One does not know the exact amount that has been siphoned-off to foreign safe havens by our corrupt lot. The very clandestine nature of the activity renders it impossible to arrive at a plausible figure.
The general public which knows very little about the subject of finance has come to believe that the amount is somewhere in the close vicinity of $200 billion. On the other hand many who understand the subject but have some kind of personal or political axe to grind have tended to reinforce this seemingly purely speculative guesstimate.
One also frequently hears tall promises from people given to playing to the gallery how they are going to leave no stone unturned in their attempts to bring the ‘loot’ back home.
So far these promises have remained only that – promises – because the prevailing global rules of the game seemed to have made it almost impossible to get the safe havens to agree to open up their ledgers and return, of their own accord, the amount of ‘loot’ registered against the names of Pakistani depositors.
According to the latest issue of Transparency International (TI), Switzerland is still the world’s biggest centre for managing offshore wealth at as much as $2.3 trillion. The sum is said to be the equivalent of almost one-third of all global overseas wealth.
Figures revealed in a Boston Consulting Group report published on June 14, 2018 put Switzerland ahead of Hong Kong ($1.1 trillion) and Singapore ($900 billion).
The two Asian centres are said to have grown at yearly rates of 11% and 10%, respectively, over the past five years, compared with the 3% rate of Switzerland.
“Over the next five years, offshore wealth seems likely to continue growing at a (compound annual growth rate) of roughly 5% per year,” the report stated.
Large wealth managers, including Swiss banks UBS and Credit Suisse, are increasingly looking into Asian market because Swiss banking secrecy is said to have been weakened.
Experts had expected that stronger transparency rules and the automatic exchange of information would harm offshore wealth in Switzerland more, according to Swiss public television.
But the country is said to have seemingly profited from the current geopolitical uncertainty. In these times, rich clients are said to be looking for havens of stability for parts of their wealth. Switzerland seems still to offer financial and political stability as well as legal certainty, privacy protection and access to financial markets.
The majority of the overseas wealth in Switzerland comes from Germans, the French and the Saudis. Indians and Pakistanis are said to be somewhere too low down on the long list.
Switzerland has signed agreements for the automatic exchange of information with around 40 countries. This is said to have reduced drastically the amount of tax-evaded ‘loot’ in the Swiss banks. Similar agreements are expected to be signed with developing countries as well. And as long as that does not happen, tax-evaded ‘loot’ from developing countries would continue to be accepted by the Swiss banks.
Swiss bank secrecy continues to exist and is applied strictly within Switzerland. The exception is the United States, which is a striking example of how to deal with tax havens. Indeed, the US is the only country that has challenged Switzerland seriously when it got the Swiss government to release around 5,000 UBS bank account holder names back in 2009.
The international and domestic law [of various countries] has changed recently but not enough and strict prosecution of those tax-evaders still does not really exist or the punishment is still very, very mild.
Secondly, there are said to be a number of issues with the ‘Big Four’ audit companies – Deloitte, PricewaterhouseCoopers (PwC), Ernst & Young (E&Y) and Klynveld Peat Marwick Goerdeler (KPMG). The conflict of interest is said to be built in their business model. On one hand, they act as advisers on tax matters for ultra- high net worth individuals, multinational conglomerates and even governments and then they go onto work as auditors and confirm the accounts are based on a ‘true and fair’ view.
The Big Four precisely know what is going on. However, they are not held or made responsible. The only big audit company one can think of is the Enron case in the US where the partners had to go to prison and the firm of Arthur Anderson disappeared. But that’s the exception – which simply confirms the rule.
Developing countries for instance, could put pressure on Swiss industry or even the Swiss government. Not only on the banking industry but also on big companies threatening not to allow business anymore if there is no reasonable cooperation on tax matters and particularly by the Swiss financial industry.
Politically, the developing countries can put pressure. One could even withdraw or delay licences for banks. But it’s not so easy for smaller countries and sometimes even impossible. In developing countries, there is a question of corruption amongst government officials as well that makes things supposedly more difficult than it should be. The civil society also needs to stand up, request change and make strong political pressure.
It’s very hard to move money once it’s in Switzerland. Because client advisers will find other ways to keep the money within Switzerland, like letting depositors know that if they take the money out the Swiss banker would feel no qualms informing governments in question about the tax evaded loot.
Money is now being moved from Switzerland to Singapore and Hong Kong – especially to associated branches in these two countries. Both these havens have become very popular in recent times.
The other option is transferring financial assets to non-financial assets. Buying real estate in Switzerland and then selling that real estate against cash. The real estate business doesn’t come under money laundering regulations in Switzerland.
Meanwhile, investigations by the Organised Crime and Corruption Reporting Project (OCCRP) and the Centre for Advanced Defence Studies (C4ADS) released on June 14, 2018 raise global red flags that Dubai has become an open market for money laundering and a safe haven for the corrupt.
According to reports, the United Arab Emirates’ (UAE’s) secretive and weakly regulated financial sector, and unaccountable high-end real estate market combine to offer the world’s criminals a range of services.
Reports show that a lack of enforcement and oversight in Dubai’s property sector is tarnishing Dubai’s shimmering cityscape with vast amounts of dirty money.
Reports also show that individuals under international sanctions are finding safe haven in Dubai. Leaked private real estate data cited in the reports reveals that organised crime figures and politicians are flocking to Dubai to purchase property.
On paper, Dubai has made promises to clean up its act. After international criticism, the country strengthened its anti-money laundering rules. For example, real estate agents, developers, trust and corporate services providers and lawyers involved in real estate transactions who are registered in the Dubai International Financial Centre (DIFC) are now required to conduct due diligence on customers and register with the Dubai Financial Services Authority (DFSA) for anti-money laundering supervision. This includes identifying the beneficial owner of legal customers and applying extra scrutiny to foreign politically exposed persons.
Despite these improvements, the Dubai Financial Services Authority (DFSA) completed only two investigations by the end of last year. No enforcement action appears to have been taken in the real estate sector. Furthermore, only 12 entities actually registered with the DFSA last year – an alarmingly low figure that raises red flags over whether Dubai takes its own regulations seriously.
“Dubai has been attracting secretive high-end real estate purchases by foreign companies and individuals for years, but despite the high risks of money laundering, the Government of the UAE fails to ensure that information about companies buying property is sufficiently recorded and made available, and that estate agents ensure they are acquiring all the necessary information about who is behind the deal,” said Patricia Moreira, managing director of Transparency International.
Next year, the UAE will host the eighth session of the Conference of the States Parties (COSP), which is the primary policymaking body of the United Nations Convention against Corruption. In advance of this event, Transparency International has called on the UAE to strengthen the enforcement of its property and financial sectors and crack down on existing abuse in both areas.
Transparency International has issued the following series of recommendations to authorities in the UAE:
1. Foreign companies purchasing property in the UAE should have the legally enforceable requirement to provide information on their beneficial owners, which should then be available in open data format in the land registry or a public beneficial ownership registry.
2. Companies incorporated in Dubai should also be required to disclose their beneficial ownership information at the point of registration. This information should be kept in a public database in accordance with open data standards.
3. The Financial Intelligence Unit (FIU) and DFSA should provide training and guidance on how and when to submit Suspicious Transaction Reports (STR). Consequences should be rendered to those financial institutions and professionals, including real estate agents and lawyers, who fail to submit an STR when required by law to do so.
4. National authorities should conduct a “fit and proper” test of the companies and professionals that register for anti-money laundering supervision in order to make sure they meet the necessary requirements and are able to fulfill their obligations.
5. Authorities should punish companies that do not comply with registration requirements. Dubai should set a global example and step up its anti-money laundering enforcement measures to demonstrate that accepting “dirty money” for real estate transactions will not be tolerated. Supervisory bodies should be required to publish detailed data on their enforcement activity on an annual basis.
M Ziauddin, "Unlocking the financial safe havens," Business Recorder. 2018-06-20.Keywords: Money laundering regulations , Real-estate sector , Clandestine nature , Global rules , Swiss government , Financial sectors , Switzerland , Pakistan , Dubai , DFSA , DIFC , UBS , UAE , STR , FIU , OCCRP , KPMG