*Extracted pages (from 76 to 88) from the original book, related to Pakistan.

Exposing the massive corruption of Benazir, Zardari, Nawaz Sharif, and Military. By Raymond W. Baker

Pakistan Arguably the most dangerous nation on Earth, Pakistan is a bubbling cauldron of corruption and crime, where grasping politicians, greedy generals, drug smugglers, and terrorists intermix in a volatile web, made more threatening by a nuclear bazaar operated as a national sideline. Corruption and criminality run from the top down, with the political class constantly loot-

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ing the national treasury and distorting economic policy for personal gain. Bank loans are granted largely on the basis of status and connections. The rich stash much of their money abroad in those willing western coffers, while exhibiting little inclination to repay their rupee borrowings. Banks fail and Pakistanis lose their meager savings. At the bottom, wretched and illiterate masses seethe with discontent, a perfect nurturing ground for terrorism. It started a long time ago: In the distant past the East India Company used to siphon away a great deal of the assets and treasures of the Indian subcontinent or buy them at very low prices and send them abroad when the British ruled the country. But in recent decades it is the rich and crafty Pakistanis who have siphoned away a large part of the resources of the country with unremitting vigor. That began when a part of our export earnings was allowed to be kept abroad, with the practice of under-invoicing the exports or over-invoicing the imports. And that was followed by retaining abroad an increasing part of the money obtained as kickbacks during the import of machinery from the late 1950s. Later, politicians in ofce, senior bureaucrats and top military commanders joined them by sending their illegally earned money abroad. Subsequently, obtaining large bribes abroad and putting them in their bank accounts there became the fashion. Some of the top rulers too joined them merrily. . . . The total wealth siphoned away in this manner has been estimated to be between 60 billion and 100 billion dollars.51 Pakistans recent history has been dominated by two familiesthe Bhuttos and the Sharifsboth merely tolerated by the military, the real power in the country. When it comes to economic destruction, theres not a lot of difference among the three. Benazir Bhutto. Born in Karachi in 1953 and educated in private schools, Benazir Bhutto graduated from Radcliffe College at Harvard University in 1973. Going on to Oxford for a masters degree, she displayed her budding political skills and was elected president of the Student Union in 1977. Meanwhile, her father had become prime minister of Pakistan in

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1971, was ousted in a military coup in 1977, and was executed in 1979 on charges of conspiracy to commit murder. In and out of prison and house arrest, Benazir was not allowed to leave the country until 1984 but then returned to lead the democracy movement two years later. Her fathers usurper, General Muhammad Zia ul-Haq, was killed in a mysterious plane crash in 1988, which also took the life of the U.S. ambassador Arnold Raphel, and the head of the U.S. military aid mission to Pakistan, General H.M. Wasson. Benazir was elected prime minister that year, served until her ouster in 1990 on charges of corruption and nepotism, was reelected in 1993, and ousted again in 1996, amidst more charges of corruption. During her two terms in ofce and since, what has come out portrays Bhutto and her husband Asif Ali Zardari as world-class thieves. Upon taking ofce in 1988, Bhutto reportedly appointed 26,000 party hacks to state jobs, including positions in state-owned banks. An orgy of lending without proper collateral followed. Allegedly, Bhutto and Zardari gave instructions for billions of rupees of unsecured government loans to be given to 50 large projects. The loans were sanctioned in the names of front men but went to the Bhutto-Zardari combine. 52 Zardari suggested that such loans are normal in the Third World to encourage industrialisation.53 He used 421 million rupees (about 10 million) to acquire a major interest in three new sugar mills, all done through nominees acting on his behalf. In another deal he allegedly received a 40 million rupee kickback on a contract involving the Pakistan Steel Mill, handled by two of his cronies. Along the way Zardari acquired a succession of nicknames: Mr. 5 Percent, Mr. 10 Percent, Mr. 20 Percent, Mr. 30 Percent, and nally, in Bhuttos second term when he was appointed minister of investments, Mr. 100 Percent. The Pakistan governments largest source of revenues is customs duties, and therefore evasion of duties is a national pastime. Isnt there some way to tap into this major income stream, pretending to ght customs corruption and getting rich at the same time? Of course; we can hire a reputable (or disreputable, as the case may be) inspection company, have the government pay the company about a one percent fee to do price checking on imports, and get multimillion-dollar bribes paid to us upon award of the contracts. Socit Gnrale de Surveillance (SGS), headquartered in Switzerland, and its then subsidiary Cotecna, the biggest group in the inspection business, readily agreed to this subterfuge. Letters in 1994 promised consultancy fees, meaning kickbacks, of 6 percent and 3 percent to two British Virgin Island (BVI)

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companies, Bomer Finances Inc. and Nassam Overseas Inc., controlled by Bhutto and Zardari. Payments of $12 million were made to Swiss bank accounts of the BVI companies.54 SGS allegedly has paid kickbacks on other inspection contracts around the world. Upon being accused in the inspection kickback scheme, Bhutto sniffed, I ran the government to the best of my honest ability. And I did it for nothing but acknowledgment and love.55 Then there was the 1994 deal to import $83 million worth of tractors from Poland. Ursus Tractors allegedly paid a 7 percent commission to another of Zardaris Caribbean companies, Dargal Associated. Bhutto waived import duties on the tractors, costing the Pakistani government some 1.7 billion rupees in lost revenues. Upon discovery of this scheme the Poles hastened to turn over 500 pages of documentation conrming the kickback.56 The Polish tractor deal was just a warm-up for the French ghter jet deal. After the U.S. government cancelled a sale of two squadrons of F-16s, Bhutto dangled a $4 billion contract for Mirages in front of the French Dassault Aviation; Snecma, the engine manufacturer; and Thomson-CSF, producer of aviation electronics. Without missing a beat they allegedly agreed to pay a remuneration of 5 percent to Marleton Business S.A., yet another of Zardaris British Virgin Island companies.57 This would have generated a tidy $200 million for the Bhutto-Zardari couple, but unfortunately for them she was driven from ofce before they could collect. Ah, but the gold deal gave some comfort to these aspiring kleptocrats. Gold is culturally important in the Asian subcontinent, in particular as a way for women to accumulate wealth. Upwards of $100 billion is invested in this unproductive asset in Pakistan, India, and surrounding countries. Smuggling is big business. Ostensibly to regulate the trade, a Pakistani bullion dealer in Dubai, Abdul Razzak Yaqub, asked Bhutto for an exclusive import license. In 1994, yet another Zardari offshore company, M.S. Capricorn Trading, was created in the British Virgin Islands. Later in the year, Jens Schlegelmilch, a Swiss lawyer who was the Bhutto familys attorney in Europe and close personal friend for more than 20 years,58 opened an account for Capricorn Trading at the Dubai branch of Citibank. According to a 1999 U.S. Senate report: Mr. Schlegelmilch did not reveal to the Dubai banker that Mr. Zardari was the benecial owner of the PIC [private investment company], and the account manager never asked him the identity of the benecial owner of the account. . . . Shortly after opening the account in Dubai, Mr. Schlegelmilch signed a standard referral agreement with

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Citibank Switzerland private bank guaranteeing him 20 percent of the rst three years of client net revenues earned by the bank from each client he referred to the private bank.59 In other words, Citibank was contracting to pay a nders fee for millions brought in from dubious sources. Citibank went on to open three accounts in Switzerland for Zardari, with Schlegelmilch as the signatory. In October 1994, Citibank records show that $10 million was deposited into Capricorns Dubai account by Razzak Yaqubs company, A.R.Y. International Exchange.60 In December, Razzak Yaqub received an exclusive import license and proceeded over the next three years to ship more than $500 million in gold to Pakistan. Additional deposits owed into the Dubai and Swiss Citibank accounts, and funds also were shifted to Citibank Channel Island subsidiaries. The original ceiling on the accounts of $40 million was reached quickly.61 Toward the end of her second term, the Bhutto case took a bizarre turn. Representatives of the Pakistan Muslim League, an opposition party, met in 1995 with private investigators in London who offered documentary proof from an unnamed source of Bhuttos corruption, in return for a modest fee of $10 million. That deal was not consummated, but two years later, with Bhutto out of ofce and under investigation, the offer was reportedly concluded for $1 million.62 The documents appeared to have been taken from the Geneva ofce of Jens Schlegelmilch.63 In 2000 Pakistans National Accountability Bureau, with the thankless task of investigating corruption, drew upon these documents and other sources and released details of assets and accounts belonging to Bhutto and Zardari. Even to jaded observers, the scale of their holdings was stunning: hundreds of properties, dozens of companies, and dozens of bank accounts. A partial listing of only foreign holdings reported by the National Accountability Bureau is provided in Table 3.4.64 Summarizing this and other documentation, the New York Times reported that the material included . . . letters from executives promising payoffs, with details of the percentage payments to be made; memorandums detailing meetings at which these commissions and remunerations were agreed on, and certicates incorporating the offshore companies used as fronts in the deals. . . . The documents also revealed the crucial role played by Western institutions. Apart from the companies that made payoffs, and the network of banks that handled the money . . . the arrangements made by

Dirty Money at Work TABLE 3.4 Country United Kingdom France FOREIGN ASSETS ALLEGEDLY BELONGING TO BHUTTO AND ZARDARI Properties/Companies Rockwood Estate, Surrey, 20 room mansion, 355 acres, polo grounds; 4 London ats Normandy chateau, in Zardaris parents name; Cannes properties Bank Accounts Barclays Bank, 3 accounts; National Westminster Bank; Harrods Bank; Midland Bank

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Switzerland

United States

Wellington Club East, Florida; India Mound, Florida; 3 residential properties, Florida; Lapworth Investment, Florida; Intro Food, Florida; Dynatel Trading, Florida; A.S. Realty, Florida; Bon Voyage Travel, Florida

Crdit Agricole, 3 accounts; Banque Nationale de Paris; Banque La Henin Union Bank of Switzerland; Barclays Bank (Geneva); Citibank (Geneva); Banque Nationale de Paris; Swiss Bank Corporation; Credit Suisse; Pictet et Cie; Banque Francaise du Commerce; Cantrade Ormond Burrus; Banque Pasha Barclays Bank, New York; Citibank, New York; UBS, New York

British Virgin Islands

Bomer Finance, Mariston Securities, Marleton Business, Capricorn Trading, Dargal Associated, Fargarita Consulting, Marvil Associated, Penbury Finance, Oxton Trading, Brinslen Investment, Climitex Holding, Elkins Holding, Minterler Invest, Silvernut Investment, Tacolen Investment, Tulerston Invest, Marledon Invest, Dustan Trading, Reconstruction and Development Finance, Nassam Alexander

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the Bhutto family for their wealth relied on Western property companies, Western lawyers and a network of Western friends.65 Even the Swiss nally had had enough. Seventeen bank accounts linked to Bhutto and Zardari were frozen. The two were charged with money laundering in connection with bribes received from the inspection company SGS and were convicted by a Swiss court in 2003, with nes and suspended prison sentences. This was short-lived; the decision was overturned and referred back to cantonal prosecutors upon appeal. Meanwhile, Zardari was in prison in Pakistan from 1996 to 2004 on assorted charges. Bhutto, with her father executed, two brothers assassinated, her mother an amnesiac, her husband still troublesome, and she living in exile between London and Dubai, portrays herself as the victim: I never asked for power. I think they [the Pakistani people] need me. I dont think its addictive. You want to run away from it, but it doesnt let you go. . . . I think the reason this happens is that we want to give love and we receive love.66 Save your tears. In the global collection of displaced leaders, Benazir Bhutto may be the least sympathetic character of all. Nawaz Sharif. While Benazir Bhutto hated the generals for executing her father, Nawaz Sharif early on gured out that they held the real power in Pakistan. His father had established a foundry in 1939 and, together with six brothers, had struggled for years only to see their business nationalized by Ali Bhuttos regime in 1972. This sealed decades of enmity between the Bhuttos and the Sharifs. Following the military coup and General Zias assumption of power, the businessIttefaqwas returned to family hands in 1980. Nawaz Sharif became a director and cultivated relations with senior military ofcers. This led to his appointment as nance minister of Punjab and then election as chief minister of this most populous province in 1985. During the 1980s and early 1990s, given Sharif s political control of Punjab and eventual prime ministership of the country, Ittefaq Industries grew from its original single foundry into 30 businesses producing steel, sugar, paper, and textiles, with combined revenues of $400 million, making it one of the biggest private conglomerates in the nation. As in many other countries, when you control the political realm, you can get anything you want in the economic realm. With Lahore, the capital of Punjab, serving as the seat of the familys

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power, one of the rst things Sharif did upon becoming prime minister in 1990 was build his long-dreamed-of superhighway from there to the capital, Islamabad. Estimated to cost 8.5 billion rupees, the project went through two biddings. Daewoo of Korea, strengthening its proposals with midnight meetings, was the highest bidder both times, so obviously it won the contract and delivered the job at well over 20 billion rupees. A new highway needs new cars. Sharif authorized importation of 50,000 vehicles duty free, reportedly costing the government $700 million in lost customs duties. Banks were forced to make loans for vehicle purchases to would-be taxi cab drivers upon receipt of a 10 percent deposit. Borrowers got their Nawaz Sharif cabs, and some 60 percent of them promptly defaulted. This left the banks with $500 million or so in unpaid loans. Vehicle dealers reportedly made a killing and expressed their appreciation in expected ways. Under Sharif, unpaid bank loans and massive tax evasion remained the favorite ways to get rich. Upon his loss of power the usurping government published a list of 322 of the largest loan defaulters, representing almost $3 billion out of $4 billion owed to banks. Sharif and his family were tagged for $60 million. The Ittefaq Group went bankrupt in 1993 when Sharif lost his premiership the rst time. By then only three units in the group were operational, and loan defaults of the remaining companies totaled some 5.7 billion rupees, more than $100 million.67 Like Bhutto, offshore companies have been linked to Sharif, three in the British Virgin Islands by the names of Nescoll, Nielson, and Shamrock68 and another in the Channel Islands known as Chandron Jersey Pvt. Ltd.69 Some of these entities allegedly were used to facilitate purchase of four rather grand ats on Park Lane in London, at various times occupied by Sharif family members. Reportedly, payment transfers were made to Banque Paribas en Suisse, which then instructed Sharif s offshore companies Nescoll and Nielson to purchase the four luxury suites.70 In her second term, Benazir Bhutto had Pakistans Federal Investigating Agency begin a probe into the nancial affairs of Nawaz Sharif and his family. The probe was headed by Rehman Malik, deputy director general of the agency. Malik had fortied his reputation earlier by aiding in the arrest of Ramzi Yousef, mastermind of the 1993 World Trade Center bombing. During Sharif s second term, the draft report of the investigation was suppressed, Malik was jailed for a year, and later reportedly survived an

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assassination attempt, after which he ed to London. The Malik report, ve years in the making, was released in 1998, with explosive revelations: The records, including government documents, signed afdavits from Pakistani ofcials, bank les and property records, detail deals that Mr. Malik says beneted Mr. Sharif, his family and his political associates: At least $160 million pocketed from a contract to build a highway from Lahore, his home town, to Islamabad, the nations capital. At least $140 million in unsecured loans from Pakistans state banks. More than $60 million generated from government rebates on sugar exported by mills controlled by Mr. Sharif and his business associates. At least $58 million skimmed from inated prices paid for imported wheat from the United States and Canada. In the wheat deal, Mr. Sharif s government paid prices far above market value to a private company owned by a close associate of his in Washington, the records show. Falsely inated invoices for the wheat generated tens of millions of dollars in cash.71 The report went on to state that The extent and magnitude of this corruption is so staggering that it has put the very integrity of the country at stake.72 In an interview, Malik added: No other leader of Pakistan has taken that much money from the banks. There is no rule of law in Pakistan. It doesnt exist.73 What brought Sharif down in his second term was his attempt to acquire virtually dictatorial powers. In 1997 he rammed a bill through his compliant parliament requiring legislators to vote as their party leaders directed. In 1998 he introduced a bill to impose Sharia law (Muslim religious law) across Pakistan, with himself empowered to issue unilateral directives in the name of Islam. In 1999 he sought to sideline the army by replacing Chief of Staff Pervez Musharraf with a more pliable crony. He forgot the lessons he had learned in the 1980s: The army controls Pakistan and politicians are a nuisance. As Musharraf was returning from Sri Lanka, Sharif tried to sack him in midair and deny the Pakistan International Airways ight with 200 civilians on board landing rights in Karachi. Musharraf radioed from the aircraft through Dubai to his commander in Karachi, order-

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ing him to seize the airport control tower, accomplished as the plane descended almost out of fuel. Musharraf turned the tables and completed his coup, and Sharif was jailed. But Sharif had little to fear. This, after all, is Pakistan. Musharraf needed to consolidate his power with the generals, and Sharif knew details about the corruption of most of the brass. Obviously, it is better to tread lightly around the edges of your peer groups own thievery. So Musharraf had Sharif probed, tried, convicted, and sentenced to life in prison, but then in 2000 exiled him to Saudi Arabia. Twenty-two containers of carpets and furniture followed, and, of course, his foreign accounts remained mostly intact. Ensconced in a glittering palace in Jeddah, he is described as looking corpulent amidst opulent surroundings.74 Reportedly, he and Benazir Bhutto even have an occasional telephone conversation, perhaps together lamenting how unfair life has become. Military, Inc. The Pakistani military controls some of the largest business conglomerates in the nation and has monopolies in several areas of production and services. As chief of the army, Musharraf heads a vast empire of industrial, commercial, and real estate interests worth an estimated $5 billion.75 A principal function of these businesses is to serve as a private piggy bank for the privileged military hierarchy. Four foundations, originally created to provide welfare for retired soldiers, are now bloated enterprises employing tens of thousands and generating hundreds of millions in annual revenues. The largest is Fauji Foundation, fauji meaning military. Each of the armed services has its own individual foundation: Army Welfare Trust, under Army GHQ; Bahria Foundation, under Navy HQ; and Shaheen Foundation, under Air Force HQ. The vast scope of these foundation holdings can be seen in the range of their subsidiary operations, as shown in Table 3.5. As for the rest of the commanding heights of the economy, what the military does not own it controls. Active or retired ofcers have recently or still now head the National Highway Authority, the water and power agency, the tax collection agency, Karachi Electric Supply, the Employees Old Age Benet Institution, the Federal Public Services Commission, the National Accountability Board, and much more.76 Musharraf reportedly has appointed some 500 ofcers to positions as chairmen, directors, agency heads, and commissioners, permeating every aspect of the economy. You cannot

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TABLE 3.5 PAKISTANI MILITARY FOUNDATION HOLDINGS Foundation Fauji Foundation Holdings Fauji Cereal, Fauji Poly Propylene Products, Fauji Sugar Mills, Fauji Oil Terminal, Fauji Cement, Fauji Corn Complex, Fauji Kabirwala Power Company, FONGAS, Fauji Jordan Company, Fauji Fertilizer Company, Mari Gas Company Army Welfare Sugar Mill, Askari Housing Scheme, Army Welfare Shoe Project, Askari Welfare Rice Mill, Army Welfare Woolen Mill, Askari Welfare Pharmaceutical Project, Army Welfare Hosiery Unit, Askari Stud Farms, Askari Commercial Bank, Askari Fish Farm, Askari Commercial Enterprises, Askari Welfare Saving Scheme, Askari Power Limited, Askari Associate Limited, Askari Information Service, Askari Leasing, Magnesite Reneries Limited, Askari Aviation Bahria Construction, Bahria Bakery, Bahria Holdings, Bahria Catering and Decoration, Bahria Dredging, Bahria Security and Systems Services, Bahria Coastal Services, Bahria Travel and Recruiting Agency, Bahria Diving and Salvage, Bahria Complexes, Bahria Shipping, Bahria Town and Housing Schemes, Bahria Ship Breaking, Bahria Farming, Bahria Harbor Services, Bahria University, Bahria Deep Sea Fishing, Falah Trading Agency, Bahria Paints Shaheen Airport Services, FM-100 radio channel, Shaheen Air Cargo, Shaheen Knitwear, Shaheen Air International, Shaheen System, Shaheen Aerotraders, Shaheen Complex

Army Welfare Trust

Bahria Foundation

Shaheen Foundation

Source: Ayesha Siddiya-Agha, Power, Perks, Prestige and Privileges: Militarys Economic Activities in Pakistan, paper presented at the International Conference on Soldiers in Business, Jakarta, Indonesia, October 1719, 2000. Also, interview with Ayesha Siddiya-Agha by the author, Washington, D.C., September 7, 2004.

turn around in Pakistan without putting money into service coffers. With what is almost certainly the largest holdings on the Karachi Stock Exchange77 and vast holdings outside the exchange, the military owns, controls, and directs the economy of the country and is not about to give it up. And what do rich generals do with their money? Why, they take it offshore, just like rich politicians and rich businesspeople. Court papers have listed innumerable generals, other ofcers, and their family members with

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substantial foreign bank accounts. This is part of the reason why Nawaz Sharif was allowed to go into exile in Saudi Arabia; he knew their foreign holdings well. Pakistans pursuit and attainment of nuclear weapons and transfer of bomb-building components provides a frightening example of the many failings of the Pakistani state. A.Q. Khan stole centrifuge blueprints in Europe and then returned home to build a secret nuclear lab near Islamabad, supported by the notorious BCCI. According to a thorough New York Times report, Dr. Khan boasted, My long stay in Europe and intimate knowledge of various countries and their manufacturing rms was an asset. Business executives and merchants, including German, Dutch and French middlemen, ocked to Pakistan to offer price lists for high-technology goods and learn what Pakistan needed. The multilingual Dr. Khan led the acquisition effort. His shopping spree spanned the world. Africa was important because of the materials needed. . . . Europe was crucial for bringing in high-tech machines and components. Dubai was the place for shipments and payments.78 When Khan purchased components from his willing suppliers, he bought much more than needed by Pakistan alone, apparently with the early intent of selling nuclear materials to other countries. By the late 1980s he was supplying Iran, by 1991 North Korea, and at least as early as 1997 was in negotiations with Libya. The Libyan deal leaked, caused an international uproar, and Khan was forced out of the lab bearing his name. He made a public confession and was immediately pardoned by Musharraf and allowed to keep the millions in property and cash he had accumulated in Pakistan and abroad. Reports suggest that his daughter hastened out of the country with documents and a videotape in which Khan claims that all the chiefs of army staff since 1977, including Musharraf, were aware of his actions.79 The bottom line on Pakistan is that ruling elites were and continue to be thoroughly corrupted, and western business and banking sectors have in the past and continue today to service their corruption. Billions of dollars have been siphoned abroad, millions of people are deprived and uneducated, drugs move freely, terrorism nds accommodation, and nuclear sales threaten global stability.