National Institute of Management,

Karachi

22nd MCMC
22nd AUG to 25th NOV2016

Current Issue Presentation (CIP)

On

PANAMA LEAKS:
Will it change the Political scenario in Pakistan?

Prepared

By

Shoukat Ali Shaikh

(Pakistan Railways Ex-Cadre)

Faculty Advisor: Ms. Samina Intizar, ADS

INTODUCTION

Panama is situated in Central America, bordering both the Caribbean Sea and the Pacific
Ocean, between Colombia and Costa Rica.

CAUSE OF LIVING, BUYING AND INVESTMENT IN PANAMA.

It is one of the worlds top offshore havens and it is continuing to emerge as one of the worlds
greatest retirement destinations. Panama offers certain advantages over every other Central and
South American destination. Across the world, many dignitaries and business tycoons are
attracted to Panama for its low taxes, affordable housing, and tropical climate. Panama has a
stable government and currency at par with U.S. dollar for many decades almost since 1904. In
other words, Panama is the exceptional place having to the rule in Central America, sustained by
its canal, banks, and free-trade zone.

OVERVIEW OF TAXE HAVEN:

If you buy or build a new house, you wont pay property taxes for up to 20 years, nor will you
pay taxes on foreign-earned income. In 1994, Panama passed Law No. 8the most modern and
comprehensive law for the promotion of tourism investment in Latin America and the Caribbean.
Since the law was enacted, dozens of the worlds largest hotel chains have swept in to take
advantage, including Marriott, Radisson, Holiday Inn, Sheraton, and Intercontinental.
But Panamas attractive tourism investment laws are not just for big business. With a minimum
investment of $50,000 anywhere in Panamas interior, you can benefit from:
A 20-year exemption of any import taxes due on materials, furniture, equipment, and vehicles.

A 20-year exemption on real estate taxes for all assets of the enterprise.
Exemption from any tax levied for the use of airports and piers.
Accelerated depreciation for real estate assets of 10% per year. 11

1 www.internationalliving.com Access date 6.9.2016

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The investment amount does not include the price of the land. And for projects in the metropolitan
area, the minimum investment requirement is $300,000.

Income Tax

Personal income tax in Panama is based on a sliding scale, ranging from a minimum of 7% after
the first $9,000 to a maximum rate of 27%. For temporary residents, the tax is only applied to
Panamanian-sourced income.

Transfer Tax

Real estate transfer taxes in Panama are paid by the seller, and are 2% of either the updated
registered value of the property or the sale pricewhichever is higher. The updated value is the
registered value, plus 5% per year of ownership. If the property is bought by a corporation, it is
customary for the shares of the company to be sold (instead of the property), thus eliminating the
need to pay transfer tax.

Inheritance Tax:

Inheritance taxes in Panama have been completely abolished. Despite this, taxes on gifts (inter
vivos) of properties located in Panama are in effect, and the rate depends on the degree of
relationship between the donor and the done. This does not apply to property owned anywhere
outside Panama. Rental Income Taxes:

If you receive rental return on your property, you will be liable for income tax up to a maximum
of 27% (on returns greater than $250,000). However, if you invest in one of the special tourism
zones, you may be exempt from income tax for 15 years.

Property Taxes:

Properties with a registered value of $30,000 or lower do not pay property tax. For properties of
a higher value, they pay as follows: 1.75% from $30,000 to $50,000; 1.95% from $50,000 to
$75,000; and 2.1% over any property value above $75,000. If you buy or build a residential
property in Panama, you may be exempt from property tax for up to 20 years if the construction
permit is issued by Sept. 1, 2006, and the occupancy permit issued and improvements registered

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by Sept. 1, 2007. On houses or apartments where the construction permit is issued after Sept. 1,
2006, the following exemptions will apply:

Value up to $100,000: 15-year exemption

Value from $100,000 to $250,000: 10-year exemption

Value over $250,000: 5-year exemption.

The exemption is transferable during the exemption period to any new buyer. The land itself is
not exempted, and would continue to incur property tax if its value is above $30,000.

Capital Gains Tax:

Capital gains should be included in the annual tax return, and are taxed at whatever level the
individual is being assessed for income tax. Unless you have owned the property for a minimum
of two years and are not in the business of selling and buying property, you may choose to pay a
flat 10% of the gross profit. 2

DEFINITION:

The Papers which describe the names of offshore entities tuned to 11.5 Million and give the
details of financial transactions followed by by investments and attorney client information of
214,488 offshore entities, the documents were created by Panamanian Law Firm since 1970s.

ANALYSIS:

BIRTH OF THE ISSUE OF PAPERS / LEAKES:

John Doemade a contact with a Bastian Bemayor a journalist of Sddeutsche Zeitung

(GERMANNEWS PAPER) a year ago and handed over secret data belonging to the Panamanian
law firm Mossack Fonseca. Being a sensitive issue The Sddeutsche Zeitung decided to analyze

2 Internationalliving.com Access date 6.9.2016

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the data in cooperation with the International Consortium of Investigative Journalists (ICIJ). 100
media organizations from 80 countries conducted the investigation. The world was severely hit
on the publication on April 3, 2016 tuned to 150 leaks of papers.3

Renowned Politicians and govt. functionaries had to resign, there was a huge No. of public
agitation and reservations. The Panamanian government of Panama vehemently objected to the
name. Some media outlets covering the story have used the name "Mossack Fonseca papers"

The cause of man behind this all discovery who says:

Income inequality is one of the defining issues of our time. It affects all of us, the
world over. The debate over its sudden acceleration has raged for years, with
politicians, academics and activists alike helpless to stop its steady growth despite
countless speeches, statistical analyses, a few meagre protests, and the occasional
documentary. Still, questions remain: why? And why now?

Jhon Doe4

PERSONALITIES NAMED IN PAPERS

Former heads of state mentioned in the papers include:

Sudanese president Ahmed al-Mirghani,

Emir of Qatar Hamad bin Khalifa Al Thani nister.

4 German News paper suddentsche ZeitungThe guardian

Access date 6.9.2016

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Former prime ministers:

Prime Minister Bidzina Ivanishvili of Georgia

Pavlo Lazarenko of Ukraine

Prime Minister Ayad Allawi, also a former vice president of Iraq

Ion Sturza of Moldova.

Ali Abu al-Ragheb of Jordan.

The leaked files identified 61 family members and associates of prime ministers, presidents and
king including:

the brother-in-law of China's paramount leader Xi Jinping

the son of Malaysian prime minister Najib Razak

children of Pakistani prime minister Nawaz Sharif

children of Azerbaijani president Ilham Aliyev

Clive Khulubuse Zuma, the nephew of South African president Jacob Zuma

Nurali Aliyev, the grandson of Kazakh president Nursultan Nazarbayev

Mounir Majidi, the personal secretary of Moroccan king Mohammed VI

Kojo Annan, the son of former United Nations Secretary-General Kofi Annan

Mark Thatcher, the son of former British prime minister Margaret Thatcher

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 Juan Armando Hinojosa, the "favourite contractor" of Mexican president Enrique Pea
Nieto.

Spanish Royal Family: Pilar de Borbn and her son Bruno Gmez-Acebes, Iaki
Urdangarn, Amalio de Marichalar, and people close to the family like the mistress of
5
Juan Carlos I, Corinna zu Sayn-Wittgenstein

RESIGNATIONS AS A RESULT OF PANAMA PAPERS:

1. Prime minster of ice land.

2. Chilean head of Transparency International, a prominent anticorruption advocacy group,

was forced to step down.

3. The Spanish industry ministry resigned.

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4. In many countries, the investigation is under process.

PANAMA LEAKS AND CURRENT POLITICAL CRISES IN PAKISTAN:

More than 200 Pakistanis have been identified to own off-shore companies. That include Prime
Minister Nawaz Sharifs family to Chief Minister Shehbaz Sharifs in-laws , Benazir Bhutto,
Asif Zardari, Javed Pasha; Senator Rehman Malik , Senator Osman Saifullah family , Waseem
Gulzar (a relative of Chaudhrys of Gujrat) , Zain Sukhera, who was co-accused with former
Prime Minister Yousaf Raza Gillanis son in Hajj scandal.

Businessmen Sadruddin Hashwani , Malik Riaz Hussains son , Hussain Dawood family ,
Abullah family of Sapphire Textiles, Gul Muhammad Tabba of Lucky Textiles as well as Shahid

5 The Express Tribune 5 April , 2016.Access date 6.2016.

6 The Guardian Access date 6.9.2016

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Nazir of Masood Textiles and from Zulfiqar Ali Lakhani to Zulfiqar Paracha . Lahore High
Court, Justice Farrukh Irfan; and one retired judge, Malik Qayyum.

President of Habib Bank AG Zurich, Anjum Zahoor Iqbal, has also used the offshore company
for parking savings in USB Bank and buy property. Owners of Hilton Pharma, Shehbaz Yasin
Malik opened the company for Swiss bank account. Chairman ABM Group of Companies Azam
Sultan, Pizza Hut Owner Aqueel Hussian and Chairman Soorty Enterprise Abdul Rashid Soorty
were also identified along with family members.

Saifullah family of Lakki Marwat owns 34 offshore companies in British Virgin Island and
Seychelles. Bank accounts in Hong Kong, Singapore, Ireland and property in UK .Senator
Osman Saifullah is a member of Tax Reform Commission set up by the government to check
revenue leakage, broaden revenue base and improve tax administration., Ilyas Mehraj have also
owned .Petroline International Inc .owns by Rahman Malik , with five companies.The majority
of the services of the offshore industry provides are legal in the origin of respective jurisdictions
like British Virgin Island, Channel of Island, The Bahamas, Republic of Panama, Republic of
Seychelles, NIUE and others. What remains to be seen in terms of Pakistani individuals is the
purpose of using tax haven and whether or not have they declared this business in their tax
declarations.Four companies are owned by Maryam Nawaz, Hussain Nawaz and Hassan Nawaz.
Chief Minister Shehbaz Sharifs mother-in-law from second marriage, Samina Durrani and
brother-in-law from the first marriage. Mr Sharifs children raised a 7 million loan from Deutsche
Bank against four flats in Londons Park Lane owned by offshore companies based in the British Virgin
Islands when their father was in opposition so after wards Pak Govt. is observed to be in total huge
pressure to deal the issue on merit 7

WILL IT CHANGE THE POLITICAL SCENARIO IN PAKISTAN?

GOVERNMENT STANCE VS OPPOSITION STANCE

GOVERNMENT STANCE

7 The Tribune Express 5 April, 2016.

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 The Prime Minister called for meeting with a group of
senior journalists and columnists at Governors House to brief
them about his governments development projects and its
stance on the Panama Papers revelation and
desired that Honorable Chief Justice of Pakistan
would nominate a judicial commission and probe the
matter on merits in the light of terms of references, and also calls those perpetrators, are enemies of
Pakistan who destabilize the country. PM Sharif vowed to present himself before that NAB for inquiry
and referred to the coup of General. Pervez Musharraf could not find him guilty of any misgivings in nine
years of coup. He also refuted the immaturity of PTI Chief Imran Khan and held him responsible for
economy-recession of the country by staging sits-in.

First and foremost, due to high tension under stress of the due pressure from opposition Mr. Sharif
suggested the commission comprising of Retired Judge which was not accepted by the opposition and
thereafter he wrote a letter to Chief Justice of Pakistan requesting therein for nomination of judicial
commission to conduct the inquiry and meeting all parameters of justice and transparency. The Honorable
CJ has shown some important reservations that such type of inquiries cannot be conducted due to
blurred, implicit and questionable authority of Leaks and its incomplete evidence that might bear fruit for
decision , moreover , the list of more than 300 affected if probed one by one , it would take decades to
decades hence the very purpose of inquiry and transparency would not meet. The Honorable CJ
suggested to let first finalize the Terms Of Reference mutually agreed upon all parties , the further
inquiries be made through NAB, FIA and other agencies and the record thereof be available to move on
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legal proceedings .
Therefore, the stance of government is perceived to have been demoralized by the evidence based inquiry.

8 http://www.dawn.com/news/1258127Access date 6.9.2016

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OPPOSITION STANCE

Since the issue surfaced in the international News Papers and weighs a great deal of social,
political and moral pressures on the entities of high slots and holding the public offices have
transcendently from set a side and stepped down from Public Offices until the inquiries are
conducted transparently as in the case of prime minister of Ice land, united kingdom and Ukraine
etcetera . The moral pressure went up on heads of states across the globe which ultimately
engulfed the political environment of Pakistan. The opposition parties got to gather and mounted
a moral pressure on executive Head of State and demanded its clarification. Consequently the , te
Executive machinery went into operation and made communication on Media , offered open
inquiry of his own family instead he came with clean mind of proofs .children of sharif family
when contacted ,they straight away acknowledged the owning of the four companies known as
Off-Shore companies somehow established un 1990s when tjeir father Nmer. Sharif was in
opposition. Children of Premier have also acknowledged having purchased two flats costing to
Rs. 7 million pound in Park Lane Avenue in UK. A number of questions have got birth to the
apprehensions of Money Laundering and and illegal sources were used. Mr. Imran khan Head of
PTI had raised the issue vehemently before nation across the country with query of four
questions with curiosity and to let peoples know the actual dilemma and misappropriation of
public money .the questions ie,

Q.No.1 If the properties of flats are purchased, show us the certificate of purchased?

Q.No.2 What are the sources of income to purchase the properties abroad?

Q.No.3 How the money was transferred from Pakistan?

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Q.No.4 If the money was transferred from Pakistan, how many taxes were paid in Pakistan? 9

After April 5 ,2016 the opposition have combined to gather all evidences of money laundering
and illegal earned money at home , how made and how transferred have raised numerous
questions and quires. Therefore, terms of references were made collectively by the opposition
parties tuned to as follows

1. The opposition alliance has initially rejected the authorities granted to the investigation commission in
accordance with the 1956 Act.
2. Secondly, the opposition parties have demanded the formation of a commission under new laws.
3. Thirdly, the opposition demands approval of the commission from the Assembly after introducing it in
the shape of an Ordinance; the opposition has hinted that it will facilitate the government in this regards.
4. Finally, the opposition has demanded that Prime Minister (PM) Nawaz Sharif be accounted first
followed by other 250 individuals named in the Panama Papers. 10

All patties opposition viz, PPP, PTI, PML (Q) and JI pledged to enhance their cooperation and
coordination to get their ToRs materialized.

The opposition wished to conduct probe through a parliamentary committee, whereas the PTI
wanted the chief justice of Pakistan to head the judicial commission. Soon after the news of
government side that already decided the commission comprising of Justice Osmany being his
wife is member of PML (N) , in reaction to that ,combined opposition rejected the proposal of
govt. and suggested the name of Mr. Raza Rabani , a man of excellent repu vice Mr. Osmany .

ROLE OF JUDICIARY:

9 http://epaper.dawn.com/?page=04_09_2016_001Access date 6.9.2016

10 http://dunyanews.tv/en/Pakistan/334015-Panama-Leaks-Opposition-parties-agree-on-4-pointsAccess date
7.9.2016

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Supreme Court Registrar Mr. Arbab Muhammad had replied
secretary Law & Justice letter.jpg department, in response to
the letter of 22 April submitted under the directives of PM,
that formation of commission under Inquiry Act 1956 read
with act vi of 1956 will not resolve the issue being it fell in
short scope and will not bear fruit except to brand a bad label to it. The ToRs when studied which
depicted being so wide and open that it will take a great deal of span of time(yeats) to the
decision. Before coming to any outcome of the commission the record of all enlisted and referred
entities be made available for proceedings and Chief Justice of Pakistan had suggested with
formation of commission under the ambit of proper applicable legislation which may be formed
and resolved and both stake holders i.e, government and opposition to decide and conclude the
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ToRs mutually. The report clearly envisaged that the stance on part of PM Mr.Sharif and his
children bowed down before a persistent requisition of opposition and pledged that I would
resign if my children were found in commission of crime , as a matter of fact, a panamanian law
Mossack Fonseca which disclosed the siblings of PM and reported by International Consortium
of Investigative journalists which said that $ 25 Million Dollar deals were observed. 12 13

TERMS OF REFERENCE:

It defines as the Scope and Limitations of a job/activity or area of knowledge.

Statement of the back ground, objective & purpose of a program, or proposal. 14
FORMATION OF COMMISSION

11 http://dunyanews.tv/en/Pakistan/336591-CJP-refuses-to-form-judicial-commission-on-Panama-

12 https://www.thenewstribe.com/2016/05/13/chief-justice-turns-down-tors-refuses-to-form-commission/

13 http://arynews.tv/en/chief-justice-refuse-form-commission-panama-papers/

14 http://www.businessdictionary.com/definition/terms-of-reference.htmlAccess date 7.9.2013

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A government high level dignitaries, represented by Finance Minister Ishaq Dar, finalized the
terms of reference (ToRs) for the proposed inquiry commission being formed to investigate the
Panama gate, government also decided to include banking and investigative experts in the
commission, which will be led by a retired judge as announced by Prime Minister Nawaz Sharif
in his address to the nation on April 5.

The meeting, chaired by Mr. Dar, followed by Law Minister Zahid Hamid, Minister of State for
Information Technology Anusha Rehman, Attorney General Ashtar Ausaf Ali, Special Assistant
to Prime Minister on Law Barrister Zafarullah Khan and Secretary to the Prime Minister Fawad
Hassan Fawad.

The meeting deliberated and finalized ToRs of the inquiry commission being set up in
compliance of the orders of the prime minister. The meeting also short-listed some men from
chartered accountants, FIA agency hence the commission labelled by Laws Review Committee.
In response to this the opposition has turned down the inquiry commission tobe conducted by the
retired judge.

On May 12, 2016 the combined opposition had prepared a list of Seven Questions to be asked to
PM Sharif while in session, the questions are as follows:

Firstly, the opposition wants the prime minister to tell the house what interest he or his family
have in the Mayfair apartments. When they were purchased, where the funds came from and
whether income tax was filed?

Secondly, the opposition seeks a clarification on the statements issued by Nawazs wife, his
two sons and Interior Minister Chaudhry Nisar Ali Khan over the years.

Thirdly, the opposition wants to know that since when Nawaz has been living in these
apartments and whether he is aware that on March 18, 1999, the High Court of Justice,
Queens Bench Division, ordered the Sharif family to pay $32 million as debt owed to Al-

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Taufiq Company for Investment Funds Ltd. The prime minister has also been asked to indicate
the source of legitimate funds from which this debt was paid and whether it is a fact that 7
million were raised against the apartments from the Deutsche Bank in Switzerland.

Fourthly, the opposition wants to know the names of and the total number of offshore
companies owned by or registered in the name of the Sharif family, and what was the net value
of the assets of such companies, bank accounts and properties.

Fifthly, the opposition asks what properties are or have been held by the prime minister or his
family, purchased either through front men/shell companies or otherwise, between 1985-2016
and what was the source of income tax-paid-funds during this period.

Sixthly, the opposition wants to know if it is true that the prime ministers children hold or
have held substantial shares in industrial units in Pakistan owned by the Sharif family
including Ittefaq Sugar Mills and Chaudhry Sugar Mills, and whether they are bound to file tax
returns and declare their worldwide income, including incomes from offshore companies and
bank accounts.

And lastly, the opposition asks how much income tax, year-wise since 1985-2016, has been
paid by the prime minister and members of his family and the assets owned by each of them. 15
16

15 http://tribune.com.pk/story/1101932/panama-leaks-scandal-opposition-asks-pm-seven-blunt-
questions/

16 Published in The Express Tribune, May 12th, 2016.

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STANCE OF NAB, FBR:

NAB has already been probing against Sharif Family in an inquiry of Aven Field Property
Assets Case in London since pending 2000-2001 which are now known as offshore companies
as per statement of Mr. Hussain Nawaz belong to him. NAB authorities have Put On Hold
the file of Panama Leaks due to names of children of Premier, however , link the leaks with the
pending inquiry . After rise of issue leaps and bounds, the Bureau has discussed and decided to
wait until the Judicial Commission is formed and the NAB would offer its services to the
commission in investigation if required by the commission. It is pertinent to mention here that
the Bureau is of opinion that two aspects relate to the inquiry firstly Tax evasion and secondly
Money laundering. In case of tax evasion the Federal Board of Revenue is bound to take up
issue to its logical ends and secondly in case of money laundering the Federal Investigation
Agency simportant roe is required, however, the role of NAB is inevitable in all situations.
Therefore FBR has backed off due to pressure from government side.

National Assembly Standing Committee on Finance and Revenue was also briefed by the FBR
on tax evasion , that due to some legal limitations and current Pakistan laws , the board cannot
initiate the probe under the garb / revelations of panama leaks in News Papers opined by a
senior member of FBR and moreover , Pakistan has an agreement on sharing status of tax
payers of either citizens with 70 countries except Panama, so Panama Government can only
allow FBR to ascertain and review the registered tax payers, so much so , FBR cannot contact
directly to ICIJ (International Consortium of Investigative Journalists ) under the current laws
as such FBR maintained its stance to keep away from this issue.It is well said , if there is a will

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there is way , the United Kingdom has contacted with ICIJ body for details through Her
Majesty revenue and Customs (HMRC) to further probe into the matter . 17

FINDINGS:

There is no denying the fact that element of corruption , illicit money , money laundering ,cannot
be ruled out or over looked on the cost of public money for which ethics and moral standards do
not allow . It is a breach of trust with public money if spent on unimportant areas and also
imprudently utilized so what to say of money laundering and earning illicit money was or being
drained out to some safe havens abroad. These all are coming in the domain of corruption, mis
conduct, and misappropriation with public money under auspices of a public trustee. The
dropping of bombshell of leaks over the globe through hundreds of Newspapers whose sole and
innocent motto of drawing public attention towards their beloved leaders. It is estimated that a
transaction of One Trillion Dollar18 per year done by the elite class of world out of which our
transaction of 25 Million Dollar and a transaction of 7 Million Pound were done by the children
of premier of Pakistan. The following recommendations are penned down:

WAY FORWARD / RECOMMENDATIONS:

1. That sooner the publication of leaks was surfaced, the earlier the Suo-Moto Notice would
have been taken by Honorable Judiciary of Pakistan.
2. That Honorable Chief Justice of Pakistan should form an independent judicial
commission direct under his command to maintain highest degree of justice and
transparency.

17 By Ansar Abbasi & Waseem AbbasiApril 30, 2016

https://www.thenews.com.pk/print/116489-NAB-FBR-to-stay-away-from-Panama-
Papers-probe

18

April 06, 2016Print : Editorial

https://www.thenews.com.pk/print/110584
Access date 6.9.2016

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 3. The first and foremost duty of Mr. Sharif being a highest public office holder of Pakistan
must brief the nation with evidence based documentation rather than pledging to resign if
his children were found guilty of money laundering , Tax avoidance etc. .
4. That legitimate duty of National Accountability Bureau to take Suo-Moto action on this
very public relevant scam rather than waiting for a go-ahead granted by the government.
5. The plague of corruption is always dealt with iron hands and should be started from top
to bottom only.
6. That the nation must be taken in to unshakeable confidence to probe in to the leaks and
must give a time frame of completing the inquiry followed by legal proceedings
expeditiously by the Chief Justice Of Pakistan.
7. That it is high time that a fool proof, preventive measures be introduced and ensured
across the board in taxation system against the tax-theft and tax- thieves.

CONCLUSION:

1. Political :

Good governance requires credibility and trust the character of the ruling elite is not above
aboveboard, transparency cannot be ensured at any level of governance. In the west, both public and
private including Press and media have taken the Leaks very seriously and consider it as a matter of
prime public interest. The debate and discussion that it stirred has created serious issues for strong
governments compelling few of them to bow down to public pressure.

We must learn from our trials and tragedies. There revelations have spotlighted our political
leadership and have raised serious doubts about their character and credibility .They must come up to
the expectation of the public and like David Cameron faces the public trial.

2. Judicial

The honorable courts may also take this matter as an issue of prime concern and public trust
that will deeply affect the concept of good governance. They may examine the case, evaluate
the evidence and may give clear verdict to guide the masses and lay down the highest
standards of transparency for public office holders.

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