Mehran Bank

Biggest Scandal in Pakistan History

5/19/2013

Submitted By: Osama Iftikhar Maher Saleem Khawja Danish Shahbaz

An education was not necessary to be smart nor was it required to topple a government.
(Younus Habib) The story of Mehran bank is as old as Pakistan. On August 17, 1988, President and Chief of Army Staff General Mohammad Zia-ul Haq, number of army officers and American Ambassador to Pakistan Arnold Raphael were killed in a plane crash. On that fateful day, Chairman Senate Ghulam Ishaq Khan assumed power as Acting President and Vice Chief of Army Staff General Mirza Aslam Beg became the Army Chief. Mr. Zia dissolves the assembly and announced general election to be held on November 16, 1988. Due to Bhutto death there was sympathy for PPP but intelligence agencies finds it as a threat for them if PPP won. To prevent this Director General ISI Lt. General Hameed Gul used the agencys political wing to create a nine-party alliance called Islami Jamhori Ittehad (IJI). But all this goes in vain because PPP won the election. The PPP formed coalition governments at the Centre and in the provinces of Sindh and NWFP. The principal partners of the PPP were the Mohajir (now Muttahida) Quami Movement (MQM) and the National Awami Party (ANP). From the day 1 MQM doubted the sincerity of the PPP in implementing the accord between the two parties, soon began distancing itself from the PPP. Here Mirza Aslam Beg jumped into the matter and contacted his friend Younus Habib, who was then Zonal Chief /Vice President of Habib Bank, to arrange for his meeting with Altaf Hussain. They planned to start a no confidence motion. As planned, a no confidence motion against Benazir Bhutto was moved in the National Assembly. The submission of motion was followed by blatant horse-trading and buying and selling of votes. This movement require lot of funds for horse trading. All this was done through Habib Bank by Younus Habib. Special instructions were given to Habib Bnak high-ups to do whatever he is doing for national interest. But latter Younus Habib was thrown out of Habib Bank for his financial bungling, decided to establish Mehran Bank in 1991.State Bank of Pakistan was

reluctant to grant him permission. Reportedly Jam Sadiq used his clout to facilitate the establishment of Mehran Bank for which he received a hefty sum of Rs. 150 million from Younus Habib. Younus Habib became the Chief Operating Officer of the Mehran Bank. Jam Sadiq also ensured that many departments of Sindh government opened their accounts with Mehran Bank. The opening ceremony of was attended by many, including Mr Javed Hashmi. Mehran bank was incorporated in lieu of the privatization fanfare in Pakistan on 31st October, 1991 as a public limited company and its shares were quoted in Karachi and Lahore stock exchanges. The bank began its formal operations from 22nd January, 1992 in the business of banking and operated as Scheduled Bank as defined by the Banking Companies Ordinance, 1962. Mehran banks paid up capital was Rs 300 million (US $ 10 million), assets of Rs 2.9 billion and stock market capitalization of Rs 500 million. It had six branches all over Pakistan located in Karachi, Lahore, Mirpurkhas, Peshawar, Quetta and Rawalpindi (Annual Report 2004). Mr. Yunus Habib was the founder and Chief Operating officer of the Bank. Since its inception Mehran bank had raised doubts and it was known as a good idea but poor execution. In 1992, DG ISI Lt. General Javed Nasir transferred ISIs foreign exchange reserves totalling $ 39 million to Mehran Bank. This was in recognition of Younus Habibs services which he had rendered during 1990-91 to the Presidency, the Army and Mirza Aslam Beg in his personal capacity. But interestingly a number of government departments throughout the country and Azad Kashmir also deposited Rs. 9160 million in different branches of Mehran Bank. The bad time comes to the life of Mehran Bank and Younas Habib when General Javed Ashraf Qazi became the DG ISI in January, 1993. He was a man of rules. According to rules he wanted to withdraw the ISI funds from Mehran Bank and deposit to public banks. Mehran Bank was unable to return the amount. Younus Habib was picked up for some time by a law enforcement agency for investigation and he had to cough up those funds. The Mehran Bank affair attracted public attention. The scandal was of around five billion rupees, part of which was spent during election campaign in 1990 and giving loans and donations to politicians as well as Prime Minister, intelligence

agencies. There had been transfer of Rs 499 million to 39 account holders through investment bank without the consent of the depositors. Mehran Banks COO was also convicted in 148.5 million dollars Bearers certificates (DBCs) fraud case and for advancing Rs 300 crore loans against hundreds of fake accounts. Mehran Banks money was used to finance elections of President and to top down the provincial government amidst the NWFP crisis during the 90s. Over Rs 130 crore belonging to various federal, provincial and Azad Kashmir bodies were stuck up in the bank when it collapsed. The Chief of Army Staff during that time admitted receiving Rs 24 crore as a donation from Younas Habib. One of the most coveted and sensitive institution of the country had also secretly used the bank to first deposit and then hastily withdraws the money. During 1990, Mehran banks founder made a disbursement of Rs 140 million loans to chief of Army staff (CAS) which was ultimately transferred to 39 prominent politicians. Apart from the above mentioned allegations the Younas Habib was also charged for being involved in the sale of land to the then President of Pakistan for Rs 15 million. This price was below the market price and payment was made through an unknown account. On April 7, 1994, Younus Habib was arrested on the charge of misappropriation of sale proceeds of Dollar Bearer Certificates. On April 20, 1994, the PPP Interior Minister Naseerullah Khan Babar disclosed the details of payments made by Younus Habib, to generals, politicians and political parties. The Minister also presented statements of Younus Habib, bank receipts, a secretly taped conversation and a video cassette before the House to prove that Younus Habib had misused the banks funds and violated all banking rules and regulations. At that point the questions were who received what? According to Younus Habib: Rs140 million was paid through Gen Beg to politicians Rs70 million to former chief minister Sindh Jam Sadiq Ali Rs15 million to Pir Pagara through Jam Sadiq Rs70 million to Younus Memom on the instructions of then president Ghulam Ishaq Khan and Gen Beg for the politicians who wished not to be paid directly from the ISI

Some amount was also dished out to the Army Welfare Trust.

But according to the affidavit of former; DG ISI Asad Durrani: Nawaz Sharif received Rs3.5 million; Mir Afzal Khan Rs10 million; Lt-Gen Rafaqat Rs5.6m for distribution among journalists; Abida Hussain Rs1 million; Jamaat-i-Islami Rs5 million; Altaf Hussain Qureshi Rs0.5 million; Ghulam Mustafa Jatoi Rs5 million; Jam Sadiq Rs5 million Mohammad Khan Junejo Rs0.25 million Pir Pagara Rs2 million Maulana Salahuddin Rs0.3 million Humayun Marri Rs1.5 million Jamali Rs4 million Kakar Rs1 million K. Baloch Rs0.5 million Jam Yousuf Rs0.75 million Bizenjo Rs0.5 million Various small groups in Sindh received Rs5.4 million.

In July 1994, the government formed a commission comprising five judges to investigate Mehran Bank affairs. The commission submitted its report in February 1995. Only a part of the commissions report was made public and that too in December 1996. It cleared Farooq Leghari, Aftab Sherpao and Anwar Saifullah. On December 14, 1995, Younus Habib was convicted of embezzlement and fraud by Special Court for Offences in Banks in Sindh. Younus Habib was awarded 10 years rigorous imprisonment and a fine of Rs. 36.7 million.

In 1995, SBP allowed the Mehran Banks merger with National Bank of Pakistan (NBP). Consequently Mehran Bank was amalgamated with the National Bank of Pakistan. In 1996 the NBP had to make full provision for Mehran's liabilities which resulted in a net loss that year to the bank of Rs 1.26 billion. The SBP was also required to provide markup free finance to support the NBP. This was the hole story of Mehran bank and its scandal. This scandal was the biggest the biggest threat to Shareef family. After all the ISI distributions in 1990, Younis Habib was removed from Habib Bank on charges of fraud. In 1993 he applied for a license for new bank, Mehran Bank. Sharifs were in government then and Sartaj Aziz was the Finance Minister. The State bank of Pakistan objected to Younis Habib getting a license due to his past but he was given the license anywayThe first day the bank was operational, Rs. 20 crore was disbursed as loans to Sharifs industriesAll of Punjab Govt accounts were moved to Mehran Bank. Habib alleges that he paid money to Nawaz Sharif and Shahbaz Sharif to get this done Reference: 1. Wikipedia 2. Case study (failure of Corporate Governance @ Mehran Bank) by Dr. Kamran Siddiqui 3. Article in Dawn News Paper (November 2012)