CHAPTER 6

CORPORATE CRIMES
Corporate crimes are often referred to as crime committed either by a corporation such as
business entities having a separate legal personality as compared to a natural persons who
manage its affairs or by individuals who may be associated with a corporation or other
business entity. Whenever it is connected with an individual, it is so connected by virtue
of individuals corporate liability while being associated with the corporation or with an
individual business entity. It is that category of white-collar crime that are committed by
persons associated with occupation of business, trade, manufacturing, services, banking,
capital market, insurance, institutional loans and so many other corporate activities.
These individuals may be employees or owners of such corporate and individual entities.
Their deviant behavior is necessarily to fall within this category of white-collar crime
because they are fairly placed in white-collar class because of their professional and high
social status. Obviously crime of individuals against their corporation or individual
business entity does not fall in category of corporate crime because of nature of their
criminal activity and it is necessarily to be placed in category of occupational crime.
Corporate crime is deviant behavior of these individual that is adopted in furtherance of
interests of the business entity which is usually profit multiplication.

Some common type of corporate crime include price fixing, price discrimination,
violation of patents and copy right laws, industrial espionage, misleading financial
statement, unfair labour practices, misrepresentation in advertisements, consumer fraud,
financial manipulation, tax evasion and fraud, under-invoicing for imports, violation of
environmental laws, violation of quality standards, monopolies, cartelization by an
individual or group of corporate and business entities, hoarding of commodities by
creating artificial shortages and the list continues.

Most of the corporate crime activity goes un-punished or penalties are lax because these
remain out of view of public, media, police, policy makers and enforcers because these
create little instant public concern and cry like other street crimes. The illegal activity is

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performed in the garb of legitimate business unlike the street crime. Thus the deviant
behavior and violative activities of corporate criminals often remain to be classified as
crime by public, media and policing agencies. However, Sutherlands assertion that an
unlawful act is not defined criminal by the fact that it is punished, but by the fact that it is
punishable (Sutherland, 1949). While introducing the concept of white-collar crime
Sutherland highlighted this aspect of criminality and later in his seminal book white
collar crime he tabulated the decisions of courts and administrative commissions against
seventy of the largest manufacturing, mining, and mercantile corporations. Since the time
when concern was first shown about corporate crime, a debate is continuing whether
more severe sanctions are needed to eradicate unethical and illegal conduct and whether
such sanctions offer greater general or specific deterrence (Grunner, 1988).

It is

emphasized that governments remain lenient with corporate criminals. The news media
find it difficult to respond to corporate crime both because reporting may compromise the
trial by tainting the jurys perceptions, or because of the danger of defamation
proceedings (Mokhiber & Weissman, 1999).

In a society faced with crises of rule of law and law enforcement, attaching stigma to
corporate deviance is unlikely. In such social milieu deviant behaviour of individuals
becomes such a habit that it is taken as a practice of corporate sub-culture. Such practices
are neutralized as trick of the trade by individuals and corporate entities. The corporate
deviance becomes more prevalent where media, society and the government takes such
deviance with indifference and tolerance. It is often not possible to survey and interview
corporate managers about their own deviant behaviour because first qualification required
for such research is how the individual corporate managers themselves view their own
deviant behaviour. It is thus not likely to find a neutral view about such type of deviance
among the subjects practicing it.

There is another controversy in corporate crime literature that if at all serious sanctions
are required, is it the company or an individual that should suffer. (Elzinga & Breit, 1976,
also see Schlegel, 1990). It is somewhat political expediency of the government and law
enforcing authorities to stay lenient with corporate criminals because government

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depends upon them for a stable economy that should continue to provide funds in the
form of taxes. The case of Pakistani society is more complex because governments own
stability often depends upon corporate and industrial sector especially when legitimacy of
the government itself remains questionable. The corporate managers have capacity to buy
and politicians and bureaucrats at high places have propensity to sell their influence to
condone corporate deviance. The government thus remains reluctant for one reason or the
other to proceed against corporate deviant behavior. The most relevant examples from
recent events are cartelization of sugar and cement industries where owners or their close
associates were part of the ruling cabinet. When after public outcry National
Accountability Bureau initiated investigations to identify the real culprits; the
investigations were suddenly dropped on the pretext that such action would destabilize
the corporate sector. The laymen were unable to understand how they have been deprived
of billions of rupees with sudden increase of prices of commodities unless government
noticed the market manipulation by big guns. But it was too late.

Characteristics of Corporate Deviance

The corporate crime in Pakistani society has certain dissimilarities as compared to those
committed in America or in other places of developed world. The size of corporate
entities is smaller and their resources are limited. Their ways of deviance are less refined
and thus affects lesser population. These business entities work under a regulatory
mechanism that is lax, less developed and yet not fully equipped to guard against
corporate deviance. There is surely no research on corporate deviance by scholars,
investigators and policy makers. There are a number of practices that are unethical or
illegal but still these are practiced as a norm without attracting attention of corporate
watchdogs. These include tax evasion, under invoicing and price fixing, exploiting
loopholes in the system, and taking undue advantage etc. With some exceptions due to
smallness of corporate entities owned by individuals, families and share holders decision
making is often not participative and few individuals are involved to run the affairs.
Apart from a group of individuals, the share holders remain aloof from affairs of the
corporate entities as long as they continue to have some dividends. It is thus very easy for

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these groups of individuals to mislead the share holders. Same is the case of capital
market where it is often heard that stock market has suddenly collapsed without fixing
any responsibility depriving the innocent investors of their hard earned savings. The
regulatory bodies such as Security and Exchange Commission of Pakistan (SECP) and
Monopoly Control Authority have yet to have teeth to eradicate corporate deviance.
Recent years have seen abrupt change of chairmen of SECP at least twice on pressure
from stock brokers, the most powerful corporate lobby having tremendous influence to
thwart government policies if these are not favourable. The taxation system is not only
handicapped but is corrupt up to its roots and hence tax evasion and buying of tax
officials is too simple. Cartelization among the industrialist is so rampant that it is not
possible for political authorities to break it without putting their own existence in danger.
Industrialists have turned into politicians and have found their ways in power corridors to
influence governmental policies that suit their corporate interests. They have capacity
and position to exploit precarious political situation that is often faced with crises of
illegitimacy. The corporate sector and private businesses have particularly in recent past
defrauded the public through dubious schemes promising quick and huge returns
(National Accountability Bureau, 2008a).

Corporate Deviance

The data presented and analyzed in this portion of this research work has been gathered
through individual surveys and interviews. As there is no past research available on the
subject, reliance has been placed on media reports and individual sources. However, even
the media reports provide limited insight into the subject matter.

The field of corporate world in our social world is full of deviance. Stories of this
corporate deviance hit our ears and eyes everyday. However, for the purpose of this
humble work, case studies that placed in devastating risk the economic security of
millions of individuals; have been included in this study. Many cases of corporate
deviance have been excluded both for want of space and relevance.

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Traders, middlemen and brokers have vast field open to manipulate market situation and
exploit the unaware consumer by hoarding the commodities and increase prices. The
recent months has seen climax of this type of manipulation when government lost public
support and riots erupted in cities for shortage of food items particularly wheat and flour.
The government was constrained to depute law enforcers to search for hidden stocks of
commodities to address the public outcry. Corporate culture that is based on ethics is yet
to be developed in our society. It is indifference and resourcelessness of regulatory bodies
that further de-stigmatizes such deviance. Sub cultures of different corporate sectors
have their own established practices that suit their interests to multiply their wealth.
Documentation of records of corporate activities is non existent and it is too simple to
manipulate and forge the records wherever it is required. There is no consumer activism
to confront corporate deviance at any stage; neither there are consumers courts to
penalize the criminals.

Sugar Scandal

Recent years have seen a number of developments underlining corporate deviance in

many forms and outlook. The association of corporate manager, industrialists, politicians
and business managers has been a prominent feature of many scandals that were
highlighted through emerging investigative activism in popular electronic media and print
media. The influentials were able to manipulate market situation to make quick gains by
creating artificial shortage of essential commodities like sugar, cement and wheat. It was
in beginning of year 2005 when prices of sugar started soaring and gradually increased
from usual price of Rs.21/Kg to Rs.45/Kg registering an increase of 119% and highest
ever in history of country having agro based economy. This sudden price hike provoked
public unrest and led to rioting and public protest. It was too late when public outcry
bothered the politicians sitting in the government and thus a notice was taken by Public
Accounts Committee (PAC) consisting of parliamentarians. By this time the poor
consumers were robbed of Rs.46 billion through price and market manipulation (NAB
blames ministers, 2007).

Despite requisitioning of details by PAC no details were

provided by influential sugar mills owners and the matter kept lingering on. It became

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laughing stock in media when Monopoly Control Authority (MCA) imposed a fine of
Rs.100, 000 to a sugar mill making millions through stock manipulation.

When deviance of powerful sugar mills owners was continuously projected by media,
NAB initiated an inquiry to ascertain the facts with much pomp and show and asserted to
prosecute the culprits responsible for the crises. When it was about to complete the
inquiry, the inquiry was suddenly stopped without any explanation. The follow of these
developments by media continued and NAB high-ups remained tight lipped about their
pledge to investigate the matter. The influential sugar mills owners most of the sitting in
cabinet, attempted to create an impression that investigation by NAB was escalating
prices of sugar. They were able to convince the Prime Minister to order NAB to wind up
the investigation and NAB was thus forced to issue an official press release to announce
winding up of investigations. The NABs investigation report was concealed and marked
as secret document endangering public interest. This terminology of public interest is
often used by ruling class to justify their wrong doings. Although investigation by NAB
were stopped, but due to continuing cries in media Supreme Court took a suo motu notice
of the developments after a number of civil society members insisted them to interfere. A
senator of the opposition requested the court to call an explanation from NABs and ask
as why it closed down their investigation within two days. The incomplete NABs report
gave startling findings:

Middlemen, sugar industrys corrupt practices, tax evasion coupled with soft
government policies and the food ministers action of inducing farmers to demand
higher price of sugar cane are reasons for ongoing sugar crises. These players and
factors took advantage of lower sugarcane production in the country which,
coupled with higher international prices, played havoc with common mans
budget by increasing the commoditys price from Rs. 21 per kilo in February
2005 to Rs. 46 per kilo by the end of January 2006. Even the government policy
of allowing duty-free sugar imports benefited the aforementioned players.
The sugar industry in Pakistan is predominantly owned by politicians. Some of
them despite being in government have acted contrary to the business laws/ethics
and held sugar stocks that tantamount to hoarding. Minister of industries, minister
of commerce his brother and a cousin, President of ruling Party, two provincial
ministers, an ex-governor and an influential industrialist (all named in the report)
with their 12 mills were responsible for almost 70% of the 317,000 tons of sugar

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hoarded. Two politicians of opposition (both named) were responsible of

hoarding about 100,000 tons of sugar in addition (National Accountability
Bureau, 2007b).
The case example explains deviant behaviour of power elites. It also explains the
responses of the accountability mechanism to deviant behaviour of these power elites.
The National Accountability Bureau projects itself countrys elite anti corruption
institution. However, over the period its credibility has been vitiated when it was too
harsh with offenders with little position of power and politicians belonging to opposition
camps.

The flagrant violation of ethics by the power elites who exploited market

situation to their advantage causing catastrophic damage to economic life of millions of

individuals, is also an indicator that hints at power imbued deviant behaviour that
provides motivation to the power elites to commit the crime against relatively powerless
individuals. This power imbued behavior de-stigmatizes wrongdoings of these
individuals as this power at hand induces indifference to feelings of others and promotes
self righteousness in behaviour of the offenders. Weak law enforcement mechanism or
offenders ability to defeat such mechanism, acts as a catalyst for such criminal
motivation that is derived from power. This power imbued motivation for crime becomes
operative wherever there is power lag between the victim and the perpetrator in give
social context of interpersonal relationships. It is thus not restricted only to elite class of
offenders.

This scenario of power dynamics fosters corporate deviance as signified by the above
example. The industrialist tycoons of the sugar industry went on exploiting the common
man once they acquired power as influential politicians. They had strong influence on
policy formulation that was serving their self interest. Then they manipulated the market
conditions by hoarding the commodity that ultimately deprived the consumers of billions
of house hold savings. The responsible criminals still managed to escape any penalty or
stigma because of their powerful positions. The system of accountability was humbled by
these corporate barons and it was constrained to close down its investigative process.
This indicator is a manifestation of the fact that it is power alone that determines as to
what acts of apparent deviance and criminality are classified as culpable or blameworthy.

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It is the power that determines culpability of powerless for relatively less harmful acts
and it is same power that projects criminality of these powerful for more harmful acts as
acts of feasance and goodwill. It is the power of perpetrator that justifies wrongdoings as
acts of benevolence.

Cartelization of Industries

During the last two years, a number of cases of collusion between corporate managers of
particular industries surfaced where these corporate managers acted in collusion to
manipulate the market by limiting the supply of commodities to multiply profits. These
industries are owned by influential corporate manager having capacity and connections to
arrange political deals for the government often faced with crises of legitimacy. This
cartelization resulted into unusual rate of inflation that reached 20 per cent in case of food
related commodities in just four months (State Bank of Pakistan, 2008 and Breaking the
cartels, 2008). These cartels of industries prevent maximum utilization of production
capacity. This not only creates unemployment but also lowers industrial growth. As a
result prices go up and poor become the ultimate victims of this sort of corporate
deviance. This cartelization was recently seen in banking, automobile, pharmaceutical,
sugar and cement industries. After a public outcry and fear of riots, the government
rushed to legislate a law to create an institution later known as The Competition
Commission of Pakistan under Competition Commission of Pakistan Ordinanace-2007.
This Commission is yet to start biting the influential industrialist who have their
collaborators in high positions in bureaucracy. The inefficacy of government to act
against these cartels became so pronounced that World Bank strongly advised the
government to break the cartels in banking, sugar, automobile, pharmaceutical and
cement industries. Earlier six professional organizations like Pakistan Business Council,
Overseas Chamber of Commerce and Industries, Institute of Chartered Accountants and
Management Association of Pakistan also recommended to the government to come
heavy on these cartels. The World Bank went to the extent of threatening the government
to link their annual assistance especially being offered to the Competition Commission if

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it failed to ensure prudent business practices (World Bank urged, 2008). In an earlier
report on business competitiveness, the World Bank observed:

We understand that proven or suspected cartels have existed and many still exist
in cement, sugar, ghee, autos, fertilizer and perhaps other industries, which need
to be investigated. Pakistan should track down illicit cartels to regulate businesses
without which it would be difficult to attract adequate local and foreign
investment in the country. We understand that that MCA has conducted 103 cases
of monopoly including cars, batteries, tobacco, electrical, gases and chemicals. Of
course this figure, by itself provides no indications of abuse of monopoly
position. However, there is a wide field for inquiry. These cartels were by
a
long way the chief impediments to competition in Pakistan and that there was
a need to conduct thorough inquiry as to what types of anti-competition
conducts were most prevalent in Pakistan. (World Bank, 2007).
Cartelization in Cement Industry

The cartelization in cement industry is an often heard case of large scale corporate
deviance. This cartel is a loose formation of countrys two dozen of cement
manufacturers who fix an unwritten production quota for each to restrict supply to
manipulate price. They have production capacity of about 17.85 million tons of cement
per year and often keep 40% of this capacity as idol to restrict supply. In October 2005,
when country was hit by a massive earth quack, the rehabilitation efforts of next summer
were seen as an opportunity by this cartel and they increased price by Rs.50 per bag
registering an unusual increase of 40%. This increase was unexplainable because prices
of all inputs remained unchanged. This stalled rehabilitation efforts of the government.
The builders and developers protested this increase stating that this increase was an
inhibitor of development in construction industry. Instead of regulating deviant corporate
behaviour, the government withdrew Rs.25 per bag tax on cement to reduce price.
However, the powerful cartel continued with their price and only partially transferred this
benefit to voiceless consumers. The government tasked MCA to investigate and punish
this kind of unfair business practice but none of the deviant member of industry could be
penalized. The government quickly to responded this manipulation and allowed import
of cement from China with a special subsidy of Rs.50 per bag. When consignments of
imported cement reached the port, the cement manufacturers manipulated for withholding

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of imported consignments at port claiming that the cement was sub-standard. Influential
Chinese manufacturer rushed to prove that their product was of international standard.
The government clearly warned the cement industry to reduce prices of face action. This
warning brought fruits and price was reduced by Rs.50 per bag. However, this was first
time that government realised existence of cement cartel perhaps to secure its own
existence against mounting public pressure. Despite an elaborate field work, MCA could
not submit its report to avoid embarrassment to sitting government as the general
elections were just round the corner (Submission of cement scam report, 2007).

There has been rift between the Association of Builders And Developers (ABAD) and
cement manufacturers being the natural rivals. An office bearer of ABAD explained how
this cartel operates:

The cement manufacturers work like a cartel and exploit the situation by fixing
quota for production for each manufacturer. This provides an articulated conduit
for corruption because all mega projects have a built in escalation clause in each
contract. This does not bother anyone because public money is misappropriated in
a systematic way by this cartel and the middlemen associated with it. In private
sector construction sector suffers adversely inhibiting development and promoting
unemployment. Cracks in this cartel sometime appear temporarily where these
manufacturers work against each others interests such as price discrimination in
South by manufacturers located in North that places manufacturers of South in
disadvantageous position. Where manufacturing units with enhanced capacity, are
asked to restrict their production or where exports to Afghanistan is cheaper for
units places in North and they attempt to compete with those placed in South.
Common man is the ultimate victim of this cartelization. Most of them cook their
books to show fewer profits to their share holders but realistic profits shown by
some also bothers others. Where it comes to profit taking, they join hands
together. They manipulate and regulate production to fix quota to keep their
prices high even with rising demand. Although some brands become popular but
consumers are not left with an option when limited quantity of that brand is
available at almost same price. Thus the common man becomes the ultimate
causality and their profits remain intact. They never come to face each other for a
healthy competition in prices.(Butt, personal communication, April 9th, 2008).
As a result of rising cost of fuel, most of the cement industry converted to coal, bringing
down their production costs. However, they silently opted not to transfer this benefit to
consumers despite reduced cost of production. An office bearer justified this action:

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Cement companies have the right to use advantage of conversion to coal to reduce their
own losses and we need not be pushed on to pass that benefit to the consumer (Rasheed,
personal communication, April, 13th, 2008.). This view of the cement industry can hardly
be agreed as it is selfish to cling to prices where cost of production goes down. The root
cause of this rudeness is absence of a culture of corporate competition among the cement
industry that enjoys symbiotic relationship to follow their mutual pursuits of unfair
profits. The toothless regulatory mechanism provides further strength to this kind of
deviance that glamorizes the deviant behaviour. How impotent is the newly created
regulatory body Competition Commission of Pakistan (CCP), may be seen from a recent
case where three executives of the cement industry absented themselves from its hearing.
These executives were served with a show-cause notice for stopping officials of the CCP
from inspecting the office of the association to find a clue to restrictive trade practices.
One of them absconded on motor cycle with an important file containing valuable
evidence (Cement executive failed, 2008).

The corporate deviance of cement industry is not only restricted to price manipulation
and unfair trade practices but it has other dimension where they under report their
income, evade taxes and hoodwink their share holders. An investigative study by Large
Tax Payers unit (LTU) revealed that those involved in cement business under report
their income to the extent of Rs. 7.628 billion per annum. The data presented in this
report reflected that people in cement industry under report profit by Rs.30 per bag. The
study also mentioned that during the last two fiscal years the gap between the market
price and ex-factory price continued to widen as the cement manufacturers cartel was
operating at full swing. They found that the manufacturers and their dealers shared profits
in shape of underhand agency deals. The study recommended that a tax intelligence
system is necessary to check unfair business practices in cement industry (Large Tax
Unit, 2007).

The example of cement industry is one among many of the corporate entities in other
sectors who associate themselves in unfair trade practices and this deviance goes on
unabated because of impotent regulatory control over corporate sector. Their power to

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manipulate and join hands to work like monopoly in furtherance of their common aim of
generating more and more profits and signifies the fact that their power enables them to
commit acts of deviance.

Mehran Bank Scam

Abuse of position by corporate executives to benefit themselves and other associates and
relatives is a common form white-collar crime in banking sector of corporate world. In
this case Mr Younis Habib serving as provincial chief of a public sector Mehran bank,
siphoned funds of the bank through malpractices by granting loans to his friends,
relatives and associates. These loans were not paid back and all the beneficiaries went in
default and there were no guarantees to secure the loans. The watchdogs of the central
bank noted that the bank was almost bankrupt and was having serious liquidity problems.
On request of the central bank, NAB initiated investigations and the offender was
arrested. NAB investigators detected 11 accounts of the offender in an other bank
financed through money siphoned from Mehran bank against insecure loans. Another 69
bank accounts were detected in another government owned bank. The total amount in
bank accounts misappropriated from the bank managed by Habib was Rs. 1.6 billion. The
immoveable property having market value of Rs. 2.2 billion was also located by the
investigators. As a result of plea bargain NAB recovered the amount payable to the two
banks. The Mehran bank was merged with another larger bank as both were owned by the
government. This recovery is the largest ever recovery from any corporate offender in
history of the country. The offender was also involved in many cases of financing
political parties and investing with dubious activities of intelligence agencies. He is
facing jail and case against him in at least 11 cases is continuing in accountability court.

The possibilities of deviant behaviour are more in a social milieu where system of social
and regulatory control is weak and tools of social engineering are not sharp enough to
deal with this kind of deviance. The motivation for crime becomes strong when there is
an opportunity loaded with incentives. Money is one of the strong incentives for deviance
among corporate mangers whose sole aim is to multiply profits. The temptation that other

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entities in corporate sector are doing the same way provides an additional impetus for
corporate deviance of these corporate managers in all segments of corporate world.
Weak regulatory mechanism, their influence on high places in bureaucracy, their position
to exploit the loopholes of the system, political expediency and voiceless consumers lead
them to power imbued deviant behaviour. Hence we see a combination of theories of
motivation and opportunity, differential association modeling and power dynamics that
glamorizes white-collar crime among these corporate managers. It is widespread practice
of the corporate sector to evade taxes, profiting illegally, and willfully defaulting against
bank loans without being caught that has de-stigmatized such sort of deviance among the
corporate managers.

Hazardous Production: Toxic Waste

Disposal of industrial waste by the industries is one of the areas where corporate crimes
of the influential industrialists goes unpunished. In countiers like Pakistan where
enforcement mechanism lacks resources, will, institutional system and legal frame work
to monitor these mighty offenders; there is less emphasis on safe production. This way,
well being of society is often ignored. As a result citizens keep suffering in one way or
the other. Unlike USA and Europe, working conditions and environment in most of the
industrial areas of developing countries is flawed. There is no concept of taking
preventive and control measures to dispose of dangerous and toxic industrial waste to
safeguard the society from dangerous effects of chemicals discharged by the industries.
There are no arrangements for record keeping and data collection of accidents, and
incidents most often go unreported and even unnoticed. It is truer in case of unorganized
sector where about two-third of the total workforce is employed in Pakistan. Whenever
any accident takes place and someone loses his life, the industrialists manage to secure a
patch up with the family of victims. Victims resourcelessness, lack of awareness of
rights, discredited justice system and work culture precludes any possibility of
accountability of the offending industries where an incident of loss of life due to
carelessness and deviance from standard practices takes place. Unemployment, job
insecurity, lack of concern for human rights and easy availability of substitutes for labor,

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hegemonic posture of industries and weak governance that is unable to check their
deviance are some other factors leading to insensitivity towards corporate safety.

The high risk industries include textile, leather, paper, plastic and ceramics. These
industries generate hazardous chemicals that resultantly cause illness, injuries not only to
the workers but also to the general public, where these toxic chemicals are not properly
disposed off. Textile is countrys largest industry and due to multistage production
generates number of chemicals injurious to health. Similar is the case with other
industries like engineering, steel and fertilizers where different processes generate dust,
smoke and hazardous gases.

As per National Environment Quality Standards (Self Monitoring and Reporting by

Industries) Rules-2001, all industries are required to submit their environment monitoring
reports confirming compliance of environment protection laws. However, these reports
are submitted by these industries with tall claims of environment laws compliance. In
reality these industries care least about their obligations and dispose off hazardous and
dangerous chemical waste in open places where their own employees and citizens remain
vulnerable. The violation of corporate entities to generate profits by compromising on
safety and environmental laws is not merely a local phenomenon. It is a practice followed
in developed industrial countries too but it is met with penalties whenever caught. Our
scenario is different. As the proper disposal of toxic waste in these countries involves
heavy costs, they export their scrap to under developed countries often referred to as third
world. Technological developments have added to the variety of hazardous waste often
termed as high-tech trash or e-waste like computer parts, circuit boards, electronic
gadgets. These are rapidly becoming a hazardous burden for developed countries and
instead of spending on its disposal; they resort to exporting this toxic waste to developing
countries due to their residual usefulness. Large quantities of used monitors were
exported by US based companies into Pakistan in recent past. The genius importing
Pakistani companies and individuals, used picture tubes of these monitors to assemble
TV sets using imported Chinese kits that are very cheap. These TV sets were seen in
every household because these were available at one third of the price of new. As a result,

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local TV manufacturing industry collapsed and hundreds of workers lost their jobs. It was
too late when government imposed taxes on import of used monitors to revive local TV
manufacturing industries. A by-product of this process was that highly toxic plastic
bodies of monitors, circuit boards, electronic devices and other gadgets were found every
where to spoil the environment. Environment officials are unaware about its disposal or
understandably are not even aware of their harmful effects. In a recent case, an
international conservationist Greenpeace informed their associate NGO in Pakistan to
raise alarm that a consignment of obsolete waste was exported from Europe to a Pakistani
firm declared to be used computers. This was illegally exported from Europe because the
exporting business house was not willing to spend huge amount on its proper local
disposal and found it beneficial to dump into Pakistan. Perhaps they know it well that law
can be bent easily in Pakistan. In another case, a mercury plant was to be imported to
Pakistan from Denmark by a local firm after they claimed of bringing new technology
into country. It was not declared that the plant located in Copenhagen harbor had been
shut down by the government for being obsolete and had released mercury into sea.
When the matter appeared in the local press in Pakistan, the government did not move.
However, Denmark government reacted and banned its export from Copenhagen and
advised the owner to dismantle it.

Another well known case of corporate irresponsibility pertaining to disposal of toxic

waste often referred by media was the case of those twenty children in site industrial area
of the city, who entered into a vacant plot to chase their ball while playing cricket. They
were trapped in toxic waste dumped by an industry making chipboards. One boy lost his
life because his whole body was poisoned as soon as he entered into the toxic dump. His
other surviving friends are now living a nightmarish life as some had to have their arms
and legs amputated. The industry was initially sealed for few days on the order of director
general environmental protection. However the influential industrialists, managed to
manipulate their way out through political pressure and sealing order was reversed and
the non-compliant director general was also transferred for taking harsh action against
insufficient evidence. The deviant industrialist lobby, responsible for dumping the
hazardous waste into vacant plot, also ventured to offer monitory compensation to father

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of the deceased boy and other parents of affected children, but they refused to accept this
compensation on the point of principle. It was contended by the industry responsible for
dumping this waste that they have not dumped the toxic waste, and some other industry
was responsible for it. However, the parents remained on guard and when after few days
another truck loaded with toxic waste reached the plot to discharge more material, he was
caught and then police arrested the offending executives of the industry. A routine clever
way of shedding away responsibility in case one is caught doing wrong.

Lack of monitoring and vigilance often provide such opportunities to these deviant
offenders. The parents of the affected children did not give up and they filed a petition in
High Court, seeking a direction to compel the management of whole industrial trading
estate, to clear the toxic waste from the area. The respondents pleaded innocence.
Considering that such cases often come to light, the High court, converted this petition
into public interest litigation, and deputed a senior police officer of good reputation, to
conduct investigation and submit report to the court. The investigation gave interesting
findings. It was reported that besides the owner of the vacant plot and owner of the
factory that used the plot for dumping, management of the industrial and trading estate
was criminally liable for negligence. The toxic waste was confirmed to be extremely
dangerous to human body by three laboratories. About two hundred plots were identified
within the same industrial complex; those could be used as dumping yard. The secretary
of the environment protection agency had maliciously kept the case file dormant for over
a year. The director general of environment who sealed the industrial unit and registered
a criminal case, was kicked out to preclude further follow up of the case (High Court,
2007). The court directed the police officer to prepare a charge sheet in the light of his
findings and prosecute the offenders before a competent court.

In another case, seven children were severally burnt from an abrupt fire that erupted in a
chemical dump in an open plot in industrial area of Orangi town. This toxic waste was
dumped by a reputed multinational paint manufacturing industry in this open area where
children and other citizens were vulnerable. The police investigation blamed the children
instead of the deviant industry, for the fire claiming that the children were carrying fire

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crackers that caused fire in highly flammable chemical. Despite follow up by

environment protection agency, the responsibility for dumping of this toxic waste could
not be fixed. Even it was yet to be established that fire erupted due to inflammable waste
because samples were collected after three days and possibility of removing the
dangerous chemical by the offending industry well before taking of samples could not be
ruled out. An official of environment protection agency confided that although
irresponsible and unprofessional dumping of hazardous chemicals was a prevalent
practice in the industrial area, it is very difficult to fix the responsibility because of
insufficient resources. They had their own limitation as an eye witness is needed along
with substantial proof to blame these mighty industrialists (Ghauri, personal
communication, December 18, 2007). It is this culture of complacency and lethargy in
being proactive, that promotes deviant practices among these industries. Onus is being
placed on innocent children that they were carrying fire crackers. It is not being thought
out why highly inflammable chemical was disposed of in an open place exposed to public
access. When attitude of people responsible for law enforcement is such and they are
living under a psychosis of fear, it is unlikely that a legal action will be taken against the
criminals.

It is the complacency of law enforcement and compromise and patronage by senior

bureaucracy that facilitates this deviant behavior of industries. In this case secretary
environment acted to favor the culprits by keeping the case file dormant and kicking out
the proactive director general to look after interests of industrialists despite death of an
innocent boy. Instead of looking after public interest, he guarded interest of these whitecollar criminals. Coleman explained this combination of lack of resources and corruption
of enforcement as under:

On top of chronic shortages of resources and all the difficulties inherent in

proving charges against powerful white-collar criminals, the enforcement process
is further weakened by its corruption. A host of political and economic rewards
may await employees who are willing to neglect their legal responsibility,
whereas those who show too much zeal may risk arousing the displeasure of their
superiors. To complicate matters further, bonds of friendship, sympathy and
common back ground may give the agents of enforcement reason to pause before

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demanding that full weight of the law be brought to bear against white-collar
defendants (Coleman, 2001).
The white-collar criminals in corporate sector break the law just to make quick and
ensured money. Their choice for the crime is rational because after evaluating their
situation they perceive that their criminal activity will bring them more reward and less
pain in achieving their goal of money. A study of business and government officers by
Robert (1954), explained: most businesses and most responsible government officers, at
least from sample interviewed, believe that businessmen run afoul of law for economic
reasons; they may want to make fast buck. The other factor in criminal motivation of
corporate criminals is what Weisburd et al (1991) call financial self-interest. The
individuals desire to preserve what he has and to protect it provides him drive to do
whatever is possible to consolidate his position. In these pursuits a corporate man resorts
to all sorts of methods to violate the law. It is perhaps more true in our scenario where
political instability, inconsistent economic policies, discrimination, credibility deficit of
government, weak institutional framework and lax enforcement promote uncertainty and
inequality. The individuals resort to all sorts of short cuts to survive at their own. In such
scenario glamour for white-collar crime increases as in criminals eyes it is a scenario
where immediately available opportunities may be lost in future. It is hence considered
more suitable way to consolidate ones wealth whenever an opportunity becomes
available. Even if it is at the cost of violation of law and norms of society.

The

competition with rivals to keep cost of production low is also a factor that compels these
offenders to compromise wherever and whenever possible. In a price conscious society
their options becomes limited. Same is true when produced goods are meant for exports
because the foreign buyers normally do not compromise on quality and hence other
avenues of cutting corners and compromise on occupational safety, environment
protection are adopted to stay in business successfully for longer time.

Since the industrial complexes and sites are mostly surrounded by populace from low
classes, mostly laborers and other low income strata, it is very rare that victim hits back
after being victimized at the hands of these corporate criminals. The report submitted to
the High Court, stated: This is case of high class persons verses poor people which was

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highly influenced to the level of covering up in favour of rich. In this case father of the
deceased boy along with other affected children, despite being poor; did not give up and
pursued the case to its logical conclusion. Despite their manipulation, the offending
industrialist was brought to books. In this case glamour for white-collar criminality was
met with conviction of victims, who were not willing to live with a stigma of deprivation
and social relegation at the hand of white-collar offenders. This rarely seen phenomenon
is indeed a beacon in a prevalent social environment of de-stigmatization.

Safety Hazards
One of the significant violations by corporate sector is in the field of production where
workers are exposed to dangerous work environment by the corporate entities. Norms
and rules of occupational safety are ignored to reduce cost of production at the cost of life
and safety of workers. While intensity and level of this type of white collar crime varies
from industry to industry and from country to country, one thing is sure that such crimes
are more prevalent among societies having lax law enforcement, poor state of human
rights, less awareness of safety among employers and workers both and where cultural
norms do not place enough emphasis on occupational safety. This assertion is more valid
in case of developing countries like Pakistan and yet truer in case of informal corporate
sector in these countries. Formal corporate sectors such as multinational oil marketing
and exploration companies have more emphasis on occupational safety in respect of their
work force.

Whenever any accident takes place and someone loses his life, the industrialists manage
to secure a patch up with the family of victims. Victims resourcelessness, lack of
awareness of rights, discredited justice system and work culture preclude any possibility
of accountability of the offending industries where an incident of loss of life due to
carelessness and deviance from standard practices takes place. Unemployment, job
insecurity, lack of concern for human rights and easy availability of substitutes of labor,
hegemonic posture of industries, lax law enforcement and weak governance that is unable
to check their deviance are some other factors contributing to insensitivity towards whitecollar crime of corporate occupational safety hazards. In recent years, promotion of

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occupational safety and health at work places has assumed significance because of
emphasis on human right and thus International labor Organization has developed ILOSafeWork program that is aimed at dealing with occupational safety and health and work
injury prevention. There are 125 million work related accidents worldwide annually. Out
of these, 220,000 are fatal implying that about 700 employees lose their lives in their
work place environment, mostly in developing countries (International Labor
Organization, 2007). The labor force survey in Pakistan has indicated that only 2.9 per
cent of employed industrial work force reported occupational injuries/diseases during the
year 2006 (Government of Pakistan, 2006). No supporting details are given. It is surely
under estimation of the problem. Practically there are no reliable statistics available at
national level to project this problem. It is the concern for saving cost of production that
keeps industries away from attaching importance to occupational safety and they remain
reluctant to provide protective clothing and equipment to their employees at work. There
is no single comprehensive law on occupational safety and this leaves an open field for
the industries to act at their discretion. Under the provision of labour policy 2002, a
Tripartite National Occupational Safety and Health Council was to be established to
provide safety at workplace, ensure compensation to the affected employee and frame,
review and update the requisite standards. Over five years have passed and there is no
progress towards this important aspect. This social situation is a glaring example of
governmental apathy that contributes towards de-stigmatization of deviant behavior of
offending industries.

The most glaring example of criminal behavior of industries in violating occupational

safety norms is that of a boiler explosion in a towel dyeing and bleaching industry which
killed 9 people and caused injuries to 25 workers. The explosion caused destruction of 10
adjoining living quarters injuring its residents. The boiler did not have safety devices in
place. Its heat intensity gauge meter was non operational and its annual inspection was
not carried out by department of industries. The industry was not having and emergency
exit, ventilation system and first aid kit. The industry owner was arrested by the police
on manslaughter charges and boiler operator escaped. The factory owner could not
produce boiler clearance certificate to the police, the boiler operator was not having valid

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qualification and licensed to operate the boiler. He only had informal training and was
hired because unqualified and unlicensed boiler operators were available at less salary.
The authorities have been complacent in ensuring proper surprise and formal yearly
inspection of this boiler. Wherever they visit industries for inspection, they are not
properly equipped and such inspection is merely a formality. An official of boiler
inspection wing at ministry of industries confided:

Some of the industries are not properly registered with the government. A liberal
policy regarding their surprise inspection for curbing child labour and boiler
inspection was adopted after a cabinet meeting to lure in investment, to reduce
unemployment and to reduce complaints of industrialists. After this unwritten
policy, government departments are not very stringent to enforce law as long as
everything goes well. These factories are located in far flung areas and the department
does not have transport, qualified man power and other resources to check malpractices
of these industries(Rasool, personal communication, December 10,2007).
This combination of corporate deviance and government supported latitude in
enforcement of law somewhat resembles with that fire incident in a chicken processing
factory in 1991 in Hamlet (please see Route & Raymond, 1993) where laws on
occupational safety hazards were compromised and profitability was placed ahead of the
workers safety. The safety practices were not regulated because regulatory authority on
occupational safety was not effectively organized.

How complex and huge problem of occupational safety is in the city; may be seen from
the fact that a survey of fishmeal manufacturing industries in Goth Ibrahim industrial area
revealed that out of 87 factories only 3 were having qualified boiler operator. Only 19
had fire fighting equipment in place. All other factories were having informally trained
operators primarily because of convenience and profitability. These unqualified and
informally trained operators were available at about half of the salary; they are available
round the clock in the living quarter of these industries and do not insist and emphasize
on periodical inspections, apparently keeping the owners free of botheration. Qualified
boiler operators were deputed where comparatively costly, complex and larger boilers are
used. A fishmeal factory owner explained this confluence of glamour and destigmatization, in following words:

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We know we have to see our interest and have to keep watching that we are
responsible for our deeds. While running our factories, we have no support from
the government monitoring agencies neither they are adequately equipped to
inspect our boilers. They do not carry hydro testing pump to check the pressure
limits. They have no facility to calibrate safety valves and all they do is just a
paper formality after their palm is greased. We have to arrange testing and
calibration of our machines for our own interest. Whenever something goes
wrong, we are held answerable. There are no enough qualified boiler
operators and we are forced to hire other engineers who have years of experience
and do much better. They are devoted, competent and are available round the
clock. We do not have to bargain with them unlike qualified boiler operators
who ask for big salaries and yet their demands continue(Munaf, personal
communication, December 12, 2007).
This interplay of regulatory environment and the business attitudes produce criminal
conduct by industries and consequence of this criminal conduct is social injury. The
attitude of the industrialists to cut costs giving their own rationalizations to violate the
norms, and lax enforcement and resourcelessness of regulators jointly encourages
violation of occupational safety practices. When limitations of regulators are known to
those regulated then they find newer ways of violations and rationalizations to justify
their wrong doings. The fact remains that they violate the business norms for profits.
They do not raise their voice against the regulators if at all they are not adequately
equipped or do not serve their purpose because it suits their interests well. Instead of
acting in a professional manner, they neutralize their misdeeds by giving justifications
that by all means violate laws and occupational norms and yet their violations add to their
profits. This is how glamorization and de-stigmatization keep moving.

HAWALA: AN UNDERWORLD BANKING SYSTEM IN CORPORATE CRIMES

The word hawala is borrowed from Arabic which means to hand over. Conceptually, it is
used to refer to trust, transfer of money or exchange. In conventional corporate settings, it
refers to transfer of money through informal means without involvement of formal
banking sector. Money is handed over to one person at one geographical location who
acts as agent for transfer generally called hawaladar. It is paid to the beneficiary at
another geographical location domestically or internationally. A fee or commission is

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paid to the agent that is nominal and often less than what is paid to the banks operating in
formal sector. Some time no fee is charged and hawaladar benefits from manipulation of
extended rate of exchange still obliging the client. The commission charged by hawaladar
ranges from 0.25 to 1.25 percent of the amount involved (Passas, 2001). In Afghanistan
and South Asia it is between 1 to 2 percent ((Maimbo, (2003). This low transaction cost
and several other factors are catalyst for this deviant behavior in which hawaladars
violate foreign exchange and other local regulations in a systematic manner for personal
gains. When the hawaladar understands that the transaction involves criminal proceeds or
transaction by the client is illegal, the charged commission may go up to 15-20 percent
(Carroll, 1999). However, during field interviews at least one interviewee confided that
these days hawaladars are often reluctant to involve themselves if they come to know that
the amount required to be transferred comes from proceeds of a crime. (Munaf, personal
communication January 18, 2008).

Hawala also sometimes refers to such transactions that are not hawala at all (Wilson,
2002). This assertion is correct because with passage of time this practice has adopted
many facets to suite convenience and requirements of the clients and services offered by
the hawaladars. Interfacing of formal banking system with hawala system has given
many faces to this simple system of money transfer. An empirical evidence to this
assertion may be seen later in this part of this research work. These hawaladars adjust and
reconcile their accounts mutually according to their own arrangements which mostly
include reverse hawala or return of money against amounts received from customers at
second location, export and import of goods and adjustments through manipulating
export invoices, physical transfer of money or sale and purchase of gold. These
adjustments may be multilateral where a number of hawaladars are involved in
settlement. In some cases same hawaladar keeps his arrangements at both places to
multiply his profits. It is invariably true in case of domestic hawala business between
various cities or transactions relating to amounts moving between Dubai, UK, China and
Pakistan. The hawaladars may be a full time exchange company, a jeweler, a trader or a
roadside vender depending upon the volume of business and frequency of transactions
handled.

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The biggest factor that makes this arrangement questionable is that no paper work or
records of these transactions are kept and hence there is no traceability of movement of
funds. In fact money is moved without actually moving it, which is moved both
domestically and trans-nationally. This system of transfer stands illegal from the
perspective of the country from where funds are transferred or where these funds have
landed. This system amounts to running a parallel banking that is a crime of a dimension
that perhaps can be checked but cannot be completely controlled. In Asia and Pacific Rim
there exists a high level of use of hawala both for legitimate and illegitimate transactions
(Government of Pakistan, 2003).

This type of underground banking originally did not develop for criminal use and is
historically being used as a facility for those who do not have access to formal banking
system or find its use as inconvenient due to many reasons. Academic literature on the
subject asserts that it has not developed in order to bypass laws, or currency restrictions
(see Bosworth-Davis and Saltmarsh, 1995). Ethno-cultural factors are often sighted as
most strong reasons for its continuous use and development for legitimate transfers of
money. The customer must have some sort of reference or some intimate relationship
with the hawaladar to avail his services. However, empirical evidence gathered during
this humble work established that even strangers are entertained by these hawaladars in
city. These hawaladars are mostly licensed exchange companies authorized to transfer
funds as agents of the State bank and they are required to maintain a trail of records for
all official transactions. However, in this garb they run a parallel underworld banking
system. This is because of lax enforcement of law and poor monitoring by regulators at
State Bank of Pakistan and complacency and other expediencies. There is a total of 35
licensed exchange companies operating in city1.

A network of connections between hawaladars at different geographical locations is

necessary to keep the system going. No formal receipts against money received for
transfer are issued by the hawaladars and system moves on trust. This trust is the
1

. As per records of State Bank of Pakistan.

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backbone of hawala system between the customer and service provider, and among the
hawaladars themselves. This trust is rarely breached and if breached, it means instant
business death of hawaladar. All interviewee in study by Passass (2001), who had direct
experience with hawala networks, emphasized in certain terms the paramount importance
of trust in hawala. Where hawala system is organized with an institutional backing like
that of Afghanistan where some donor organizations, development aid agencies and
NGOs use this system for funds transfer. The bad performers are kicked out of eighty
years old money exchange market of Kabul by money exchange dealers association
(Maimbo, (2003). The hawala system moves on the analogy that dishonest dealings
between the two violators are often performed honestly as long as both are gaining. The
customer intending to send money to another person is either given a code number which
the beneficiary at receiving end is required to disclose at the time of receipt. In traditional
local practices cell phone number of the beneficiary is used in lieu for identification and
in some cases both sender and recipients are connected on mobile phones for
identification before making payment at receiving end. This happens where customers are
not frequent user of this service.

The hawala system is being practiced since centuries when modern banking system was
not in place. A variety of literature on the subject of hawala around the world provides
over whelming assertions that hawala system is an ancient system of money transfer and
it had its origin in Indian and Chinese civilization. Some scholars assert that hawala
system developed more than a century ago when Indian immigrant communities in Africa
and South East Asia devised it as a means of settling accounts (Miller, 1999). Some
locate the origin of hawala system to centuries ago, when people sought a secure system
though which traders could transfer money (Alert Global Media, 1996). Brown (1991)
claimed that it was devised so that travelers could protect themselves from thieves.
However, despite globalization, unprecedented ease of traveling, high tech global
banking system and somewhat de-regulation of economies, the system is continuing. It is
called Fei-Chien in Chinese and means flying money, Padala in Philippines, Hui Kaun
in Hong Kong and Phei Kwan in Thailand (Muhammad, 2002).

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Criminological Dimensions of Underworld Banking

It is generally believed that hawala is used for transfer of money between individuals and
families of immigrants working abroad in Gulf States, North America, Europe, China and
other parts of the world. A variety of literature on the subject also mention its used for
payment of medical treatment abroad, for payment of educational charges of children
studying in developed countries. It is believed that immigrants are the biggest users of
hawala system. However, this belief has limited accuracy as far as only frequency and
number of transactions respecting funds transfers is concerned. Considering the volume
of value transferred for trading and other purposes, this belief is not correct. Hawala is
widely used by trading community and hawaladars around the world for tax evasion and
invoice manipulations for example see (Passas, 2001). It is used by criminals for a variety
of crimes ranging from terrorist financing to human smuggling.

In city trading

communities in New Chali, Jodia Bazaar and electronics markets, hawala is widely used
to under-invoice imports, to evade taxes and thus the amount involved is far more than
total volume transferred by immigrants.

Considering the present day corporate practices, hawala is considered to be a glaring

illegal activity and it attracted significant attention world wide after terrorist attacks in
United States. This system of fund transfer is viewed with more suspicion by regulators
around the world because of hawala systems alleged role in financing illegal and
terrorist activities (Muhammad, 2002). From criminological point of view, most glaring
catalyst in hawala system is hidden nature of transactions involved. A workshop on
underground banking system held under the auspices of Asia Pacific Group on money
laundering at Tokyo concluded that significant portion of the funds remitted through
hawala system were believed to be derived from serious criminal activities (Asia Pacific
Group, 1999). A study by Passas (2001) underlined use of this value transfer system in
criminal activities like tax evasion, capital flight, cover operations, intellectual property
rights violation, ransom collection, financial frauds, terrorism, smuggling of immigrants,
money laundering, illegal trade in drugs and body parts.

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Because of its anonymity and hidden nature, the hawala system is prone to be used for
money laundering and other illicit activities. Empirical evidence suggests that it is even
used for bribery of government officials who prefer to receive money in foreign countries
in their hidden accounts or in accounts of one of their relatives or associates. A tax
consultant acting as intermediary between a senior tax officer and a business man
explained that his client paid money into a foreign account indicated by the officer before
an order for refund of sales tax against exported goods was passed. (Nadeem, personal
communication, January 28, 2008). Another business man did the same way before he
got a permission letter for re-export of goods that were imported in violation of import
policy.(Adeel, personal communication, January 28, 2008).

It was adopted as convenient way of money transfer when conventional banking system
was not in place. It was preferred to save money from dacoits, and for barter trade.
However, despite development of modern societies around the world this alternate
practice of funds transfer is continuing because of a hidden criminal essence in its
operational characteristics i.e before and after the transaction is completed, both
beneficiary and sender are untraceable. Transactions usually remain concealed and
amount involved is never known. Any current publication on the subject from academic
books, journal articles, working papers of IMF, World Bank, Asia Pacific Group or other
organizations, would often mention association of India, Pakistan and Bangladesh and
their citizens connected with hawala system in one context or the other. It must not be
misconstrued that these countries have bad economic policies. It is historically associated
with South Asia and the Middle East (Muhammad, 2002 also see Wilson, 2002). There
are many factors contributing to such perceptive attributions. Most important is that
comparatively more focus is placed on these countries because of their proximity to
Afghanistan, which has been hub of activities of US and European forces against
terrorists.

Hawala is illegal in many jurisdictions because of its inbuilt characteristics of having a

capacity of facilitating a variety of other crimes and concealing the identities of senders

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and receivers. At local level, it amounts to parallel banking outside the ambit of state
laws. Such transactions are not disclosed and do not pass through the account books of
national economy. In Pakistan exporting rupees beyond a fixed limit and importing
foreign currency is prohibited under exchange control regulations. The holder of such
currencies is required to disclose his cash at exit entry points. These inbound and
outbound restrictions are often prevalent all over in South Asia. Hawala is thus illegal in
India and Pakistan with complete accuracy (Jost and Sandhu, 2000 and also see State
Banks Foreign Exchange Control Regulations, 2007). Hawala is practiced in all the
continents of the world. There are an estimated 3000 international hawala brokers
operating in Asia. Allegedly the business is monopolized by Asian migrants who mostly
operate from countries in the Gulf and South East Asia. Networks include trading points
in the financial centers of Singapore and Hong Kong. Some of the biggest family based
money dealers are based in London (Mateen, 2002).

Hawala may not be absolutely criminal as far as it is used as a facility for legitimate
purposes. However, its widespread use to support criminal activities has forced the states
around the world to take legislative and coercive measures to eliminate it.

Pakistan is a country in which hawala reportedly is quite common. There is remarkable

consensus that the degree of hawala for inward remittances to Pakistan is very high
(Wilson, 2002). This assertion may apparently seem to be correct but quantum of
outward hawala often used by trading community to evade taxes is much more.
Consequently this hawala system is supporting activities of white-collar criminals more
than it is providing services to legitimate immigrants intending to send money to their
relatives from gulf region, USA, Europe and other parts of the world.

An Interface of Underworld and Formal Banking System

Hawala is practiced in local sector in its modified form where it assists in safe movement
of cash. Hawaladars provide their own cheques keeping identity of the owner hidden,
whenever the later traveling from one city to another and wishes to carry money himself

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without associated risks. Modern communication system like on-line banking has further
facilitated such activities.

The empirical evidence collected during field interviews suggests that simple traditional
facility has been given criminal shape because the activities of the hawaladars are not
limited to funds transfer only. They have integrated unscrupulous officials of formal
banking sector to manipulate, transfer and legitimize funds transfer to prove remittances
of exported goods to claim refunds and rebates from tax authorities. The co-operation of
bank officials is bought to show proof of payment from one companys account to
another normally shown as supplier and buyers of goods. It is essential to show the
transactions where refund of sales tax and export rebate is sought. In such manipulations
the actual title of exported goods belongs to another anonymous owner. They can inject
strength into a bank statement of an individual, who actually may not have money. But
still his bank statement would look rich and strong that can then be used for any purpose,
from increasing a loan ceiling to seeking a visa for a European country on the strength of
these bank statements. The charges or commission for these services vary from case to
case and share of the middleman who acts as a bridge between the hawaladar and the
customers.

Hawala as a Catalyst for White-Collar Crime

Another dimension of hawala as criminal activity is that these hawaladars have

established partnership with some unscrupulous bank officials in Dubai and other
countries, from where funds may be shown to have been remitted on behalf of any
nominated company or individual to whiten the black money gained through corrupt
practices.

This practice is also used to show payments of exported goods to prove a credit advice.
With this facility at hand, necessity of opening a letter of credit is obviated and legitimate
crediting of foreign exchange into account of exporter is proved to entitle him for the tax
and rebate refunds. Dubai, Saudi Arabia and South Africa have been popular destinations

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where these exports are shown to have been made. In most cases, there are Pakistanis at
both ends (Nadeem, personal communication January 28, 2008). The depth and
dimension of such fraudulent exports and refunds escalated to such a level that in 2005,
government was constrained to withdraw levying of sales tax and disallowed rebate on
export of five categories of goods that included textile made-ups, printed fabrics, leather
and leather goods and surgical equipments. Connivance of customs authorities cannot be
over ruled in this dirty business because over invoicing is an essential component of this
criminal activity to claim more amount of refunds on the basis of enhanced ratio basis.
The higher the value of exports, the higher the amount of refund for sales tax and rebates.

Literature on the subject of under world banking generally suggests that major catalyst in
keeping this practice ongoing is ethno-cultural factors, low commission or service
charges, absence of bureaucratic inertia, convenience, speed, potential for anonymity and
round the clock services. There is general perception that it is used for transfer of funds
by immigrants working in developed countries to their hometowns for their relatives or
other investments. Another belief is that it is used in money laundering and financing of
terrorism. There is sufficient literature suggesting use of hawala in tax evasion and
money laundering (see Jost & Sandhu, 2000,and Passas, 2001). Such literature hardly
suggests a new dimension of this criminal activity.

Modus Operendi in Tax Frauds

It was discovered during field interviews that a modified form of hawala is used in
claiming fraudulent sales tax refunds, rebates and export of goods to other countries
where instead of incurring cost of export over heads, the original owners are paid for
transportation of their goods to their desired destinations in other countries and they
remain anonymous at all stages like hawala users. This transportation of goods with an
accompanied dividend is handled through phony and fraudulent export companies who
fraudulently draw huge sales tax refunds and rebates against these phony exports and
original owner still enjoying not only the facility of free transportation of his goods but
also he remains anonymous and is paid part of money fraudulently drawn through export

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incentives claimed through sales tax refunds and rebates. During the last about 5 years
this criminal practice continued and it was only in 2005, when tax managers realized that
more sales tax was being refunded than what was being collected (ST zero-rating, 2006).
This happened due to fake or what is called in tax jargon as flying invoices issued by
supplier companies showing sales tax deductions from buying companies but without
depositing the money in government exchequers. Over 7000 companies involved in this
illegal business were blacklisted to act as traders and their invoices were declared
unacceptable because these were issued without depositing tax in government treasury.
Hawala system played an instrumental role in this criminal activity where it is used in
combination with formal banking system to show that transactions associated with export
activities were genuine.

An exporter actively involved in this illegal activity explained the modus operandi that is
followed in this criminal activity. To start with one need to have a company registered
with sales tax and income tax authorities to rise as a legitimate business entity. There are
a number of individuals and groups who wish to dispatch their textile and leather goods,
such as fabrics, yarn and course cloth and leather made ups to other destinations like
Dubai, Saudi Arabia and South Africa. They do not want to be named or identified. The
fraudulent exporter is needed to approach them for export consignment referred as
shipment in colloquial terms. He is required to pay them cost of this purchase that
usually depends upon demand of consignment in the market, nature of goods, value and
permissible rebate rates. The consignment is usually sold at a prevailing rupee rate per
US Dollar value of consignment shipped. Payment of freight is usually the responsibility
of exporter and thus purchase rate of consignment also depends largely on this factor.
Once the consignment has been shipped the anonymous seller is out of the deal as he
would receive his goods at port of destination against the name of consignee indicated by
him. In this way he had already received his part of dirty money in shape of cost of
selling his shipment to phony exporter. This is another face of hawala system where
goods are moved not only without money but also some dividend in the form of dirty
money is pocketed by the original owner still remaining anonymous.

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Once the goods have been shipped successfully, the role of hawaladar comes in. The
fraudulent exporter approaches the hawaladar, who are mostly the owners of licensed
exchange companies. He needs to give details of the importing company in port of
destination of goods and the bank account details of the exporting company in Pakistan.
The hawaladar arranges remittance as if coming from importing company into account of
exporting company with complete trail of paper work and traceability. An advance
cheque of corresponding amount is taken by the workers of hawaladar from the
fraudulent exporter, to secure their money arriving through wire transfer and an
additional cost as agreed per US dollar is paid in advance to hawaladar. They have good
connections with bank officials and thus their money is promptly released to them against
cheques of phony exporter. Otherwise also this system runs on trust between the two
criminals who deal honestly with each other because both are gaining out of this criminal
activity. Now comes the role of third character, another sales tax registered company that
is to provide fake sales tax invoices to prove purchase of goods that has already been
exported. These are also called flying invoices because no amount is paid into
government treasury and still it is shown as charged from the exporting company. Only a
part of invoice value is charged from the fraudulent exporter and thus all amounts of
refund and rebate fraudulently claimed from government is distributed among the five
characters i.e original owner of the goods, hawaladar, Supplier Company, bank officials
and the fraudulent exporter in this whole transactional cycle (Nadeem, personal
communication, January 28, 2008).

The supplier company is usually owned by another associate of the fraudulent exporter,
who provides fake back up invoices showing sale of exported goods (without paying tax)
to the government and charging nominal tax amount from the fraudulent exporter. These
invoices along with proof of payment are produced to the sales tax authorities to claim
sales tax refund and rebates for seemingly legitimate export business activities. Again the
proof of payment between selling local company and fraudulent exporter is provided in
connivance with banking officials where bank accounts of the two companies are kept.
The exporter provides a crossed/named cheque to the bank manager in favour of selling
local company despite having no credit in his account. The selling local company

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provides a bearer cheque to the bank officials in advance. The cash flow is shown as
passed from the exporters account to the sellers account and a certificate/bank statement
proving sale purchase activity is provided to the two parties by the bank officials. The
case is thus ripe for claiming sales tax refund and permissible export incentive rebate
showing perfectly legitimate export activity. Thus the government revenue is swindled
because the selling local company does not deposit any sales tax with the government and
yet issues invoices to the buyers. Thousands of such companies were black listed by
Federal Board of Revenue for their involvement in this fraud but by that time enough
damage had already been done and billions of rupees were lost to these phony exporters.
When the revenue officials further proceeded to trace out the real culprits, it was
disclosed that their identities were fake; they had given fake addresses in their identity
cards. In some cases identity cards of drivers, servants and innocent employees were used
to raise a company. Blank cheque books were got signed from these innocent and
illiterate individuals. Some of these innocent persons were picked up by revenue officials
for tax fraud about which they had no clue. This way a mega fraud of billions of rupees
that took place and the real beneficiaries and perpetrators in most of the cases could not
be traced. The government was thus constrained to apply zero-rating sales tax on five
sectors of economy as refunds were more than the revenue generated through sales tax.
The Chairman of Federal Board of Revenue admitted that this action has saved about 40
billion in fake refund case of flying invoices (ST zero-rating, 2006).

Corporate Fraud of Phony Exports: A Case Example

One of the most relevant examples highlighting role of hawala in white-collar crimes is
of several cases of massive tax fraud by manipulating fake exports by Bawan Shah Group
of companies, who were implicated in tax fraud of over Rs. 20.1 billion. Raja Zarat Khan
resigned from Pakistan Customs department as a clerk in 2002, and launched Bawan
Shah Group of companies. Within a period of four years he became a billionaire through
fraudulent exports and fake tax refunds and rebates. He planted 12 companies by using
fake national identity cards of his employees, associates and did the same to open bank
accounts. He cultivated good friendship with senior officials of Central Board of

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Revenues thus deriving his influence to get his refunds quickly. On his arrest, a number
of sales tax and Customs officials were also implicated. One of his associate working
closely with him explained:

The man invited trouble by contesting election on a senate seat against a

government candidate and bribed many of the members of a provincial assembly.
Yet he could not win. This attracted attention of agencies. Influence of politicians
in power forced an investigation into his business activities and thus investigation
revealed his criminal activities. He was sending expansive gifts to senior custom
officials and was paying monthly to lower level tax officials. He was running no
production facility of textile manufacturing and yet was winning best textile
exporter of the year award of Federation of Chamber of Commerce and Industries
consecutively for the last 3 years. Export consignments of his group companies
were placed under strict observation and re-examination of his three containers
revealed gross misdeclaration of description, quantity and value. Another
container recalled from sea and examined on the order of High Court when the
culprit pleaded innocence and agitated before High Court; revealed that trash was
being exported in place of textile goods. He was running a charity hospital for
free eye treatment and interestingly this hospital was inaugurated by chairman of
Central Board of Revenue. He used this show to influence all tax officials to show
up his connections with high ups. In fact his lust for power after gaining control
on tremendous illegal wealth landed him into troubles. (Nadeem, personal
communication, January 27, 2008).

Three out of 12 registered suppliers could be traced during investigations and they
silently returned Rs. 328 million to avoid more trouble. Rest of the 8 supplier companies
owners could not be traced because of fake identities and addresses. During
investigations examination of over 480 cases of exports involving shipping bills, banking
transactions, and corresponding purchase records showed same pattern of connivance
between the supplier companies, Bawan shahs exporting companies and the officials of
banks maintaining the accounts of these companies. None of the bank official could be
implicated because of clean record keeping in these criminal transactions. The accused
was refused bail by all courts and 24 cases were registered against him. Two of his most
trusted associates managed to escape the country and 24 others were arrested. Because of
the complex nature of cases, matter was handed over to NAB investigators as a number
of tax officials were found involved to facilitate refunds and phony exports. However,
these were low grade officials. Senior level officials approving the tax refunds and

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rebates were not implicated. This stirred disturbances among the low grade officials and
they went on strike bringing an embarrassing situation for the entire tax administration.
The matter of this discriminatory treatment was agitated by some members of Senate
during debate on the matter (arrest of low grade, 2007). The echo of this massive fraud
was also heard in National Assembly when Chairman Central Board of Revenue was
quizzed by a committee on finance and revenue for involvement of tax officials in
abetting this crime (Probe into Rs.20bn, 2006).

The offender is still in jail and

investigators are facing serious difficulties in establishing their charges because all
documentary evidence is perfectly within the four corners of legal dogmas.

Bawan Shah case is not the only case of fraudulent claim of refunds and rebate. It is only
a scratch scene to reach tip of the iceberg. Thousands of companies deprived the
government exchequer of billions of rupees in this way. It was too late when these
companies were black listed and the tax administrators ventured to locate the owners of
companies issuing fake invoices. These companies were registered with fake addresses
on identity cards of owners, incorrect copies of identity cards and in connivance with tax
officials responsible for verifying the owners and locations at the time of registration with
sales tax authorities to start a business.

In yet another case a group of 17 companies owned by a group of associates deprived the
government of Rs. 4 billion misusing the export incentive facility on exports to
Afghanistan. This export route is considered to be easier because of war like scenario
where law enforcement is often difficult (Shah, personal communication, January 22,
2008). This amount was claimed through fake sales tax invoices and it was half the total
amount collected by the government in 4 years. Most of the suppliers supplying the
goods for export (as shown on record) were not traceable as their addresses were
incorrect, identities were fake and even the photographs were different on their copies of
identity cards submitted to the department (Rs.4bn refund fraud, 2007). The law
enforcement mechanism did not have the teeth to quiz the exporters who had bought
these invoices from the unscrupulous suppliers. Involvement of these fraudulent
exporters and tax officials cannot be over ruled because tax officials processed the cases

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of refund based on such fake invoices without due diligence. A collector of sales tax
department explained this problem as very huge because it is mammoth business to deal
with thousands of individuals and companies because there are acute shortage of
resources to audit accounts of these companies. It is impossible now to penalize them and
recover the amount from the culprits because more costs will have to be incurred with no
likely gains. It is transitory period to promote tax culture and in such situations such
leakages are bound to happen (Qutub personal communication, January 12, 2008).

It is often the lax law enforcement, and dearth of resources that facilitate such crimes.
Corruption of tax officials and their connivance with phony exporters added fuel to the
fire. Complacency, inadequacy, ineffectiveness and corruption of the regulatory system
are factors contributing to this fraud of tax rebates. Want of scrutiny at the time of
registration of businesses is yet another factor contributing to these white-collar crimes.
Analytically all the characters involved in this criminal activity may have their own
rationalizations to neutralize their criminal activity. Although law clearly provides
stigmatization labels for such criminal activities, these criminals tend to de-stigmatize
their criminal activities giving their own rationalizations. During this humble work
interview of the phony exporters revealed that it is common belief among their sub
culture that they were helping the government in bringing foreign exchange to the public
exchequer and enabling the government to show high value of exports to prove economic
growth although they were not contributing to any production activity. This was in fact a
perception used by these offenders to rationalize their criminal behavior. They hide their
crime of illegal gains behind this rationalization. For example while arguing before the
court; lawyer of Bawan Shah argued that his client has contributed to bring billions of
dollars to already funds starved economy of the country. Such techniques of
neutralization are not only used after commission of offence but also are used for
motivation to commit a crime (Cressey, 1971). Cressey further argued: Each trusted
person does not invent a new rationalization for his violation of trust, but instead applies
to his own situation a verbalization which has been made available to him by virtue of his
having come into contact with a culture in which such verbalizations are present.

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It may be correct to suggest that most rationalizations for deviant conduct are culturally
learnt; however it is also true that sometimes these are invented by the offenders
themselves depending upon many social factors such as state of law enforcement, rule of
law, principles of equality, behaviour of individual and standards of compliance to
normative structure, response of the society to deviant behavior, opportunity cost and
economic conditions etc. It is indeed limits and quantum of glamour for deviant behavior
that regulates de-stigmatization. In reciprocity, it is capacity of stigmatization that
controls glamour for criminal activity.

Tax Evasion and Under World Banking

Against all assertions indicated in literature on the subject, that hawala system is used
by immigrant workers to send money to their homes and is also used for other serious
crimes of national and trans-national dimensions; there is strong empirical evidence that
this system of underworld banking is widely used for evading customs duties on imports
through under invoicing. Most of the literature on the subject highlights use of this
technique of invoice manipulation by hawaladars (Jost & Sandhu, 2000,Passas, 2001 and
Wilson, 2000). Empirical data collected during this research work reflects that imports
from China and Europe are grossly under invoiced by the trading community. Traders in
grain market of New Chali, Jodia Bazar and electronic market of sadr work in an
organized network to evade taxes through under invoicing. The estimated safe range of
under invoicing is up to 70% percent and goods are imported at declared value of around
30%. Taxes and applicable customs duties are thus accordingly paid at reduced levels and
taxes are evaded with a systematic and rational participation. This has several economic
and social implications. This tax theft is collectively committed at community level
without any feeling of guilt and shame. They offer their own rationalizations to neutralize
their deviant behavior.

Underworld banking system plays an instrumental role to

facilitate this act of collective deviance. The violators have their own rationalizations and
they consider some of the governmental actions as motivation providers for their criminal
activities and at least they do not consider these activities as criminal at all.

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A trader in electronic market informed:

The traders in the market routinely import their electronic goods from China
through their counter parts working as trading houses in Guangzhou. They send
advance payments through a hawaladar in Peshawar. The online banking system
has further facilitated this mode of payment. In any part of the country any body
is able to send money to China in less than 10 minutes. One only has to lineup
with a person known as Suhrab Khan in Peshawar. The amount is to be deposited
in online bank account given by Suhrab Khan. Then one has to call him again and
advise him details of beneficiary in China. The amount is paid in Chinese
currency in less than 10 minutes into given account of beneficiary or in cash. The
goods are then exported by the beneficiary and invoiced at price indicated in letter
of credit. Thus no proof of extra payment for these imports is left and hence on
arrival of the goods these are assessed at declared value. In some cases there are
Pakistani at both ends and thus due to ethno-cultural ties the violation becomes
easier. (Kazim, Personal communication, January 28, 2008).

Another trader importing feed ingredients from Europe uses a different way of
evading taxes. He explained: Since there is tight watch over remittances in
Europe it is often not workable to pay in cash as the exporter needs cash into his
account. We use services of formal exchange companies to transmit funds into
accounts of our exporters. They know their own ways of moving money to any
country. We have arrangements with an exchange company having their office in
Dubai. They move our amounts through telegraphic transfers using formal
banking channels in Dubai. Once this money has landed into accounts of exporter
in Europe; we send him letter of credit for balance 30-40 percent of amount and
hence he will have no problems in issuing us invoice for amount paid through LC.
This is partial invoice and just to complete the routine, he send us second invoice
through mail. This way our business is going on for the last many years and we
are able to sell the product at competitive price in local market.(Munaf, personal
communication, January 31, 2008).

Another person managed to marry a Chinese girl and opened a trading house in Shanghai.
He stated that he deals in small electronic gadgets like cell phones, vehicle tracking
devices, and computer equipments. He runs his squad of carriers who shuttle between
China and Pakistan and carry the goods in their suite cases and bags. He receives his
money through hawala system organized by Suhrab Khan. He has established his own
domestic network in China to arrange for direct payments to Chinese suppliers. The
goods are delivered to him in Shanghai once the suppliers have received the payment.
When enough goods have been accumulated, a special friend working as carrier takes the
goods to Karachi for delivery to local traders. Customs officials are ready to co-operate at
entry points of Customs and thus huge amounts payable as taxes are evaded without
leaving any traces. (Numan, personal communication, January, 29, 2008).

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These case examples highlight how underworld banking gives many faces to white-collar
crimes. One face of this underworld banking is black economy as described above. Tax
evasion is found to be an accepted activity without any adverse labels. The trading
community adopts it as an accepted tactics of business having no nexus with guilt or
shame. On one hand public exchequer is deprived of huge funds and on the other goods
entering the country are under valued or not at all passed through the paper trail.
Similarly, amounts remitted through hidden means are not recorded and these escape the
official figure of national economy. In South Asia, the black or parallel economy is 30
to 50 percent of the white or documented economy (Gupta, 1992 ). Underworld banking
system provides wheels to this black economy to move on. Within their sub-culture,
trading community has their own rationalizations to evade taxes. It is this rationalization
that contributes to this white-collar crime of tax evasion in business.

One of the

respondents said: governmental policies are not business friendly and blamed that
politicians and bureaucrats misuse their positions to make illegal gains, why should we
pay taxes when we know our money is not utilized for the right purpose. Why not we
provide direct benefit to the general public by selling them cheap instead of making it
expansive by paying taxes (Hafiz, personal communication February 02, 2008).

Another trader explained that he cannot exist in the market if he imports his electronic
goods through legal means because of competition with other traders importing through
hawala system (Manazar, personal communication February 3, 2008).

Credibility deficit of governmental authority is one of the major causes for tax evasion.
Political instability, illegitimacy of political authority is another factor contributing
towards white-collar crime. When relatively weaker segments of society see power
quarters to adopt all sorts of illegal means to maintain political status quo, they find more
glamour to violate norms of business as behavior of power segments becomes a symbol
for de-stigmatization. In current scenario of political crises, this argument is carries more
weight.

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When theoretically analyzing the deviant behavior of hawaladars, traders and

unscrupulous bank officials we land into heart of rational choice theory although the
theory of motivation and opportunity also lies in close proximity to explain this deviant
behavior. These individual characters associated with illegal activities in their respective
roles adopt such deviant behavior after a well thought out process where they see profit
with much ease and convenience. There are no foreseeable penalties attached to their
deviant activities as these mostly remain concealed and out of reach of law enforcers. The
weak, deficient, ineffective, complacent and inadequate law enforcement mechanism
provides further rationale for such deviant behavior to these hawaladars and their
associates in business. Thus they chose to associate themselves with criminal activities
for financial gains. This decision making about the choice may be rudimentary but these
processes exhibit a measure of rationality, albeit constrained by limit of time and the
availability of relevant information (Cornish & Ronald, 1986). There is no threat of
apprehension and punishment for criminal gains and thus deviant activities of hawaladars
and tax evaders continue to flourish. On the contrary, their crime can be deterred by
increasing cost of crime such as strict enforcement, vigilance, quick and heavy penalties.
Since this possibility of enforcement is remote, they find their criminal activities more
glamorous. Because of their own justifications for neutralizations they carry no onus of
shame, guilt or humiliation and thus their choice for associating with illegal activities of
facilitating tax frauds, tax evasion and related crimes continues to provide a reason for
rationalization to associate with criminal activities. Information from one interviewee that
hawaladars prefer to stay away from associating with money transfer if they find that
money involved was illegal or black money; is further proof of their manifestation of
rational choice. They know that if funds are used in terrorist financing or other serious
crimes, they will have to face disastrous consequences if detected as a facilitator. The
illegal activities of hawala and tax evasion and fraud are committed collectively by a
social group of hawaladars, bank officials and traders. The social setting provides them
plausible opportunities to associate themselves with stated white-collar crime.

The

motivation of financial gains in this process lands us in close proximity of theory of

motivation and opportunity. Thus the deviant behavior of these hawaladars, bankers and

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traders can perfectly be explained as a confluence of theory of rational choice and theory
of motivation and opportunity.

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