Friday, November 16, 2007

Corruption in Pakistan: Can the West help end it?

As I saw the recent reports from Munich about Siemens pleading guilty to bribing politicians and officials in Nigeria, Russia and Libya, it reminded me that Siemens is a large player in Pakistan. Has any one looked into Siemens engaging in similar corrupt practices in Pakistan?

And, how about the behavior of other American and European companies operating in Pakistan? There are definitely laws on the books in the West such as the Foreign Corrupt Practices Act (FCPA) in the United States. All ethics classes taught in the West in management schools and company training cover this topic. However, the question is whether these laws are really enforced and how often are the companies held accountable? Or do they simply rely on the foreign governments to report misbehavior? It would be a fantasy to expect the officials and politicians on the receiving end to report incidents of bribery as they are the main beneficiaries. But I think the German, French, US and other western governments and other developed nations who claim higher moral positions should be cracking down on these reprehensible practices just to enforce their own laws and live up to their own higher standards. While it may be argued and it is like putting the shoe on the wrong foot, I see it as the only hope we have of containing such widespread corruption in developing nations that is robbing their people blind.
Looking at Pakistan, there have been serious allegations and at least preliminary evidence to suggest that illegal payments were made to Bhutto-Zardari controlled fronts by companies in France, Switzerland and Poland. There was some action pursued in Switzerland at the request of Pakistani Government under Pervez Musharraf. However, France and Poland have not pursued the charges of corruption involving their companies in Pakistan. The only explanation I have heard is that the FCPA style laws did not exist in France prior to the year 2000. It has made me wonder whether there is an inherent conflict when it comes to European or American governments taking action against their own companies. After all, there are jobs in these countries that depend on exports to the developing nations. Would they rather be pristine in their efforts in enforcing their laws even if it means losing business and jobs to the Japanese, Koreans and others?

Upon searching the Internet, I found at least one report in Forbes magazine regarding Siemens in Pakistan:

"The World Bank is looking at an electrical power plant project in Pakistan concluded in the mid-1990s, which was built and later partially maintained by Siemens and financed by the World Bank.The World Bank is concerned that Siemens' costs for the project may have been overpriced.Siemens is currently engulfed in a slush-fund scandal, in which prosecutors allege that managers siphoned off hundreds of millions of euros in company money to obtain foreign contracts.Siemens' own internal investigation uncovered 420 mln euros in suspicious payments going back to 1999 which may have been made to obtain telecommunications equipment contracts in a range of foreign countries.The Bavarian State Prosecutors office has said the sum is estimated in the triple-digit millions of euros."

These reports beg the following questions: Do they represent only the tip of the iceberg of political and official corruption in the developing world? Are there more such investigations and prosecutions on the horizon? I certainly hope there are. In my view, serious action by the Western prosecutors seems to be an effective way to reduce the scourge of rampant corruption in developing nations such as Pakistan.


Riaz Haq said...

President Asif Zardari's total assets are estimated at $1.5 billion, according to a NAB filing with Pakistan Supreme Court, reports the News:

ISLAMABAD: The National Accountability Bureau (NAB) on Tuesday submitted in the Supreme Court the list of the NRO beneficiaries, which showed President Asif Ali Zardari possessing assets worth $1.5 billion (Rs 120 billion) abroad and worth Rs 24.14 billion in the country.

Deputy Prosecutor General Abdul Baseer Qureshi presented the list of 248 NRO beneficiaries before the full court, hearing the petitions challenging the infamous ordinance, promulgated in 2007 giving legal cover to the corruption of politicians and bureaucrats

A 17-member bench of the apex court, headed by Chief Justice Iftikhar Muhammad Chaudhry, had directed the NAB the other day to submit authentic details of the NRO beneficiaries. According to the list, there are at least seven abolished references against President Zardari. The list indicates that the assets of President Asif Ali Zardari in foreign countries stand at $1.5 billion, including houses and bank accounts in Spain, France, the US and Britain while his assets in the country stand at Rs 24.14 billion.

In the list, President Zardari’s assets worth Rs 22 billion were mentioned as beyond means and the cases in this regard were withdrawn by the Accountability Court on March 5, 2008, under the controversial NRO.

Similarly, cases of corruption of Rs 268.3 million regarding the purchase of Ursus Tractors (Awami Scheme) and illegal construction of the polo ground at the PM House at the cost of Rs 52.297 million were terminated under the NRO in March 2008.Likewise, the list also includes allegedly causing loss of Rs 1.822 billion to the national exchequer by President Zardari by granting licence to the ARY Gold. The said case was also terminated under the NRO ordinance.

The NAB deputy prosecutor general told the court that information regarding the misuse of authority in affairs of SGS PSI Company by Asif Ali Zardari as well as illegal award of contract to Cotecna for pre-shipment was being collected.

The NAB list included names of Interior Minister Rehman Malik, Pakistan’s Ambassador to United States Hussain Haqqani, Defence Minister Chaudhry Ahmed Mukhtar, former NWFP chief minister Aftab Sherpao Khan, ex MNAs Nawab Yousaf Talpur, Anwar Saifullah Khan, Sardar Mansoor Leghari, Haji Nawaz Khokhar, Pir Mukarramul Haq, Brig (retd) Imtiaz, Usman Farooqi, Salman Farooqi, former president Habib Bank Younus Dalmia, Mirbaz Khetran and many others.

He submitted that the National Assembly’s standing committee approved the NRO, however, the concerned minister took it back from the assembly. During the proceedings, advocates general of the Punjab, the NWFP and Balochistan informed the court that under Section 2-A of NRO, no review boards were constituted in their respective provinces to decide the murder cases.

Advocate General Sindh Yousaf Leghari, however, informed the court that 8,000 cases were dropped under the NRO in Sindh, of which 3,000 were murder cases. He sought time to provide details of the cases decided under Section 2-A of the NRO in Sindh. The court directed the AG Sindh to submit report before the court today (Wednesday).

Abdul Hafeez Pirzada, counsel for Dr Mubashar Hassan, submitted the ordinance as whole was void because it was a fraud ordinance as it violated many substantial provisions of the Constitution.

He submitted that reconciliation meant reconciliation between husband and wife, between parents but this National Reconciliation Ordinance had trampled the rights of the entire nation. Pirzada contended that all stakeholders were not taken into confidence before its promulgation. “The nation is threatened with fragmentation,” Pirzada maintained.

Riaz Haq said...

Here's a report of French Defense Minister confirming bribes paid to Pakistani officials on a submarine deal in the 1990s during the PPP regime:

Former French defense minister has confirmed bribes on arms deals with Pakistan, the cancellation of which prompted the deadly Karachi bombing in 2002.

Charles Millon, on Wednesday, told a hearing tasked with probing into the killing of French engineers that he was sure there were kickbacks on ammunition contracts with Pakistan.

“For the Pakistani contract, looking at the secret service reports and analyses carried out by the (defense) ministry services, one has the absolute conviction that there were kickbacks,” AFP quoted Millon.

Former President Jacques Chirac had tasked him with ending bribes on arms contracts shortly after coming to power in 1995.

However, bribing between officials and corporations in France continued until an incident involving arms deals eight years ago allegedly resulted in a deadly bombing in Pakistan.

The bomb attack took place in Karachi, in May 2002, in which 15 people died, including 11 French engineers and technicians from the Directorate of Naval Construction, working in the construction of submarines.

Since 2008, French persecutors are examining charges that the cancelling of commissions for one of the arms deals prompted the attack.

Riaz Haq said...

Here are some excerpts from an Op Ed in Newsweek Pakistan by Meekal Ahmed, a former IMF official:

The government hopes to generate Rs. 53 billion during the last quarter of the current financial year, which concludes on June 30. It hopes to achieve this by imposing a 15 percent surcharge on income tax paid by Pakistan’s paltry 1.7 million registered, individual taxpayers. Given the small tax base and modest yield, the surcharge seems unfair and not worth it. In a move that is regressive and potentially inflationary, depending on the market, excise duty on certain import items has been increased from 1 percent to 2.5 percent until end-June. While these measures are better than doing nothing at all—which is what happened during the first three quarters—they are far from ideal, and don’t go far enough to address the big problems with the economy.

But it’s not all bad. The elimination of tax exemptions for agricultural inputs (including tractors, fertilizers, and pesticides) was long overdue. With a strong agro-lobby preventing taxation on their handsome incomes in a sector that contributes 21 percent of GDP, the government might as well tax the inputs. Tax exemptions for export quality textiles sold within Pakistan have also been nixed despite resistance from the fierce textile lobby. The freeze on additional hiring in the public sector, and the 50 percent cut in several spending categories should also be welcomed.

Then there is the profusion of what many Pakistani media outlets call “petrol bombs”—highly unpopular oil price adjustments at the start of each month. The government announces the adjustments, and then rolls them back under popular and political pressure. The fuel price adjustments are unavoidable. Pakistan is a net oil importer and can’t insulate itself from global price shocks. Oil prices have risen steeply in the last three months, and have now crossed the psychologically important 100-dollar mark. Pakistan’s fuel subsidies—at an estimated Rs. 5 billion per month that could have been spent on development—are unaffordable and unsustainable. Oil prices will remain high for a while. Pakistanis must adjust to this reality. .....
Despite the new measures, doubts remain about the revised tax-revenue targets and the state’s capacity to achieve them. The Federal Board of Revenue is notorious for its chronic underperformance. The justification that there is a tax revenue shortfall because the economy is in recession holds no water. An economy expected to grow at around 3 percent is not, technically speaking, in recession, but is growing below its potential. There is no cycle for fiscal revenues in Pakistan: whether the economy grows at 3 percent or 7 percent, whether inflation is 2 percent or 25 percent, tax revenues fail to keep up. If they did not, there would be a constant tax-to-GDP ratio, which is actually falling. This trend points to the existence of deep-rooted structural deficiencies in the tax system, which is regressive, anti-poor and plagued by too many exemptions and concessions. Then there’s also corruption, abuse of the system, and evasion. Even taxes withheld at source are not deposited in the government’s account because of alleged connivance between withholding agents and tax officials.