Securities Fraud & Financial Crimes | The Case LawyerFraud & Financial Crime Lawyer in Pakistan

Financial Crimes in Pakistan

Financial corruption and commission of white-collar crimes and corruption in the business of real estate in our society are the big issues being faced nowadays are liable to be curbed with iron hands but it also must be kept in mind that no persecution be caused against the innocent person by setting into motion machinery of law.

Financial loss to society from white-collar crimes is greater than the financial loss from burglaries, robberies, and larcenies committed by persons of lower socio-economic class. Cases of financial crimes are generally of an intricate and complex nature and the whole transaction and each component part of the scam need to be viewed in a holistic manner and not in isolation because in most cases the offense cannot be committed without the active involvement of the accused person in the chain of events which leads to the commission of the offense.

White Collar Crimes

All white-collar crimes were not crimes against society and likewise, all crimes against society were not white-collar crimes. Each crime must have been judged on its own particular facts and circumstances and existing background to determine its effect on society and whether the same qualifies as a crime against society.
USA law and heavy sentences imposed thereunder for white-collar crime although helpful in assessing global attitudes to this type of crime is in our view not of huge assistance to us. This is because the USA legislature has most probably laid down the maximum sentence for the commission of such offenses as has the Pakistani legislature.
Furthermore, in the USA examples, it appears that heavy sentences were given based on sentencing guidelines that are not present in the criminal justice system of Pakistan.
The creation of such sentencing guidelines may be of immense value in the Pakistani criminal justice system especially where a sentence is said to be up to a given maximum number of years.
This is because the use of such guidelines would most probably lead to greater consistency in sentencing throughout the country based on the particular facts and circumstances of the case and would avoid criticism of arbitrariness or discrimination in sentencing and thereby hopefully enhance the public’s confidence in the criminal justice system and the administration of justice.
Pakistani system of Governance as per our Constitution which envisages a trichotomy of powers it is not for the Courts to make appropriate sentences for particular offenses. This role lies within the domain of the legislature and not the judiciary, one of whose roles is to interpret that law if called upon to do so.
The government needs to be stamped out with any form of corruption, tax evasion, money laundering, illegal cartelization with an iron hand.

Such must be done in accordance with law and by following due process as mandated by Art.  10-A of the Constitution so that every suspect has a fair opportunity to clear his name and position. Only through the Executive following the law, acting in accordance with law and treating everyone equally before the law, and jealously guarding suspects, due process rights and dignity as mandated by Arts. 4, 25, 10-A & 14 of the Constitution, is the rule of law and good governance, which enhances the faith of people in a democratic system to grow.

Contact Us Today

MAIN OFFICE
1st Floor, Plaza 786, Sector O-9, PWD Double Road, Commercial Area, Islamabad - 44000 Pakistan
E-MAIL
info@thecaselawyer.com
WORKING HOURS
Mon to Sat: 09:00 AM – 10:00 PM

Fraud & Financial Crimes

White Collar Crimes

In 1939 sociologist Edwin H. Sutherland published his pioneering study regarding WHITE COLLAR CRIMES. He defined White Collar Crime to be an offense committed by a person of respectability and high social status in the course of his occupation. The financial cost of white-collar crimes is several times greater than the economic consequences of common crimes.

White-collar crime cases are usually committed in a planned manner by well-organized persons and they work underhand mechanisms. In such cases standard of evidence, normally available in ordinary circumstances cannot be expected.

White-collar crime is totally different in nature from common crimes that take place in society. Documents in such cases are generally prior to or during the commission of the offense which is essential and normally makes up the major part of the evidence. Bank records, accounting records, legal documents, or instruments are normally the basis for the case.

Documents may very well prove circumstances around the alleged offense but they may not necessarily provide all essential elements of criminal charge e.g. the intention of the subject. Personal correspondence, notes in daily timers, mobile phone records must not be overlooked as there may be the evidence needed to prove elements that are not readily apparent in the books and records.

List of Financial Crimes in Pakistan
  • Tax frauds:
  • Corruption and Corrupt Practices (NAB & Anti-Corruption):
  • Money Laundering:
  • Dishonoring of cheque 489-f cases:
  • Fraud, Cheating, and Forgery Cases:
Tax Frauds

“If prosecution degenerates into persecution, the Court cannot sit as a helpless spectator.”

Tax crimes are white-collar crimes that impose civil, as well as, criminal penalties for evasion of tax, etc. Even though the two sets of penalties are distinct and independent with separate objectives and consequences, yet this distinction is at times forgotten, resulting in
over-criminalization.

Talking about the offense of tax fraud under clause 13 of section 33 (above). Tax fraud has been defined in section 2(37) of the Act as:–

“tax fraud” means knowingly, dishonestly or fraudulently and without any lawful excuse (burden of proof of which excuse shall be upon the accused)–

doing of any act or causing to do any act; or

omitting to take any action or causing the omission to take any action, including the making of taxable supplies without getting registration under this Act; or

falsifying or causing falsification of the sales tax invoices in contravention of duties or obligations imposed under this Act or rules or instructions issued thereunder with the intention of understating the tax liability or underpaying the tax liability for two consecutive tax periods or overstating the entitlement to tax credit or tax refund to cause loss of tax.”

In essence tax fraud is falsifying a tax invoice with the intention to understate the tax liability, or to underpay the tax liability or overstate the entitlement to tax credit or tax refund to cause loss of tax.

Even if we assume that the Special Judge convicts the taxpayer, he cannot award the sentence, as “fine” is dependent on the “amount or loss of tax involved” and it is not within the competence or jurisdiction of the Special Judge to assess tax or determine the “amount or loss of tax involved” which is not part of the offense but of the sentence.

Further, the facility of compoundability under section 37(A)(4) is not available to the taxpayer, unless the amount of tax due and penalties as determined under the Act.

Practicality, workability, and enforceability of making certain fiscal crimes as crimes against society must also be considered in the light of the current environment in relation to tax payment in Pakistan.

In determining this issue in our view, we need to consider the environment in which we live. In Pakistan at the moment precious few people, proprietorships, partnerships, or companies pay tax.

The emphasis is either on tax avoidance (legal) or mainly tax evasion (illegal) by simply not paying tax. Despite promises made by successive Governments to increase/broaden the tax base, it appears that little headway has been made in this respect.

Now if we consider Pakistan’s economic and financial position it appears that it is in poor shape with the Government of the day often resorting to loans from the IMF etc. Perhaps if more tax was paid and collected this would not be the position and the State would not find itself in the position of constantly taking loans that will need to be repaid and potentially will hang around the neck of future Governments.

If more tax was paid it is likely that more money could be put into the important but neglected areas of education and health for the people of this Country whose budgetary allocation remains very small compared to its need.

Tax is a fiscal tool to regulate the monetary policy of the State, hence, the primary focus of tax law is the levy and collection of tax. However, as a white-collar crime, tax evasion, etc has also been criminalized with the collateral effect of retribution and deterrence, in addition to achieving the fiscal incentives of the State.

Inquiry or investigation can be initiated on the basis of “information or sufficient material” received by the Commissioner against a taxpayer under proviso to section 25(2) of the Act. It is axiomatic that any such inquiry or investigation must lead to further proceedings against the taxpayer in case of an adverse finding against the taxpayer. The Act is surprisingly silent regarding the nature of further proceedings to be adopted after the said inquiry or investigation is completed.

Under the new regime of white-collar crimes or tax crimes, even civil wrongs have been categorized as an offense, attracting both civil and criminal penalties. While assessment of tax liability is characteristically a civil proceeding, tax evasion or tax fraud, etc. can also be a tax crime and attract both civil, as well as, criminal penalties.

Under civil proceedings, the tax is assessed and recovered as compensation along with monetary penalties, while under criminal prosecution, tax evaders are punished with imprisonment or fine, or both. Civil and criminal proceedings have different objectives and achieve different ends.

Tax crimes can lead to criminal prosecution leading to conviction and punishment and yet simultaneously, for the same tax crime, civil proceedings for assessment of tax and its subsequent recovery can be initiated. The role and character of an adjudicator in assessing the tax liability and of a special judge in convicting the tax evader are distinct and entail different sets of procedures and evidentiary standards.

Hence, a Special Judge while convicting the taxpayer for an offense cannot assess the amount of tax due and similarly, an Officer of Inland Revenue carrying out the assessment of tax cannot convict the taxpayer.

Civil adjudicatory process for assessment of tax has been laid down in the Act and entrusted to the officers of the Inland Revenue followed by a complete appellate redressal system, in the shape of a departmental appeal followed by an appeal before the Appellate Tribunal Inland Revenue and then a Tax Reference before the High Court.

The recovery mechanism under section 48 of the Act comes into operation once a tax is assessed and penalties imposed go unpaid. A tax assessment system based on adjudication has a central role in any tax law and precedes the collection and recovery of tax.

Under the proposed sales tax system the taxpayer will be allowed the facility of deferred payment of sales tax. Instead of paying the tax before the goods are cleared from the factory premises, the taxpayer under the proposed system will himself determine his tax liability in respect of sales made during the course of a month and pay the tax due by the 20th of the following month.

He has also been allowed the facility to deduct the tax which he has paid on his business purchases from the tax due on his sales and thus the proposed system provides for automatic adjustment of input tax. In short, the proposed sales tax system is based on self-assessment procedures.

The tax regulators monitor this self-assessment system through a neutral and impartial tool of audit under section 72B. There is no other mechanism under the Act to lift the veil of
self-assessment, protecting the monthly tax return filed by the taxpayer.

Once the case of a taxpayer is selected for audit under section 72B, the return is closely scrutinized and on completion of the audit, if any of the grounds under section 11 are attracted, an assessment order is passed against the taxpayer, adjudicating the actual tax liability along with penalties under section 33 and default surcharge under section 34 of the Act.

The taxpayer is not a defaulter unless “tax due” is first assessed and determined under the provisions of the Act. Section 25(5) provides that before, during, and after the audit proceedings the taxpayer has the option to deposit the tax along with default surcharge and penalties to avoid further proceedings. Recovery and collection of tax, therefore, remains the central focus of the Act.

Corruption and Corrupt Practices (NAB & Anti-Corruption)

National Accountability Ordinance, 1999 was promulgated as a measure for recovering state money and for checking corruption and corrupt practices, and for taking action against those who misused their power and authority while enriching themselves at the cost of society.

The ‘Preamble’ of the Ordinance clearly reveals that the Ordinance is aimed to provide for effective measures for the ‘detection, investigation, prosecution and speedy disposal of cases involving corruption and corrupt practices.

Accordingly, we can divide the functions of NAB, as provided in the Ordinance, into three different categories namely; detection, investigation, and prosecution.

Matters concerning NAB are considered to be criminal in nature and have to be dealt with in accordance with NAB laws. Matters pertaining to NAB neither can be considered to be cases of civil nature nor can be dealt with by the civil court.

Aid or Abetment in Corruption Cases:

According to Section 9(a)(xii) of NAO, 1999 if someone aids, assists, abets, attempts, or acts in conspiracy with a person or a holder of public office, accused of an offense defined in Section 9(a) (i) to (xi) of NAO, 1999, can be punished under Section 10 of NAO, 1999 for a term which may extend to 14 years. This Section was not originally in the Ordinance but was added through Ordinance No. CXXXIII of 2002 dated 23.11.2002 obviously without retrospective effect.

The difference between an aider/ abettor and a beneficiary is quite obvious. A person aiding or abetting another in an act is privy to the act itself but a beneficiary takes benefit or advantage of the act after the event and he may not necessarily be a party to the act itself.

The offense of abetment has been defined by section 107 of the Pakistan Penal Code. The definition shows in the first instance, that a person abets the doing of a thing who instigates any person to do that thing. Secondly, a person is also said to abet the doing of a thing who engages with one or more other persons or persons in any conspiracy for the doing of that thing, if an act or illegal omission takes place in pursuance of that conspiracy, and in order to the doing of that thing. Thirdly, a person is said to abet the doing of a thing if he intentionally aids, by any act or illegal omission, the doing of that thing.

In Ballentine’s Law Dictionary the word instigate has been defined to mean ‘to stimulate or goad to action, especially a bad act, to incite, to foment, especially the commission of a crime. The same word has also been defined by Black’s Law Dictionary as ‘to stimulate or goad to an action, especially a bad action’. ‘Instigation’ has been defined by the same Dictionary to mean

‘incitation, urging, solicitation. The act by which one incites, another to do something, as to commit some crime or to commence a suit.

It is evident from the definition of abetment contained in section 107, Cr.P.C. men’s rea would be an essential ingredient of the said offense.

Maxwell on the Interpretation of Statutes (12th Edn.) at page 123 observes: ‘where an offense is created by Statute, however comprehensive and unqualified the language of the Statute, it is usually understood as silently requiring that the element of men’s rea should be imported into the definition ‘of the crime unless a contrary intention is expressed or implied.

The definition of abetment in section 107, P.P.C. relates to instigation, conspiracy, and intentional aiding. An element of criminality must, therefore; be clearly spelt out before a person can be indicted for abetment.

Plea Bargain or Voluntary Return:

The National Accountability Bureau Ordinance, 1999 (“Ordinance”) provided in section 25 provision for ‘voluntary return’ and ‘plea bargaining.

The provisions of section 25 of the Ordinance have evolved, since its original enactment in 1999, wherein it read as follows:–

“25. Voluntary return/plea bargaining: Where before the commencement of the trial at any time thereafter, with the leave of the Court, the holder of a public office or any other person accused of any offense under this Ordinance voluntarily returns to the NAB, the assets or gains acquired through corruption or corrupt practices and discloses the full particulars relating thereto, the Chairman NAB, may release the accused person with the leave of the Court, or, proceed with the trial subject to such conditions if any, as may be imposed by the Court.”

Soon after the promulgation of the Ordinance, the vires of various provisions thereof were challenged in the Supreme Court of Pakistan. The apex court, in its authoritative judgment in the case of Khan Asfandyar Wali Khan and others v. Federation of Pakistan (PLD 2001 SC 607) dilated upon, inter alia, the provisions of section 25 of the Ordinance and held that;

“266. A perusal of the Preamble of the NAB Ordinance shows that it is a composite and extensive law and its interpretation has to be done in a manner different from the normal interpretation placed on purely criminal statutes. This law deals with, among others, the setting up of the National Accountability Bureau, which is an executive as well as administrative authority and an investigation agency; which deals with several aspects of ‘corruption’, etc. The NAB does not merely deal with crimes of corruption, it also deals with their investigation and settlement out of Court. Bargaining out of Court is now an established method by which things are settled in several developed societies. It was necessary in cases where the criminal is a potential investor and is interlinked with the economy of the society, he should be given an opportunity to play his role in the society after he has cleared his liability. There appears to be nothing amiss

insofar as it does not oust the jurisdiction of the accountability Courts to exercise their judicial power in appropriate proceedings. Rather this is in the nature of the facility provided to the accused. There is nothing wrong with the NAB Ordinance providing for a procedure of bargaining.

267. Moreover, the scheme for exploring the possibility of settlement during the investigation/inquiry stage by the Chairman, NAB cannot be ignored straight away. At the outset, most of the lawyers tend to consider the question of settlement out of Court. There is a need to focus attention on this significant facet of the matter. The rationale behind the Ordinance is not only to punish those who were found guilty of the charges leveled under the Ordinance but also to facilitate early recovery of the ill-gotten wealth through a settlement where practicable. The traditional compromise, settlement; the compound ability of offense during the course of proceedings by the Courts after protracted litigation is wasteful. Viewed in this perspective, power has been vested in the Chairman, NAB to facilitate early settlement for recovery of dues through ‘plea bargaining’ where practicable. Lawyers are often interested in settling the disputes of their clients on a just, fair, and equitable basis.

There are different approaches to settlement. Plea bargaining is not desirable in cases opposed to the principles of public policy. Chairman, NAB/Governor, State Bank of Pakistan, while involved in plea bargaining negotiations, should avoid using their position and authority for exerting influence and undue pressure on parties to arrive at a settlement. However, in the interest of revival of the economy and recovery of outstanding dues, any type of alternate resolution like the ‘plea bargaining’ envisaged under section 25 of the Ordinance should be encouraged. An accused can be persuaded without pressure or threat to agree on a settlement figure subject to the provisions of the Ordinance establishing this procedure at the investigation/inquiry stage greatly reduces determination of such disputes by the Court.

However, as the plea bargaining/compromise is in the nature of compounding the offenses, the same should be subject to the approval of the Accountability Court. Accordingly, section 25 of the impugned Ordinance be suitably amended.”

It is worth mentioning here that the offenses and its mode of commission fall within the ambit of “white-collar crimes” which has its own salient features and peculiar circumstances and therefore a line of distinction is to be drawn between an ordinary offense and that of a ”white-collar crime” which is to be kept in view while sifting the evidence and approach for such evaluation must be dynamic so that conjectural presumptions and hyper technicalities having no nexus with the merits of the case could be eliminated even at the bail stage.

Thus, it is imperative for the accused to show that he has no nexus with the crime even if the material collected by the prosecution is tentatively taken as correct. But on the other hand, the available record must suggest that the accused is a key player as the documentation was his domain.

White-collar crimes are not easy to detect and trace and could not be equated with other general offenses. In such cases, accused persons are to be confronted with documents and inquire about the same repeatedly in order to build up a chain and for such a purpose.

It is by now settled that the intricacies and complications involved in ‘white-collar crime’ cannot be dealt with effectively through the traditional methods of inquiry and investigation.

It also has been held that the criteria for grant of bail in white-collar crime is entirely different from the grant of bail in any other criminal case.”

Money Laundering

The offense of money laundering could be perceived as being an offense against the State/Society especially if it concerned the non-payment of duties, taxes which may fall within the domain of the Ministry of Finance.

Today such an offense does exist and the offense itself is not only a very menacing one but also a transnational crime and in order to combat it, the FIA have the required expertise, have been specifically empowered, along with other specialized agencies, to investigate it through the AMLA whether it concerns a private person or a Government official.

Today the FIA is investigating many white-collar crimes which do not necessarily involve Government officials. For example the exact case and the AKD case. The FIA can investigate alleged cases of money laundering by private individuals under the AMLA.

Most money laundering cases are not as straightforward because it is a sophisticated white-collar crime which is notoriously difficult to prove as various mechanisms such as the creation of “offshore companies” etc have been used to hide the illegally acquired money often in other person’s names etc. which may attract the AMLA. Such investigations often require the use of highly specialized asset tracers and forensic audits to uncover whether any of the funds in the various offshore accounts are legitimate or not.

In such complex investigations where there are no documents in hand, the logical starting point is often to monitor the persons or companies’ bank accounts. If a suspicious transaction is found in a bank account attempts can be made to see if it has arisen on account of proceeds of crime and as such would amount to a predicate offense as defined under S.2(s) AMLA so as to bring it within the purview of the AMLA.

The point is that an investigation under AMLA is not precluded because a predicate offense has not already been found. The scheme of the AMLA through the FM allows the FMU the ability to identify a suspicious transaction and then work backward to see if the suspicious transaction may have arisen out of proceeds of crime which are the fruits of a predicate offense which may then bring it within the ambit of the offense of money laundering and then pass on such information to the investigative agency under the AMLA to follow up on and potentially make a case of money laundering.

Of course, not all suspicious transactions will lead to the offense of money laundering having been committed as often the account holder may be able to justify that the transaction has come from a legitimate source of funds.

In this respect for this very purpose, the FMU has been established by virtue of Section 6 AMLA. Section 6(4) (a), (b), (c), (j), and (k) seem most relevant for the present purposes and are set out below for ease of reference:

“S.6 (4) The FMU shall exercise-the following powers and perform the following functions, namely:-

To receive Suspicious Transactions Reports (STRs) and CTRs from financial institutions and such non-financial businesses and professions as may be necessary to accomplish the objects of this Act.

To analyze the Suspicious Transactions Reports and CTRs and in that respect, the FMU may call for records and information from any agency or person in Pakistan (with the exception of income tax information) related to the transaction in question. All such agencies or persons shall be required to promptly provide the requested information;

To disseminate, after having considered the reports and having reasonable grounds to suspect, the Suspicious Transaction Reports and any necessary information to the investigating agencies concerned as described in clause (j) of section 2

To engage a financial institution or an intermediary or such other non-financial businesses and professions or any of its officers as may be necessary for facilitating the implementation of the provisions of this Act. the rules or regulations made hereunder: and

To perform all such functions and exercise all such powers as are necessary for, or ancillary to the attainment of the objects of this Act,

The system, however, seems to be dependant on Section 7 AMLA which provides the procedure and manner for furnishing information by the financial institution (which as per S.2 (f) are largely any kind of institution which is involved in the financial services industry e.g. banks) and other non-financial businesses and professions (which are generally persons dealing with areas where proceeds of crime can be hidden e.g. jewelers, estate agents or assist in the same i.e. professionals such as accountants) which for ease of reference is set out as under:

“Section 7. Procedure and manner of furnishing information by the financial institution or reporting entities.–(1) Every financial institution shall file with the FMU, to the extent and in the manner prescribed by the FMU, Suspicious Transaction Report conducted or attempted by, at or through that financial institution if the financial institution and reporting entity knows, suspects, or has reason to suspect that the transaction or a pattern of transaction of which the transaction is a part:-

Involves funds derived from illegal activities or is intended or conducted in order to hide or disguise proceeds of crime;

Is designed to evade any requirements of this section; or

Has no apparent lawful purpose after examining the available facts, including the background and possible purpose of the transaction; or

Involve financial terrorism.

Provided that a Suspicious Transaction Report shall be filed by the financial institution or reporting entity with the FMU immediately but not later than seven working days after forming that suspicion.

Any other Government agency, an autonomous body, or regulatory authority may share intelligence or report their suspicions within the meaning of suspicious transaction report or CTR to FMU in the normal course of their business and the protection provided under Section 12 shall be available to such agency, body, or authority.

All CTRs shall, to the extent and in the manner prescribed by the FMU, be filed by the financial institutions or reporting entities with the FMU immediately, but not later than seven working days, after the respective currency transaction.

Every reporting entity shall keep and maintain a record relating to Suspicious Transactions Reports and CTRs filed by it for a period of five years after reporting of transaction under subsections (1), (2), and (3).

The provisions of this section shall have effect notwithstanding any obligation as to secrecy or other restriction on the disclosure of information imposed by any other law or written document.

Notwithstanding anything contained in any other law for the time being in force, any Suspicious Transactions Reports required to be submitted by any person or entity to any investigating and prosecuting agencies shall on the commencement of this Act, be solely and exclusively submitted to FMU to the exclusion of all others.”

As can be seen from Section 7 almost the entire potential of a money-laundering investigation will turn on whether the financial institution spots a so-called suspicious transaction since the other reporting entities are unlikely to report little, if anything.

If the financial institution fails to spot or recognize or consider that a transaction is not suspicious and fails to report it to the FMU then the FMU is powerless to follow up on the suspicious transaction since it would never have been made aware of it.

The whole system of the FMU and its role in tracking down cases of money laundering is therefore in our view dependent on the vigilance of the financial institutions which may very well take a larger perspective/benefit of doubt view before reporting any of its clients for carrying out suspicious transactions.

This is because to report on customers/clients may lead to the loss of present as well as future business for the concerned financial institution notwithstanding Section 33 AMLA which concerns sanctions for those financial institutions which fail to report suspicious transactions under Section 7 AMLA.

The FIA in investigating cases of money laundering can on its own motion based on reliable/credible information open its own investigation into money laundering under the

AMLA independently of the FMU especially in cases where the initial information is not based on banking transactions or on information from financial institutions

The offense of money laundering:

Section 3 of the Anti-Money Laundering Act, 2010 deals with the crimes of money laundering inside or outside Pakistan which is reproduced as under;

A person; shall be guilty of the offense of money laundering, if the person:-
acquires, converts possesses, uses, or transfers property, knowing or having reason to believe that such property is proceeds of crime;
conceals or disguises the true nature, origin, location, disposition, movement or ownership of property, knowing or having reason to believe that such property is proceeds of crime;
holds or possesses on behalf of any other person any property knowing or having reason to believe that such property is proceeds of crime; or
participates in, associates, conspires to commit, attempts to commit, aids abets, facilitates, or counsels the commission of the acts specified in clauses (a), (b), and (c). Explanation-I.- The knowledge, intent, or purpose required as an element of an offense set forth in this section may be inferred from factual circumstances in accordance with the
Qanun-e-Shahadat Order, 1984 (P.O. 10 of 1984).
Explanation II.- For the purposes of proving an offense under this section, the conviction of an accused for the respective predicate offense shall not be required.”

It is apparent from the definition that the offense of money laundering will only be attracted if the money’s, assets, property, etc are acquired through the proceeds of crime e.g. corruption, extortion, etc and there is an attempt to in effect hide the illegal source from where the funds came.

Jurisdiction of court in money laundering cases:

Section 20(1)(a) of the AML Act, 2010, deals with the jurisdiction of the Court which is reproduced as under:

The Court of Session established under the Code of Criminal Procedure, 1898 (V of 1898) shall, within its territorial jurisdiction, exercise jurisdiction to try and adjudicate the offenses punishable under this Act and all matters provided in, related to or arising from this Act.

Provided,

Where the predicate offense is triable by any court other than the Court of Session, the offense of money laundering and all matters connected therewith or incidental thereto shall be tried by the Court trying the predicate offense;

A plain reading of the above Section abundantly makes it clear that the Court of Session established under the Code of Criminal Procedure, 1898 shall within its territorial jurisdiction, exercise jurisdiction to try and adjudicate the offense (s) punishable under this Act and proviso
of the said Act clearly shows that if the predicate offense is triable by any Court other than the Court of Session, the offense of money laundering and all the matters connected therewith or incidental thereto shall be tried by the Court trying the predicate offense (s).

Inquiry and investigation:

So far as the question of inquiry and investigation, under the FIA Act and FIA Rules neither inquiry nor investigation is defined although both terms are used in the FIA Act. However, section 2(j) of AMLA defines an investigating agency as under:

Section 2(j) “Investigating or prosecuting agency” means the National Accountability Bureau (NAB), Federal Investigation Agency (FIA), Anti-Narcotics Force (ANF), or any other law enforcement agency as may be notified by the Federal Government for the investigation or prosecution of a predicate offense;

Section 2(k) AMLA defines an investigating officer as under;

Section 2(k). “Investigating officer” means the officer nominated or appointed under section 24.

Sections 24 and 25 AMLA provide as under in respect of investigating officers.

Section 24. Appointment of Investigating Officers and their powers.-(1) The investigating agencies, as provided in clause (j) of section 2, may nominate such persons as they think fit to be the Investigating Officers under this Act from amongst their officers.

Section 25. Officers to assist in inquiry, etc.— The officers of the Federal Government, Provincial Government and local authorities, financial institutions are hereby empowered to assist the Investigating Officers and agencies and other authorities in the enforcement of this Act.

Section 4(k) Cr.P.C. defines an Inquiry as under:

Section 4(k) “Inquiry”. “Inquiry” includes every inquiry other than a trial conducted under this Code by a Magistrate or Court:”

Section 4(l) Cr.P.C. defines an investigation as under:

Section 4(l) “Investigation”. “Investigation” includes all the proceedings under this Code for the collection of evidence conducted by a police officer or by any person (other than a Magistrate) who is authorized by a Magistrate on this behalf.

As per Cr.P.C. definition of investigation and the definitions used in the AMLA (which exclude inquiry) in our view, it appears that the FIA was carrying out an investigation under the AMLA as opposed to an inquiry and as such the FIA application under Section 94 Cr.P.C. was entertainable and the District and Sessions Judge had the power to pass the order which he made after judicial application of mind.

In the FIA Act and AMLA, it appears that little turns on whether an inquiry or investigation is being carried out (unlike the National Accountability Ordinance 1999(NAO) where under Section 25 a Voluntary Return (VR) can only be made at the inquiry stage and not at the investigation stage where only a Plea Bargain (PB) is available with the VR and PB options having distinctly different legal consequences.

Dishonoring of Cheque S. 489-F Cases

Section 489-F – Dishonestly issuing a cheque:
“Whoever dishonestly issues a cheque towards repayment of a loan or fulfillment of an obligation which is dishonored on presentation, shall be punishable with imprisonment which may extend to three years, or with fine, or with both, unless he can establish, for which the burden of proof shall rest on him, that he had made arrangements with his bank to ensure that the cheque would be honored and that the bank was at fault in not honoring the cheque”.

The bare reading of the referred section shows that the cheque must be issued dishonestly for the payment of the fulfillment of an obligation whereas mere issuance of a cheque, which subsequently dishonored does not constitute an offense under section 489-F, P.P.C. It means first proving whether any transaction has taken place or not.

Basic Elements to constitute the offense of 489-F:

A perusal of section 489-F, P.P.C., reveals that the provision will be attracted if the following conditions are fulfilled and proved by the prosecution:
issuance of the cheque;
such issuance was with dishonest intention
the purpose of issuance of cheques should be
to repay a loan; or
to fulfill an obligation (which in wide terms is applicable to lawful agreements, contracts, services, promises by which one is bound or an act which binds a person to some performance).
on presentation, the cheque is dishonored.

Dishonest Intention:

To constitute an offense under this section, dishonesty on the part of the complainant is a condition precedent in the issuance of a cheque towards repayment of loan or fulfillment of an obligation.

So, it is for the Court to consider under which circumstances the cheque was issued and what was the intention of a person issuing it.

The words “whoever dishonestly issues a cheque” used in this section shows the intention of the legislature that to constitute an offense, it must be proved that the cheque has been issued dishonestly. Dishonesty means a fraudulent act or intent to defraud others, especially creditors and lien holders.

Similarly, the word “dishonor”, used in this section means fail to honor a cheque, with an intent to defraud and befool a payee towards repayment of a loan or fulfillment of an obligation just to disgrace or put him in a state of shame.

Hence, the mere issuance of a cheque and it being dishonored by itself is not an offense, unless and until dishonesty on the part of a payer is proved.

Dishonest intent is the basic requirement, while the purpose of its issuance must be either repayment of loan or fulfillment of any obligation, and arrangements with the Bank to ensure the cheque is honored are the remaining requirements.

It was held by the honorable Supreme Court in a criminal petition “Allah Ditta v. The State”, reported in 2013 SCMR page 51 that:

“Every transaction where a cheque is dishonored may not constitute an offense. The foundational elements to constitute an offense under this provision are the issuance of a cheque with dishonest intent, the cheque should be towards repayment of a loan or fulfillment of an obligation, and lastly that the cheque in question is dishonored.”

Fulfillment of an obligation:

It is an essential ingredient to attract the offense section 489-F, P.P.C. that the cheques should be given in respect of a loan or future obligation. Mere issuance of cheque or its dishonoring is not sufficient rather first of all it must have been proved that cheque was issued for the fulfillment of the obligation, meaning thereby that there must be material available on the record to establish said obligation.

It is necessary to point out that a cheque being a mode of payment must appear to have been issued against consideration of business transaction or any instant dealing of the date and time thereof, showing that the issuer is liable to pay the amount for which, he has issued such cheque, which when turned dishonored, will make him ‘guilty’ of the aforesaid nature.

In a matter of deciding whether or not, there appears a dishonest intention in the issuance of cheque(s), the court should take notice of the facts culminating in the issuance of such cheque(s). If the issuance of such cheque is backed with no meaningful transaction creating an instant liability of payment of the amount thereof, against certain consideration involved therein, no criminal accountability would prima facie accrue in case of any cheque so issued and dishonored since where is no such liability there is no fraud or dishonesty.

Stale Cheque:

The absence of even one of these elements would take the case out of the ambit of section 489-F,
P.P.C. Section 489-F, P.P.C. does not stipulate any period within which the holder must present

the cheque to the bank for encashment. However, section 84(1) of the Negotiable Instruments Act, 1881 (the “Act”), contemplates that the cheque is to be produced for encashment within a reasonable time.

Likewise, it is mentioned in 84(2) of the same Act that in determining what is a reasonable time, regard shall be given to the nature of the instrument, the usage of trade and of bankers, and the facts of the particular case.

A cheque presented for encashment before a bank, beyond the period of six months of its due date is generally regarded as a stale cheque.

While looking for the “usage of trade and of bankers”, within the meaning of section 84(2) of Negotiable Instruments Act, 1881, We came across from the following material:-

In Sheldon’s Practice and Law of Banking (10th Edition), it is mentioned that it is necessary to distinguish between cheques termed ‘out of date’ in Law for purposes of negotiation and those termed ‘out of date’ by banker’s custom. As regards the Latter, most bankers return cheques presented six or more months after date, marked “out of date”, and require the drawer’s confirmation before payment”.
In Banking Laws and practice in India by M.L. Tannan (Fourteenth Edition), it is mentioned that “unless a cheque is presented within a reasonable time after the ostensible date of its issue, it should not be honored.

From above, it evinces that a cheque or a negotiable instrument, presented after six months of its due date is generally termed as stale and as per banking practice, the bank is not obliged to honor it unless instructed by the account holder.

Reference may be usefully made to the Banking Glossary issued by the State Bank of Pakistan, which can be reckoned as an authentic reflection of the “usage of trade and of bankers” contemplated in section 84(2) of the Act. It reads:
“Stale Cheque” A stale cheque is a cheque that has been outstanding for an unreasonable time. A cheque may be outstanding for more than six months and a bank may under its discretion refuse to honor such a cheque. A bank is under no obligation to a customer to pay a cheque, other than a certified cheque, after more than six months of its date, but it can charge its customer’s account for a payment made thereafter in good faith.”
Hence, as a necessary consequence of the above discussion, it has become clear that on the basis of a stale cheque no criminal proceedings can be initiated.

Guarantee or Security Cheque:

In business circles, the issuance of cheques for security purposes or as a guarantee is a practice of routine, but this practice is being misused by the mischief-mongers in the business

community and the cheques, which were simply issued as surety or guarantee are subsequently used as a lever to exert pressure in order to gain the unjustified demand of the person in possession of said cheque and then by use of the investigating machinery, the issuer of the cheque is oftenly forced to surrender to their illegal demands and in the said manner, the provisions of this newly inserted section of law are being misused. Securing the money in such a manner would be termed extortion.

Compromise in likewise cases:

Because of the dwindling value system, gradual decay in the moral fabric of society has occurred. Sometimes, an accused in order to achieve his nefarious, devilish desires and designs eventually affects compromise. Later on while adopting various strategies, the accused try to hoodwink the process of law, defeating the spirit of the noble deed of compromise which amounts to a breach of commitment.

Such sort of litigation had caused an alarming situation in the Courts. Needless to say, that unscrupulous elements while dishonoring their commitment, in fact, try to lower down the esteem of the Court in the eyes of the public.

In case, non-fulfillment of commitment made before the Court is allowed to go with immunity and it is not checked, it will shake the confidence of the public, they repose in Courts and shall create uncertainty and a sense of despair and despondency amongst the masses, eventuating into a chaotic situation in the society.

Therefore, necessity is being felt that such non-fulfillment of the commitment before the Court may be dealt with stringently, instead of allowing the persons to draw a premium from their own bad deeds.

Some opportunists and clever litigants in order to buy time from the simpleton and gentle people, keeping in their mind the involvement of procedural technicalities, causing relatively slowness, in deciding cases before Courts of law, try to cheat and defraud them with mala fide intention and to achieve their nefarious ends under the garb of compromise.

The High Court provided guidelines for compromising in cases under S.489-F, P.P.C at the pre-arrest or post-arrest bail stage.

Following are the guidelines as provided by the High Court:–

A compromise deed shall be in writing and duly signed or thumb marked by the accused as well as the person in whose favor, the dishonored cheque was issued by the accused or any other person duly authorized by the payee.

In case of post-arrest bail, the Court seized with the bail application due to the accused being in jail, shall also record the statement of the counsel, representing accused or any other person duly authorized by the accused for this purpose.

The Court, while giving effect to the compounding character of the offense, at bail stage shall reflect the terms and conditions of the compromise in its bail granting order besides clearly stating that the accused shall only be entitled to enjoy the liberty, he has earned by way of concession of bail, provided he honors the terms of compromise deed.

The accused shall make payment of cheque or settled between the parties, to the payee on the date fixed in compromise deed or in case of any exigency within next three days. In case of any default, even in making payment of any installment, the accused shall lose his right to enjoy the concession of bail. The complainant, however, may show grace and accept any request on part of the accused for an extension of time.

In case of default, in absence of consent of the complainant, for extension of time, in making the payment of amount settled between the parties through compromise, the bail granting order shall be deemed to have been vacated automatically on the expiry of the date fixed.

After seeking relief of bail on the basis of compromise, the non-compliance of its terms and conditions will amount to a breach of commitment and misuse of concession of bail by the accused for the period he enjoys the said concession in the form of liberty instead of facing the rigors of jail.

The complainant shall not be obliged to file a formal application for cancellation of bail under Section 497(5) Cr. P.C either before the trial Court or before any higher Court which had passed the bail granting the order. However, the complainant, in case of default in making payment by the accused, may file only a miscellaneous application before the trial Court inviting its attention towards the default made by the accused, thereupon, learned trial Court shall pass an order for committing the accused to custody.

All the trial Courts seized with the trial/ proceedings for the offense under Section 489-F, P.P.C., shall prepare a separate category of compromise cases with some special identity so that the case may be dealt with, in terms of bail granting the order.

In case, the trial court is satisfied that the terms of the compromise have been fulfilled and acted upon, the Court, on its own motion or on the application of either party shall give effect to the compromise, by way of termination of proceedings in the case.

Defense of the accused:

A valid defense can be taken by the accused if he proves that:
he had made arrangements with his bank to ensure that the cheques would be honored; and that the bank was at fault in dishonoring the cheque. If the accused establishes the above two facts through tangible evidence and that too after the prosecution proves the ingredients of the offense then he would be absolved from the punishment.”

Criminal Breach of Trust Cases of S. 406 PPC

Perusal of section 405, P.P.C. shows that it deals with the criminal breach of trust with fraudulent and dishonest intent for wrongful gain.

The criminal breach of trust is committed when there is the entrustment of property to any person or with dominion over the property dishonest misappropriation or conversion of the property in his own use by the person who has been entrusted with the property who dishonestly use or dispose of the property in violation of any direction of the law prescribing the mode in which the trust is to be discharged dishonest use or disposal of the property in violation of any legal contract expressed or employed, which he has made touching the discharge of such trust willfully suffers another person to do so by the person to whom the property has been entrusted.

Thus to allege the criminal breach of trust against the accused, the prosecution has to establish that he has entrusted the property or entrusted with dominion over property and the accused has converted the same for his own use or disposed of the same in violation of the direction of law or a legal contract.

Thus, if any property entrusted to a person and that person dishonestly misappropriated that property then he commits the offence of criminal breach of trust.

But in the absence of clear entrustment mere breach of promise, agreement or contract does not ipso facto attract the definition of criminal breach of trust in terms of section 406, P.P.C.

The Hon’ble Supreme Court of Pakistan held that mere breach of a promise, agreement or contract does not ipso facto attract the definition of criminal breach of trust contained in section 405, P.P.C. and such a breach is not synonymous with criminal breach of trust without there being a clear element of entrustment therein which entrustment has been violated.

However, it is to be kept in mind that it is difficult for the prosecution to give any direct evidence of committing the criminal breach of trust by the accused of the reason that the manner in which the goods or the money are misappropriated are generally within the special knowledge of the accused and it is for him to establish how he has dealt with the goods or the money which he was holding in trust for the principal and in the instant case this element is totally missing.

420 and 406 – Criminal breach of trust and cheating:

It is a well-settled proposition of law that cheating and criminal breach of trust are two distinct offences. Both these offences cannot be alleged simultaneously. Through cheating/fraud, money

or property is grabbed or obtained through deceitful means, whereas in case of criminal breach of trust, the property is entrusted voluntarily. Section 405, P.P.C. defines the offence of criminal breach of trust. Its important ingredients are entrustment of property and its dishonest misappropriation.

Criminal breach of trust by Public Servant:

In order to prove the offence of criminal breach of trust by a public servant, the prosecution has to establish that the accused belong to one of the categories enumerated in S. 409, P.P.C., and that he has been entrusted with property or with dominion over the property in that capacity and that he has dishonestly misappropriated or converted that property to his own use or dishonestly used or disposed of that property in violation of any direction prescribing the mode in which trust was to be discharged.

CONTACT THE CASE LAWYERCall us today, e-mail us or leave a message

Get a free callback

    The virtue of justice consists in moderation, as regulated by wisdom.

    ARISTOTLE
    THE CASE LAWYER
    Kemp House, 152-160, City Road, London, United Kingdom, EC1V 2NX
    1st Floor, Plaza 786, Block- C, PWD Double Road, Islamabad - 44000
    Business Avenue, Shahrah-e-Faisal, Karachi - 75350
    info@thecaselawyer.com
    FREE CONSULTATION 24/7

    The Case Lawyer Law Firm SRA ref 669401. Calls may be recorded for quality and training purposes.

    Follow Us:
    The Case Lawyer is the part of Overseas Pakistani properties protection & legal service foundation which is a non-profitable Organization.
    Open chat
    1
    Hi, How can I help you?