” which puts more distance between the offshore company and the ultimate owner. For example, a company owning a London mansion could be registered in the British Virgin Islands, but its nominee directors may be corporations in the Cayman Islands, which in turn are owned by companies in yet another offshore jurisdiction. Others are yet not investigated!!
Keywords: Law and Humanities , Tax assessment , Offshore structures , Revenue sharing , Government ownership , International business enterprises , Pakistan , PTI , BVI , PLD , ROPA