The Finance Minister of Pakistan, while addressing a gathering of State Bank of Pakistan on April 1, 2019, asked banks to share data with Federal Board of Revenue (FBR) for effective implementation of Benami Transactions (Prohibition) Act, 2017. The Government of Pakistan Tehreek-i-Insaf (PTI) recently promulgated long-awaited Benami Transactions (Prohibition) Rules, 2019 to start legal proceedings against those who are involved in benami transactions. The Finance Minister, it appears, has not received proper briefing on conflicts of laws that can defeat Benami Transactions (Prohibition) Act, 2017 as they did in the case of certain provisions of the Income Tax Ordinance, 2001 to obtain information about bank accounts. The Pakistani banks challenged these provisions and litigation is still pending.
Pakistan presents a unique country where even after specific provisions, inserted by the Legislature in the Income Tax Ordinance, 2001 overriding special laws, some banks have resisted sharing information of their clients and reporting suspicious transactions. It is strange that on the one hand, Pakistan has taken an initiative to seek cooperation of other countries under OECD (Organization for Economic Cooperation and Development ) Convention for Automatic Exchange of Information (AEOI) that is crucial in bringing national tax administration in line with globalised economy and on the other the successive governments have taken no steps to abolish sections 5 and 9 of Protection of Economic Reforms Act, 1992 and section 111(4) of Income Tax Ordinance, 2001 that create barriers to meaningful actions against persons engaged in benami transactions [literally means without name. Technically, it covers transactions made, properties held in the name of another person] and tax evasion.
Section 165A of the Income Tax Ordinance, 2001, while overriding any law for the time being in force including but not limited to the Banking Companies Ordinance, 1962 (LVII of 1962), the Protection of Economic Reforms Act, 1992 (XII of 1992), the Foreign Exchange Regulation Act, 1947 (VII of 1947) and the regulations made under the State Bank of Pakistan Act, 1956 (XXXIII of 1956), requires every banking company to make arrangements to provide to FBR online access to its central database containing details of its account holders and all transactions made in their accounts, a list containing particulars of deposits aggregating rupees one million or more made during the preceding calendar month, a list of payments made by any person against bills raised in respect of a credit card issued to that person, aggregating to rupees one hundred thousand or more during the preceding calendar month, a consolidated list of loans written off exceeding rupees one million during a calendar year and a copy of each currency transactions report and suspicious transactions report generated and submitted by it to the Financial Monitoring Unit under the Anti-Money, Laundering Act, 2010 (VII of 2010).
The simple solution is to amend the special laws to remove the conflicts of laws. At this point of time, the PTI Government, lacking a simple majority in the Senate, cannot do it unless opposition parties cooperate, which they never will as their own leaders are facing charges of using benami accounts for money laundering and plundering of national wealth
The banks are contesting disclosure of information on the ground that section 165A of Income Tax Ordinance, 2001 being part of general law cannot override special laws i.e. section 3 read with section 9 of Protection of Economic Reforms Act, 1992, sections 46A/46B/54A of the State Bank Act, 1956, section 33A of the Banking Companies Ordinance, 1962, State Bank of Pakistan’s regulations and section 5 & 6 of the Bankers’ Books Evidence. Even the non-obstante provisions of sections 165A, they say, cannot override section 9 read with section 3 of Protection of Economic Reforms Act, 1992 and section 54A of State Bank of Pakistan Act, 1956 as per dictum laid down by the Supreme Court of Pakistan in Amjad Qadoos v Chairman Accountability Bureau (NAB) Islamabad & Others 2014 SCMR 1567.
The banks are required to keep fidelity and secrecy of information relating to their customers. They are legally bound not to disclose bona fide transactions of their clients due to restrictions/bars imposed by section 9 of Protection of Economic Reforms Act 1992 read with section 5 of Foreign Currency (Protection) Ordinance, 2001, sections 46A/46B of the State Bank Act, 1956, section 33A of the Banking Companies Ordinance, 1962, State Bank of Pakistan’s regulations and sections 5 & 6 of the Bankers’ Books Evidence. Unless these laws are amended by both the Houses and not through a Money Bill, the banks insist that any provision of the Income Tax Ordinance, 2001 or Benami Transactions (Prohibition) Act, 2017 cannot prevail. Non obstante provision in any special law will always prevail vis-à-vis any overriding provision inserted in general law even at a later point of time-Amjad Qadoos v Chairman Accountability Bureau (NAB) Islamabad & Others 2014 SCMR 1567 & Elahi Cotton Mills Ltd. & others vs. Federation of Pakistan (1997) 76 Tax 5 (S.C.Pak) .
Section 46A of the State Bank Act, 1956 clearly states that no court tribunal or other authority shall be entitled to compel the bank or any person in the service of the bank to produce or, as the case may be, give any evidence derived from, any unpublished record of the bank except with the prior permission in writing of the Governor who may give or withhold such permission as he thinks fit.
The Sindh High Court in Pakistan Agricultural Research Council, Government of Pakistan v The State Bank of Pakistan PLD 1988 Karachi 28 held: “A plain reading of the above section indicates that no Court, Tribunal or other authority is entitled to compel the Bank or any person in the service of the Bank to produce, or as the case may be, give any unpublished record of the Bank, nor any Court, tribunal or other authority shall permit anyone to produce or give evidence derived from, any ‘unpublished record of the Bank, except with the prior permission in writing of the Governor who may give or withhold such permission as he thinks fit”.
The Lahore High Court in M.D. Tahir Advocate v Director of State Bank 2004 CLD 1680 [intra court appeal was also rejected against this order-PLD 1998 Lahore 90] while dealing with the issue of disclosure of details of bank customers held: “From the foregoing legal articulations, it is clear that the people in Pakistan have a right not to have their private financial matters given in good faith under fiduciary relationship to Banks placed before the preying eyes of tax collection agencies without even an allegation of any wrong doing…… “.
It is evident from above that neither the State Bank of Pakistan nor FBR has power to compel the banks to divulge in ordinary circumstances particulars relating to bona fide banking transactions, including names and particulars of their clients. However, the bank are obliged under the law to provide particulars whenever a tax fraud/evasion comes to the knowledge of tax department or other authorised agencies probing financial crimes. In such cases, particulars are communicated to them of the particular person or party as elaborated by the Supreme Court in Irshad Ahmad Sheikh v The State 2000 SCMR 814.
The stance of the banks in pending litigation before Lahore High Court is that compliance by them of sections 165A of the Income Tax Ordinance, 2001 is not possible unless special laws are first amended that protect information of their clients. Notwithstanding how the Lahore High Court decides the matter, the simple solution is to amend the special laws to remove the conflicts of laws. At this point of time, the PTI Government lacking simple majority in Senate cannot do it unless Opposition parties cooperate, which they never will as their own leaders are facing charges of using benami accounts for money laundering and plundering of national wealth.
The writer, Advocate Supreme Court, is Adjunct Faculty at Lahore University of Management Sciences (LUMS)