Ownership of offshore companies
Whenever an investigation based on leaked documents of offshore companies is made public, a question is always asked: is having an offshore company legal or illegal? This is a pertinent question and merits an answer.
The mere fact of owning an offshore company is not illegal anywhere. In Pakistan, for example, the law requires the owners of such entities to declare them to the tax authorities and the Securities and Exchange Commission of Pakistan (SECP). Once that is done, there should be no legal implications unless a misrepresentation of facts is spotted in the declaration. Ask any businessperson, and he/she will explain that at times the offshore structure is helpful in expediting their international projects. Their argument is not without merit.
In the Pandora Papers, we have come across several businesspersons who, when contacted about offshore-related queries, have been quite forthcoming in explaining their part of the story. Of course, nobody can give a clean chit to someone just because he or she has been very straightforward; any clearance is subject to verification by the related authorities.
However, getting to know such individuals was an interesting experience. In contrast, we also came across those whose business practices seemed dodgy at times, and some of them are notorious for their financial improbity. Like the other group, they too have set up offshore structures. Before we discuss the positive and negative examples we found in the files, it is important to understand what these entities are often used for.
The first and relatively plausible explanation offered for using the offshore route is that these companies are quick to form and easy to operate. Adnan Afridi, MD of the National Investment Trust, had one offshore company, Veritas Advisory Services Ltd registered in the British Virgin Islands. When asked about the reason for owning such a company, he said it was urgently needed by him in 2011 “for a time-sensitive international strategy consulting bid” and that it took him a few minutes to purchase a readily incorporated legal entity for Rs7,500. He struck the company off in 2017, according to him.
Another reason cited by Pakistani businessmen for having offshore companies is that since Pakistan’s economy is mostly undocumented, red tape is pervasive, making things difficult for businesses to function smoothly. There is an incentive in evading taxes instead of paying them. Things are made difficult for those who want to comply with the laws. Consequently, many people opt for such structures where ease of doing business is promised. In our experience, we have seen businesspersons who appear to be very transparent and were keen to share details when approached.
Khalid Adamjee of the Adamjee Group is one such example. When contacted about his foreign assets (Catio Trust and Creek Resources Limited), he not only said they are declared in Pakistan, he also shared his wealth statement to prove this fact. A resident of Singapore, he is involved in international commodity trading, he said, and therefore he required such a structure for buying and sourcing globally.
Syed Sheharyar Ali of the Treet Corporation was offended on being questioned — but for the right reason. He was asked about the C & A Trust registered in Singapore. His aunt is the settlor of the trust and he is among the beneficiaries. He said it must have been declared by her. More important is what he said next: “Given our family history and legacy, I find it insulting that you would even imply tax evasion or any such activity on our part.”
However, in the same data, we found individuals with a dodgy reputation who were allowed to register companies. Shoaib Sheikh of the fake degree operation is one such example. Axact, his company used for this purpose, was being controlled through an offshore entity, Outreach Global, registered in the British Virgin Islands. It continued to remain in existence even after the fake degree scandal made international headlines. At no point did the BVI administration conduct due diligence. Bank accounts were opened in the name of Outreach Global to extort money from the international customers of fake degrees.
Bashir Dawood is another example. In the Pandora Papers, he has been found, together with his wife, as the owner of three offshore companies: Green Ethics Ltd, S. Minor Investments Ltd, and Garden Investments Ltd. Earlier, his name had appeared in the Panama Papers. The Federal Board of Revenue made the highest recovery in its history from him in connection with a money laundering case for which he had used an offshore company.
In 2016, Ardutch B.V, a Turkish company, bought three companies from Bashir Dawood: United Refrigeration (Pvt) Ltd, Dawlance (Pvt) Ltd, and Dawlance Electronics (Pvt) Ltd. The first two were acquired directly and the last one through a BVI company, Pan Asia Equity Limited in order to understate the real amount of proceeds. Despite its shady purpose, the company was still established. FBR recovered from him a sum of Rs6.2 billion in terms of tax that he evaded.
Ahsan Latif, the son-in-law of former Chairman NAB Lt Gen (retd) Khalid Maqbool, used a BVI company for importing LPG from Russia. The company, Dylan Capital Limited, was formed for real estate investment abroad but diverted to another business. He used it for importing LPG from Russia’s Vacus Oil company in 2009.
“In order to maintain the competitiveness in the market, we don’t want to reveal the name of the supplier in Pakistan,” Ahsan wrote in an email to the service provider. But that is not the point. What he wrote further suggested that the profit was kept abroad while the import was made to Pakistan, thus raising the country’s import bill as evident from an email of 2009:
“As a piece of additional information, we are also striving to get the exclusive marketing rights for the suppliers’ products in the region. For this purpose, Synergy Resources (Pvt) Ltd intends to open the L/C in favor of Dylan and Dylan and shall then open a back-to-back L/C in favor of the supplier. The difference between the L/C value of Synergy Resources (Pvt) Ltd and Dylan shall be retained by Dylan as profits which may then be used as investments.”
Ahsan was sent questions about the activities of his offshore companies but he didn’t reply.
Naveed Moghees Sheikh, who belongs to one of the richest families of Pakistan, used the offshore route to park the proceeds of the sugar mill he sold in Pakistan. He set up a company, Blue Monk Investments Inc. in the British Virgin Islands, to operate an account in Bank Julius Baer in Geneva “for parking the proceeds from the sale of shares of Imperial Sugar Ltd to a large business group in the Middle East. The sale has resulted in $40.5m which were to be received in the company’s bank account,” read a file from the Pandora Papers. Naveed didn’t reply to questions sent to him to give his point of view.