REFERENCE / COMPLAINT NO. IV

Reference dated  28-4-2004 – Billions Dollars Exchange Scandal

To:

The Chairman
National Accountability Bureau
President’s Secretariat
Islamabad. 

Pakistan Peoples Party ----COMPLAINANT  

V/s 

1. Mir Zafarullah Khan Jamali
    Prime Minister of Pakistan 

2. Mr Shaukat Aziz
    Federal Minister of Finance 

3. Dr Ishrat Hussain
    Governor
    State Bank of Pakistan ---RESPONDENTS  

Subject : Complaint In terms of Section 5 and 18 (b) (ii) 0F THE NATIONAL ACCOUNTABILITY BUREAU (NAB) ORDINANCE 1999 against the Public Office Holder for punishment under Section 10 of NAB Ordinance REGARDING Multi billion dollar scandal, reported by the auditor general of Pakistan

1.                   The respondents in this complaint do fall within the ambit of NAB Ordinance 1999 for the purposes of investigation trial and punishment.

2.                   The respondents are reportedly guilty of corruption and corrupt practices as defined in Section 9 of the Ordinance and as such are subject to punishment under Section 10 of the Ordinance based upon the following facts and grounds:

Facts and Grounds:

1. According to weekly “SOUTH ASIA TRIBUNE” dated 28 March – 3 April 2004, a news item published (copy enclosed), a serious case of abuse of power resulting into massive loss of over Rs 6.2 billion ($109 million) in the murky sale and purchase of dollars from the kerb market, the Auditor General of Pakistan has found during routine checks of State Bank accounts.

2. The matter was brought into the notice of General Pervez Musharaf by the Auditor General of Pakistan but his findings have been ignored by the Presidency for reasons best know to the same.

3. According to the Report, it has been alleged that in continuation with policy of buying dollars from the open market introduced by Nawaz government, the present government purchased billions of dollars from the open market from money changers and middle man at rates much higher than the prevailing open market rates. It has been further alleged that so far almost $ 10 Billion have been purchased in the last four years by the present Gen Musharaf regime. Moreover the State Bank is said to have paid between Rs 2 to 3 per dollar over and above the prevailing inter-Bank rates.

4. All the afore mentioned practices could not have taken place without the blessings of high ups of the Gen Pervez Musharaf government including therein the respondents.

Conclusion:

Based on the above facts and grounds respondents have shown willful indulgence in corrupt practices under Section 9 of the Ordinance. Such persons are subject to punishment under Section 10 of the Ordinance.

As such the Chairman of the NAB is called upon to initiate investigation in connection with the matters set out herein above and further proceed to file a reference against respondents for violating the provisions of Section 9 of the Ordinance punishable under Section 10 of the Ordinance in competent court of law and proceed against those concerned for violating Section 9 of the Ordinance.

Complainant

Pakistan Peoples Party

Through:

Ch. Mohammad Aslam
Advocate High Court 

Islamabad Dated  : 28-4-2004

The Reference / Complaint is based on the source incorporated as under :

Musharaf Sitting on Multi-Billion Dollar Scandal Reported by Auditor General

By Maryam Hussain

The Weekly “SOUTH ASIA TRIBUNE” - March 28-April 3, 2004

ISLAMABAD: The State Bank of Pakistan has suffered a massive loss of over Rs6.2 billion ($109 million) in the murky sale and purchase of dollars from the kerb market, the Auditor General of Pakistan has found during routine checks of State Bank accounts.

According to some estimates almost $10 billion have so far been purchased by the financial wizards of the Musharraf government to boost foreign exchange reserves in the last 4 years. The total reserves stand at $12 billion.

This financial irregularity has been brought to the notice of General Pervez Musharraf by the Auditor General of Pakistan who recently came to know about this financial mess. But his findings have simply been dumped and the presidency is sitting uneasy over the case, hoping that the scandal would not explode in the media. 

Ironically the policy to buy dollars from the open market was introduced by the Nawaz government after Pakistan went nuclear in May 1998 which brought all kinds of sanctions from all corners of the world. 

Musharraf continued with this policy but the scale was multiplied manifold and large scale irregularities were committed but ignored by the financial managers. 

The scandal involves buying dollars from money changers and middlemen at rates much higher than the prevailing open market rates.  

“No one knows who was the supplier of these billions of dollars, who negotiated the deals, how prices were determined, who benefited from the extra amounts paid to the dealers and whether any attempt was made by the State Bank to regulate the massive purchases at the best available rates which could have saved millions of dollars,” a financial expert in Karachi told the South Asia Tribune. 

The expert said the massive loss to SBP occurred because of big financial transaction of dollars through inter bank channels in a bid to temporarily inflate the figures of foreign reserves.  

State Bank is said to have paid between Rs 2-3 per dollar over and above the prevailing inter bank rates.  

According to one expert almost $5.2 billion was purchased from the open market moneychangers and the rest through the inter bank market, between July 1999 and June 2002. 

Governor of the State Bank, Dr Ishrat Hussain, is on record having said that these purchases helped Pakistan avoid new short-term commercial loans, and saved $400 million per annum in the shape of future debt servicing liability." 

The post 9/11 situation provided a new window of opportunity for Pakistan. A surge in remittances through the banking channels started as US started scrutiny of money transfers, especially to determine whether dollars were flowing to terrorist organizations. 

This flow through the banking channels strengthened the rupee against the dollar and the rate dropped from over Rs64 to a dollar to Rs 59.53 by July 17, 2002. 

The SBP management was of the view that as a result of growing inflows, and relatively subdued import volumes, Central Bank had to intervene in the inter bank market more aggressively to stabilize rupee-dollar parity at around Rs60 to a dollar to cushion exports from Pakistan against undue competition.  

Dr. Hussain was also reported as saying that reserves were used as a tool of exchange rate and monetary policy management. 

The SBP used inter bank market to affect monetary policy by either supplying domestic currency to the market or buying it against foreign currencies.  

Defending this policy of dollar purchases to build up reserves, SBP had maintained the position that for ex level serves as a major confidence factor in the perceived risk assessments of a country. The costs of debt become much higher when the lenders know that country had no option except raising new loans to meet its obligations.  

Since nuclear tests of May 1998, and resultant sanctions, external capital flows also turned negative: minus $380 million in 1999-00 and minus $738 million in 2000-01, which was not tenable for a developing country with a large debt burden.

Despite this difficult situation, according to the State Bank, the country paid $3.76 billion in 1999-2000, $5.1 billion in 2000-01, and $6 billion in 20001-02 in servicing the external debt.  

Had there been no purchases, threat of default or much higher debt levels were quite imminent, SBP maintained defending its positions on dollar purchases from the open market. 

However the questions about the procedures of these purchases, what criteria were applied, who were the suppliers and who were the middlemen have not been addressed. 

According to a NAB source, if just two extra rupees were paid for each dollar to favorites, the total purchase of $5 billion would mean an whopping Rs 10 billion going out to unknown middlemen and agents of the big and the powerful, including many serving and retired generals. 

“This bonanza would be hard to resist and the State Bank authorities are acting dumb and deaf about these issues because revealing the details could mean exposing many big names in the current government set up,” an analyst said. It is however Prime Minister Jamali’s responsibility to clear these issues as his government would be blamed in future when these scandals are probed by future NAB authorities. 

Experts say if action was not taken now, Mr. Jamali would be seen as an accomplice.

Yet the Auditor General of Pakistan has already officially set the ball rolling by sending a report to the Presidency. The stone walling at the Presidency is keeping the lid tightly closed on the massive scandal.

Once names start appearing about the currency dealers and their powerful backers, the Musharraf Government will have to answer many questions, especially about alleged corruption at the higher levels.

A Report in 'The News' earlier said:

ISLAMABAD: Five audit reports of Pakistan Army containing details of "financial and administrative irregularities to tune of Rs 40 billion" in defence budget in 2001-2002, were tabled in National Assembly here Monday. 

The Auditor General of Pakistan in his five reports has identified many "common lapses and negligence" on the part of Army, such as "prevalent practice of violation of rules, procedures, regulations, weak internal financial control over spending." According to the AGP, these irregularities cover only the accounts of defence services, controllers military accounts, special audit report of GE (Army services), special audit of DW&CE (Air and DW&CE(Army) and cantonment boards. Many other audit reports of the federal ministries were also tabled in the House but their financial impact is less than that of the audit containing the details of irregularities in the military. 

Over three dozen government owned public enterprises were found involved in irregular spending of Rs 17 billion during the year 2001-2002. According to the AGP, the audit report on the accounts of defence services has topped the list of irregularities as over Rs 29 billion  were found misused, Rs 27 billion, recoverable, violation of rules, Rs 761 million, mismanagement, Rs 165 million, violation of propriety Rs 8.5 million, recoverable Rs 213 million, overpayments Rs 5.9 million, irregular expenditures Rs 43 million, unauthorized expenditure Rs 10.2 million, extra and avoidable expenditure Rs 2.6milloiin and others Rs 1.2 million. 

The special audit report on GE army services Rawalpindi covers irregularities. Mismanagement Rs 790 million, misuse Rs 2.9milion, recoverable Rs 109million, violation of rules Rs 32million and others Rs 40milloin. The audit report on the accounts of controller of military accounts covers the irregularities of Rs 6 billion on account of irregular expenditure, mismanagement Rs 56 million and unauthorised payments Rs 228 million. 

The audit report on accounts of defence services (DP division) covers the irregularities of Rs 858 million, recoverable Rs 18million, negligence Rs 2.3 million, unauthorised/irregular expenditure Rs 1.4 million, violation of rules, Rs 217million and others Rs 72million. Special audit report on the projects of DW&CE (air) DW and CE (Army) covers irregularities of Rs 132 million, violation of rules Rs 16.358 million, overpayments Rs1.4 million, recoverable Rs 4.8 million, others. 

Rs 4.4 million. Special audit report on the accounts of cantonment board covers the irregularities of Rs1.9 billion on account of mismanagement, recoverable Rs1.6 billion, violation of rules Rs34milloin and others Rs 7.7 million.
 

Response from NAB :

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