Legal Trail of Hudabiya Case

Legal Trail of Hudabiya Case

The members of ‘House of Sharifs’, facing inquiries by the National Accountability Bureau (NAB) and trials before the Accountability Court for alleged corruption, abuse of public funds, money laundering and tax evasion, have been claiming of being billionaires since the 1940s. Their main defense is that the assets owned by them, at home and abroad, have been earned through the family business. They claim that the Joint Investigation Team (JIT) could not find a single proof of any kind of corruption, embezzlement or financial favours by abuse of public office. Ousted/disqualified Nawaz Sharif bitterly and repeatedly mentions that his conviction is on iqama and not Panama.

The reality is that in 1981 when Nawaz Sharif was picked by a military dictator as the Finance Minister of Punjab, the family owned only one re-rolling mill. In the next few years, the business empire of the family expanded “miraculously”: Ittefaq Sugar Mills (1982), Brothers Steel (1983), Farooq Barkat (Pvt) Ltd (1985), Brothers Textile Mills (1986), Brothers Sugar Mills Ltd (1986), Ittefaq Textile (1987), Ramzan Buksh Textiles (1987) and Khalid Siraj Textile Mills (1988). In all these years, Nawaz Sharif was close to General Ziaul Haq, served as the Punjab Finance Minister/Member Punjab Advisory Board (1981-1984) and Chief Minister, Punjab (1985 to 1990). It was during 1981 to 1989 that the ‘House of Sharifs’ received generous loans from banks for “extraordinary expansion”. But strangely, even after all this extraordinary expansion in business, wealth tax returns filed by all members of the ‘House of Sharifs’ till 1990 showed net wealth of less than Rs. 50 million!

In 1992, the Information Wing of Pakistan Peoples Party (PPP) released an account of alleged corruption of Nawaz’s rule in a booklet, The Plunder of Pakistan. A spokesperson of the then ‘Ittefaq Group’ said in a counter-statement that the group “has obtained loans worth Rs. 4.420 billion only from the commercial banks contrary to Salman Taseer’s claim of Rs. 12 billion.” According to the spokesperson of Ittefaq Group, they had only 14 companies with assets of Rs. 6 billion.

It is a matter of record that Nawaz Sharif, in his speeches after the release of Panama Papers admitted that after losing industrial units in East Pakistan and the nationalisation of Ittefaq Foundry by Bhutto, the family was left with nothing. He claimed that after nationalisation his father tried his luck in the United Arab Emirates where a steel re-rolling mill was set up. Mian Muhammad Sharif returned home within a year or two after the start of operations of this mill. Obviously, in such a short time, he could not have earned millions after losing everything to what was termed as a “cruel act” by Bhutto!

It is an incontrovertible fact that lady luck smiled on the Sharifs after General Ziaul Haq returned them Ittefaq Foundry without any payment and appointed Nawaz Sharif as the Finance Minister of Punjab in 1981 and then Member of the Punjab Advisory Board. Later, he became the Chief Minister of Punjab in 1985, served as the Caretaker Chief Minister and got re-elected for the post in 1988. In 1990, Nawaz Sharif became the Prime Minister of Pakistan—a position he held three times (November 1, 1990 to July 18, 1993; February 17, 1997 to October 12, 1999; and June 5, 2013 to July 28, 2017).

The Special Prosecutor of National Accountability Bureau (NAB) during the hearing on November 28, 2017 before the Supreme Court for condonation of delay in the case of Hudabiya Papers Mills could not present the facts in their true perspective showing that it was not a case of victimisation by a military dictator but a crystal clear case of financial crime in which relief was secured on purely technical grounds. The fact of using Protection of Economic Reforms Act 1992 was never contradicted by the Sharifs in any court. The cases of Hudabiya Paper Mills and Hudabiya Engineers Mills, in fact, expose beyond any doubt the modus operandi of the House of Sharifs in exploiting public office for self-aggrandisement and exerting pressure and influence to avoid appeals in cases where they got “technical justice”. For example, they successfully blocked appeals in the Supreme Court against judgments of the Lahore High Court reported as Hudabiya Engineering (Pvt) Limited v Federation of Pakistan and 6 others 1998 PTD 34 and Hudabiya papers Mills Ltd and others v Federation of Pakistan and others PLD 2016 Lahore 667.

After the passage of Protection of Economic Reforms Act 1992 during Nawaz’s rule, the House of Sharifs legalised their hidden wealth by opening fake accounts, details of which are available in the case reported as Mian Muhammad Abbas Sharif and 2 others v Federation of Pakistan through Secretary, Ministry of Interior and 2 others [1995 PCr LJ 1224 Lahore High Court]. This case reveals how the House of Sharifs in 1992 took refuge under the Protection of Economic Reforms Act 1992, a law aimed at whitening tainted (untaxed and/or illegal) money through the use of foreign currency accounts.

During the first tenure of Nawaz Sharif as Prime Minister (November 1, 1990 to July 18, 1993), the business empire of Sharifs thrived on project loans from foreign banks as well as working capital from the local banks. Foreign currency accounts, allegedly fake, were used to whiten untaxed money and secure loans/advances from banks.

The following facts, reproduced verbatim from Mian Muhammad Abbas Sharif and 2 others v Federation of Pakistan through Secretary, Ministry of Interior and 2 others [1995 PCr LJ 1224 Lahore High Court], are worth considering to prove before the Supreme Court that tainted money involved related to the period when Nawaz Sharif was in power. A wrong impression has been given by some sections that funds generated through fake foreign currency accounts have nothing to do with holding of office by Sharifs. Nawaz Sharif keeps on saying after conviction by the Supreme Court on July 28, 2017 that neither the court nor the Joing Investigation team (JIT) had proven any wrongdoing related to his holding of public office:

  • “On 26-8-1992 fake account in the name of one Sulman Zia, resident of Main Bazar, Sahiwal, was opened in Habib Bank Limited, AG. Zurich, Lahore, with an initial deposit of US $ 168.Fake account in the name of Muhammad Ramzan resident of House No.5, Street No.6 of Sant Nagar (Lahore) was opened in Habib Bank Ltd., AG Zurich, Lahore, with initial deposit of US $ 300. Subsequently, both of them were issued dollar bearing certificates worth US$ 7,50,000 cash by Union Bank Ltd. against cash proceeds of Travellers Cheques encashed through American Express, New York.

  • A fake account was also opened in the name of Kashif Masood Qazi (Account No.260133-91) in the Bank of America by having transferred the amounts of aforesaid two fake accounts. Another fake Account No.199936-091 in the name of Mrs. Nuzhat Gohar Qazi wife of Gohar Masood Qazi, resident of Nisbat Road, Lahore was opened in the Bank of America. Ultimately, approximately an amount of US $ 0.5 million was transferred to the account of Kashif Masood Qazi from the account of Mrs. Nuzhat Gohar Qazi.

  • The aforesaid accounts were found to be fictitious. The Directors of Messrs Hudabiya Engineering (Pvt.) Ltd in collaboration with the bank officials of Habib Bank Limited, AG Zurich, Lahore and Bank of America, Lahore, under the influence of Mian Muhammad Nawaz Sharif (former Prime Minister), dishonestly and fraudulently managed to open aforesaid fake accounts/benamis for subsequent creation of loan amount to Rs.60 millions by the Bank of America, Lahore, in favour of the said Company, against the fake account of Kashif Masood Qazi. All theseunder hand methods were adopted to utilize their black money for securing wrongful gains”.

The counsel of Hudabiya Engineering (Pvt.) Ltd did not refute the above transactions but took the plea that “Messrs Hudabiya obtained a loan of a few crore rupees against the accounts opened in the name of Kashif Masood and other mentioned in the (First Information Report) F.I.R. No.12/94 and Mrs. Sikandara Masood Qazi and other in case of F.I.R. No.13/94.” According to counsel, “This was a simple money transaction between the parties that is to say Messrs Hudabiya, aforesaid account-holders and the bankers voluntarily and with each other’s consent.” He claimed that that there was no question of “committing fraud and cheating in the affairs”.

It is a matter of fact that the Qazi family clarified they had nothing to do with the foreign currency accounts opened in Pakistan and that they had been cheated (A shoddy track record, The News, April 16, 2016). According to the British newspaper Independent (Pakistan PM ‘made millions in UK’, October 20, 1998), “….money was laundered through “fictitious bank accounts” and, using family business interests, was siphoned into offshore accounts.”

Counsel for the state in Mian Muhammad Abbas Sharif and 2 others v Federation of Pakistan through Secretary, Ministry of Interior and 2 others [1995 PCr LJ 1224 Lahore High Court] took the plea that available facts proved beyond any doubt that fake accounts were opened to whiten black money for securing wrongful gains. The Division Bench of Lahore High Court held the following:

“A citizen of Pakistan has protection of law in case, he opens foreign exchange account having the facility provided by the Protection of Economic Reforms Act, 1992, but cannot avail the protection of law with a view to make his black money as white by adopting the process of opening fake accounts, mentioned above. We, therefore, maintain that the prosecution has prima facie case to substantiate the allegations levelled against the accused.”

Later, a larger bench of Lahore High Court in its judgment reported as Hudabiya Engineering (Pvt) Limited v Federation of Pakistan and 6 others 1998 PTD 34, authored by Justice Malik  Muhammad Qayyum, held the following:

“On consideration of various provisions of the Protection of Economic Reforms Act, 1992, we have reached the conclusion that so far as foreign currency accounts are concerned, the holders thereof, have complete immunity from inquiry and scrutiny and complete secrecy must be maintained in respect of those accounts which cannot be violated by any agency or functionary. That being so, neither the Income Tax Authorities nor Federal Investigation Agency had any jurisdiction to hold any inquiry in respect of the transactions in the foreign currency accounts nor could the same be made basis of criminal prosecution.”

The larger bench of Lahore High Court adjudicated the issue purely on technical grounds and did not give any verdict on the accusations of money laundering leveled in the FIRs, using section 5 of the Protection of Economic Reforms Act 1992. The fact of using foreign currency accounts was not refuted by the counsel for Hudabiya Engineering (Pvt.) Ltd. The court quashed the case ignoring the fact that there was sufficient evidence available about account holders either being fake or having no connection with the business affairs of the company. Against this order no appeal was filed in the Supreme Court.

The larger bench of Lahore High Court in Hudabiya Engineering (Pvt) Limited v Federation of Pakistan and 6 others [1998 PTD 34] also ignored that benefit of section 5 of the Protection of Economic Reforms Act 1992 could have been taken only by the persons who opened foreign currency accounts and not by the company and its directors. It was incumbent on the directors under corporate governance not to take benefit of any tainted funds. On the contrary, the company and its directors sought refuge under a special law to hide untaxed and undeclared money. The viewpoint was later confirmed by the Supreme Court in Ishaq Ahmad Sheikh v The State [2000 SCMR 814] as under:

“…….the complete secrecy even in section 5(3) [of the Protection of Economic Reforms Act, 1992] is not in respect of all “transactions in the foreign currency accounts”; imply that there can be some possible exceptions to the generalised protection and cover. Neither section 5(3) nor section 9 [of the Protection of Economic Reforms Act, 1992], therefore, would spell out secrecy where a penal act or omission is involved though even in such regard the initiative, aid and assistance of the relevant Court, as in section 94 of the Criminal Procedure Code, has a direct bearing. In other words the secrecy would be complete and even total except for the limited purpose permitted by such a Court as aforementioned.”

The above judgment of Supreme Court of Pakistan confirms that the directors of Hudabiya Engineering (Pvt.) Limited were wrongly absolved by the Lahore High Court under section 5 of the Protection of Economic Reforms Act 1992 as they did not open foreign currency accounts in their own names and thus could not claim immunity. It was a clear case of “a penal act or omission” and, therefore, no secrecy could have been claimed as enunciated by the Supreme Court in Ishaq Ahmad Sheikh v The State [2000 SCMR 814]. The State should have filed against the order of the High Court reported as Hudabiya Engineering (Pvt) Limited v Federation of Pakistan and 6 others [1998 PTD 34]. It is pertinent to mention that when this judgment was announced on July 15, 1997, Nawaz Sharif was Prime Minister and Shahbaz Sharif was the Chief Minister of Punjab.

There is another interesting angle that needs consideration. By availing the cover of Protection of Economic Reforms Act 1992, the beneficiaries admitted tax avoidance/evasion and therefore they could not contest the elections as ordained in Article 62 of the Constitution of Pakistan. According to a press report, NAB did pass on information to the Election Commission of Pakistan (ECP) in 2013 about references of money laundering, corruption and loan defaults pending against Nawaz Sharif, Shahbaz Sharif and other family members. Nawaz Sharif, Shahbaz Sharif and Hamza Shahbaz were allowed to contest elections after they secured a stay against proceedings in the Accountability Court. After coming into power, the cases of money laundering and corruption pending against them and other family members were quashed by the Accountability Court on September 18, 2014 observing that even after 14 years, NAB failed to produce any witnesses. The witnesses (members of Qazi family) could have been produced by NAB by seeking the assistance of authorities of their residence to give the statements as to how fake accounts were opened in their names. Had it been done, conviction leading to the disqualification of Nawaz Sharif, Shahbaz Sharif and Ishaq Dar could have been possible.

As regards Reference No. 5 of 2000 filed by NAB, the confessional statement of Ishaq Dar, now declared proclaimed offender by the Accountability Court, could not be quashed by the Lahore High Court even if it was recorded by a magistrate and not by the NAB Chair or Accountability Court. The judgment in Hudabiya Papers Mills Ltd and Others v Federation of Pakistan & Others 2016 PLD Lahore 667 narrates the following facts:

“From the above discussed facts, it is established that the Management of M/S Hudaibya Paper Mills Ltd. comprising of Mian Muhammad Sharif, Mrs. Shamim Akhter, Mian Muhammad Nawaz Sharif; Mian Shahbaz Sharif; Mian Abbas Sharif, Mrs. Mariam Safdar, Mrs. Sabiha Abbas, Mian Hussain Nawaz and Mian Hamza Shahbaz Sharif was in possession of a huge illicit proceeds and it was difficult for them to explain the source of the acquisition of the same. In order to launder this money, under the cover of the provisions of “The Protection of Economic Reform Act, 1992”, they fraudulently opened different fictitious foreign currency accounts and deposited huge amounts in these accounts……..
———-

The said entire money totaling to approxtimately Rs.1,242,732 million which has been used by Sharif family for their businesses over a period of time and finally to adjust their business liabilities is unexplained and is disproportionate to their known legitimate sources of income. The income tax/wealth tax return submitted by the accused members of Sharif family do not commensurate with the deposits held in the fraudulent foreign currency accounts by them. During this entire operation of money laundering/concealment of ill-gotten wealth, Sharifs defrauded a whole lot of institutions and individuals including a number of banks, tax authorities, etc. Hence, all the accused persons mentioned in column No.3 of this report, being directors/beneficiaries of this entire proceed as shareholders (either directly or through their minor children) are guilty of the offence of corruption and corrupt practices as defined in the NAB Ordinance, 1999 as well as NAB (Amendment) Ordinance 2000. The accused persons are recommended for judicial action.”

The above facts remained uncontested by the accused. They got relief on the technical ground that the statement of approver [Ishaq Dar] was recorded by the Magistrate on 15.10.1999, which was illegal. On this basis, the Division Bench of Lahore High Court came to the conclusion that Reference No.5/2000 and subsequent proceedings “stood quashed”. However, Justice Kh. Imtiaz Ahmad observed: “The result of the above discussion is that this writ petition succeeds. Reference No.5/2000 against the petitioners and subsequent proceedings before the Court stands quashed. However, it is clarified that the NAB authorities are competent to proceed against the petitioners if the investigation is again initiated in accordance with law.” The Referee Judge [Sardar Muhammad Shamim Khan, J] did not agree with the order of Justice Kh. Imtiaz Ahmad and endorsed the view of Justice Muhammad Farrukh Irfan Khan that no further proceedings could be taken.

The NAB did not file an appeal against the above order in Writ Petition No. 2617 of 2011, decided on 11th March, 2014. This matter during the hearings in Panama Case came under discussion, on which, the note of Justice Asif Saeed Khan Khosa in Imran Ahmad Khan Niazi v Mian Muhammad Nawaz Sharif & 9 Others PLD 2017 SC 265 aptly highlights the following:

“The National Accountability Bureau is directed to proceed against respondent No. 10 namely Mr. Muhammad Ishaq Dar in connection with its Reference No. 5 of 2000 wherein the said respondent was not an accused person when the said Reference was quashed by the Lahore High Court, Lahore and reinvestigation against the accused persons therein was barred because after quashing of that Reference against the accused persons therein and after setting aside of the confessional statement of respondent No. 10 his status in that Reference stood revived as an accused person against whom no Reference had been quashed and reinvestigation qua him was never ordered to be barred.”

In the final judgment of the Panama Case, reported as Imran Ahmad Khan Niazi v Mian Muhammad Nawaz Sharif & 9 Others PLD 2017 SC 692, the following remarks were made by the Supreme Court:

“The argument that the JIT overstepped its authority by reopening the case of Hudabiya Paper Mills when Reference No. 5 was quashed by the High Court does not appear to be correct as the JIT has simply made recommendations in this behalf which can better be dealt with by this Court if and when an appeal, before this Court, as has been undertaken by Special Prosecutor NAB, is filed and a view to the contrary is taken by this Court.”

It is strange, rather shocking, that the NAB did not file an appeal against the judgment the Accountability Court dated September 18, 2014, exonerating the members of the House of Sharifs from charges of money laundering and corruption. It is also worth noting that NAB authorities did not produce Sikandar Masood Qazi, Talat Masood Qazi, Nuzhat Gohar and Kashif Masood Qazi before the Accountability Court to testify how their names were used for opening fake foreign currency accounts.

The NAB also decided not to assail the order of the Lahore High Court in Hudabiya Papers Mills Ltd and Others v Federation of Pakistan & Others 2016 PLD Lahore 667 before the Supreme Court. In other cases, NAB has invariably filed references, even when grounds have been much weaker, in some cases even frivolous. This order was passed by on March 11, 2014 when Nawaz Sharif was enjoying his third term as Prime Minister.

Ishaq Dar, in his confessional statement, admitted the use of fake accounts for money laundering purposes. The abuse of Protection of Economic Reforms Act 1992 and the ownership of offshore companies appearing in the Panama Case in the names of the offspring of Nawaz Sharif for layering and hiding unaccounted for funds have been documented in the report of JIT. Had there been clean and taxed income/funds out of which mammoth wealth/income had been generated, there would have been no need to take refuge under section 5 of the Protection of Economic Reforms Act 1992 in the cases of Hudabiya Paper Mills and Hudabiya Engineering Mills and the use of shell companies in tax havens to buy properties abroad that ensured the secrecy of real owner(s).

There has been a clear nexus of tainted transactions in the cases of Hudabiya Paper Mills and Hudabiya Engineering Mills with assets acquired abroad and liabilities discharged when Al Towfeek Bank had filed a case for recovery in London. One hopes that all these facts will be presented before the Supreme Court by NAB while arguing the belated appeal filed in the Hudabiya case.

 

The writers, lawyers and partners in HUZAIMA, IKRAM & IJAZ, are members of Adjunct Faculty of Lahore University of Management Sciences (LUMS)

The views expressed in this article are those of the authors and do not necessarily represent the views of CourtingTheLaw.com or any organisation with which they might be associated.

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