The conviction of former Pakistani Prime Minister Benazir Bhutto and her husband Asif Ali Zardari by Swiss courts in cases related to money laundering and receipt of kickbacks is based on incontrovertible evidence and bears testimony to the integrity of Switzerland's judiciary, government and police force.
INDICTMENT of former Pakistan Prime Minister Benazir Bhutto and her husband Asif Ali Zardari by two separate courts in Geneva in two unrelated cases, testifies to the integrity and efficiency of the Swiss judiciary; the efficacy of the famous Swiss law, the Federal Act on International Assistance in Criminal Matters (IMAC); the diligence of the Swiss police; and the probity of the Swiss government. Also indicted with them was Jens Schlegelmich, a Geneva attorney who acted as a frontman, a device practised with impunity until legal reform and official exertions squashed it ("The Mystique of Swiss banks", Frontline, November 21, 2003).
Members of Benazir Bhutto's Pakistan People's Party (PPP) instantly gave each legal setback a spin hours after it became known so that the next day's papers carried their version. In contrast, the prosecutors, the National Accountability Bureau, provided a study in indifference. Benazir Bhutto's denials are astounding in their sweep. It is fair to mention that she has yet to exhaust the appellate remedies. But for three good reasons that does not affect the weight of the indictments. First, both Benazir Bhutto and Zardari "refused to respond to the questions which were posed" to them by letters rogatory. Secondly, there was thorough investigation in Switzerland by the Swiss police in which Schlegelmich was interrogated and had to answer questions. Thirdly, the evidence thus unearthed suffices to damn the couple in the eyes of the public quite regardless of the fate of the appeals. The documentary evidence alone is damning - the reputation which the administrative set up under the couple had acquired even in far off Switzerland; the rivalry between two Swiss concerns and their eventual conciliation; and, most important, a detailed agreement between husband and wife on the sharing of the spoils.
Section 3 of the Indian Evidence Act, 1872, which is in force in Pakistan also, provides a good test. It says that "a fact is said to be proved when, after considering the matters before it, the court either believes it to exist, or considers its existence so probable that a prudent man ought, under the circumstances of the particular case, to act upon the supposition that it exists" (emphasis added throughout). In a criminal case, courts insist on proof "beyond reasonable doubt". Civil cases are decided on "a balance of probabilities". Public officials are supposed to be above board. When evidence surfaces against them, the citizen must ask whether "a prudent" person would, having regard to the circumstances, regard existence of their guilt "probable" enough to justify the citizen "to act upon the supposition that it exists" and pronounce his verdict of "guilty". That applies to the media's verdict also. It must be based on evidence leading to clear inference of guilt by the test of Section 3.
BENAZIR BHUTTO, Zardari and Schlegelmich were indicted by Investigating Magistrates in two cases; one concerned money laundering, the other concerned receipt of kickbacks. Common to both is the involvement of Schlegelmich and offshore companies in Virgin Islands.
The money laundering case was decided by Investigating Magistrate Daniel Devaud on July 30, 2003, in two identically worded judgments, bar minor changes concerning each of the couple. So meticulous are the judgments that even their dates of birth are mentioned. Benazir Bhutto was born on June 21, 1953. Zardari was born two years later July 27, 1955.
Schlegelmich had been advising the Bhutto family for many years. He was introduced to the family in the beginning of 1980 when Benazir Bhutto's brothers consulted him in order to obtain a residence permit for their mother, Nusrat Bhutto. Schlegelmich was introduced to Zardari in December 1987 at his marriage with Benazir Bhutto.
At the beginning of 1990, when Benazir Bhutto was Prime Minister, Cotecna Inspection SA (Cotecna) concluded a contract of customs surveillance and inspection with Pakistan. It paid 6 per cent of the amount paid by Pakistan to account No.622.902 at Barclays Bank (Suisse) SA in Geneva of the company Mariston Securities Inc. (Mariston), a company incorporated in the British Virgin Islands whose beneficial owner was Nusrat Bhutto. Schlegelmich held the shares of Mariston in his name but on her behalf under a mandate agreement. In the execution of the contract, more than $1,200,000 was paid to Mariston by Cotecna. The contract was terminated by the Pakistani authorities at the end of 1991. Benazir Bhutto had been sacked as Prime Minister by the President on August 6, 1990. Nawaz Sharif won power in the general elections that followed.
Cotecna had every reason to be pleased at Benazir Bhutto's return to power on November 19, 1993, in the elections that followed Nawaz Sharif's dismissal earlier. She was sacked, for the second time, in October 1996. Nawaz Sharif became Prime Minister in February 1997. He was ousted on October 12, 1999, in a military coup led by Army Chief General Pervez Musharraf. He set up the National Accountability Bureau inter alia to bring to book both the Prime Ministers. The incidents that formed the basis for the cases in which Benazir Bhutto was indicted occurred during her second term in power. Judging by the facts of the money laundering case and Cotecna's involvement, it is clear that neither she nor her husband expended much time on governance alone.
Just then, another Swiss concern and Cotecna's rival entered the scene. The Societe Generale De Surveillance SA (SGS) had as its primary activity performance, on behalf of its clients, of mandates of verification, inspection or certification of services or merchandise.
In 1982, the Government of Pakistan had invited bids in order to confer on private parties verification of imports for the country (pre-shipment inspection of goods) to ensure payment of correct customs duties. SGS submitted an offer. It was initially accepted by the Pakistani authorities, but no contract was signed. Even a letter of intention had been signed by the Central Board of Revenue (CBR).
One Hans Fischer had been employed by SGS since 1967. In 1993, he became the head of the division of "governmental contracts" of SGS. His role involved negotiation and conclusion of services contracts for states outside of Switzerland. After Benazir Bhutto became Prime Minister, SGS attempted to enter in contract with her "and her family in order to restart the discussion regarding the conclusion of the contract of inspection (pre-shipment inspection of goods)". The Magistrate added: "SGS had perfectly identified the influential persons surrounding Ms. Bhutto... thus, in a memo of visit to Pakistan, one of the SGS managers of the Asia Zone, Mr. Bjorn Axel Sergelblom, indicated the following: `In his view, Asif Zardari, BB's husband, is deputy PM unofficially with a lot of power. This was demonstrated last week with the ousting of BB's mother from the chairmanship of PPP. The influence of Asif Zardari is real and he has in the past always helped and favoured his friends and cronies, one of which is the Cotecna agent. With the same friends back in power, Cotecna needs to be watched with caution, in particular due to the lack of ethics of the parties concerned'."
F. Herren was Assistant Director of the Government Contracts Division of the SGS under Fischer. In a memo of February 8, 1994, he told his boss: "The civil servants have forgotten how BB tends to run her business (with the help of her husband), i.e., if she want it, she will get it, with or without the support of the civil servants... There is a chance to get the project off the ground, with or without the consent of the CBR. We should also admit that Cotecna is better placed now than before and has made some mileage. However, they must have some concerns regarding delivering the baby alone.
"CT has two options: either to split with us or to re-define the terms of reference (to please customs or to a level where they believe they can deliver). However, because of their previous experience with customs, they may rather go for the split under the present TOR (also more profitable for the sponsor). The trade will not return of Cotecna. We can wait for CT to do the political job and for them to approach us.
"If we are interested in counter-balancing CT effort at the top, either by teaching for SHK or the husband, we should forget for time the civil servants (but keeping friendly contacts with them); they will not be the one making the decision in such case quick access and cultivation of the top is required." The identity of "SHK" is now known.
At the beginning of March 1994, de Braekereer, Manager of the Pakistani subsidiary of SGS, indicated in a memo that he could renew his efforts to see Zardari. In January 1994, Schlegelmich met Zardari at a dinner in Geneva at the residence of Sadruddin Aga Kan. According to Schlegelmich, "it was following this meeting that he contacted Cotecna". In the discussions that followed, he learned that it would be desirable for him to be in contact with SGS because Pakistan was a country too large for Cotecna to oversee on its own. During the same period, the beginning of 1994, Fischer approached Schlegelmich, whom he knew to be linked to the Bhutto family, in order that he might intervene in favour of the choice of SGS.
Schlegelmich having agreed to intervene, agreements were concluded on March 11, 1994 under which, should the "Pakistani" contract be awarded to this company, SGS undertook to pay a commission of 1 per cent of such sums to Schlegelmilch personally and entrusted to him the care of keeping in deposit the original of the agreements, in order to ensure confidentiality. SGS would take care of half of the travel costs incurred prior to the conclusion of the contract with Pakistan. Fischer signed these agreements.
Considering that Benazir Bhutto had become Prime Minister only in November 1993, the SGS' speed of operations deserves admiration. In 1993 another offshore company replaced the Mariston company of 1990. Bomer Finance Inc. is an "offshore" company having its seat in the British Virgin Islands. Jens Schlegelmich was its representative. Its "beneficial owner is Asif Ali Zardari", the judgment noted, adding that "he went to Pakistan from 18 to 27 March 1994 at the invitation of Prime Minister Benazir Bhutto... in reality, Ms. Benazir Bhutto shares with her husband the assets of Bomer Finance Inc. over which she has the power of disposition."
By June 1994, SGS had acquired all the shares of its former rival Cotecna. On June 29, 1994, Cotecna addressed, under the signature of Robert M. Massey, three letters to the office of Schlegelmich. All of them commenced with the following phrase: "Should we receive, within six months from today, a contract from the Government of the Pakistan for the inspection and price verification of goods imported in Pakistan, we, Cotecna Inspection S.A. Geneva will pay... on the total amount invoiced and paid to us by the Government of Pakistan for such a contract during the whole duration and its renewal."
One of the letters was addressed to Mariston of old. It would receive 6 per cent of the amount billed and paid by the Government of Pakistan under the inspection contract. The second letter was addressed to Nassam Overseas Inc., an incorporated company whose beneficial owner was Nasir Hussain, at the time husband of a sister of Benazir Bhutto. It provided for a commission of 3 per cent of the amount billed and paid by the Government of Pakistan under the inspection contract. The third letter was addressed to Schlegelmich. It provided for a commission of 1.25 per cent of the amount billed and paid by the Government of Pakistan under the inspection contract.
Also, on June 29, 1994, Cotecna sent a fourth letter addressed to Nassam Overseas Inc. In contrast to the three preceding letters of the same day, sent to Schlegelmich for himself and for Mariston and Nassam, this letter was modified as follows: "In the event that, within six months from today, contracts for the inspection and the price verification of goods into Pakistan are signed between the Government of Pakistan and Cotecna Inspection S.A. and Societe Generale De Surveillance S.A., we Cotecna Inspection S.A. on behalf of Societe Generale De Surveillance S.A. will pay you 3 per cent on the total amount invoiced and paid to Societe Generale De Surveillance S.A. by the Government of Pakistan for such a contract during the whole duration and its renewals."
At the beginning of June 1994, many meetings were held under the direction of Zardari in Islamabad in the presence of representatives of the Pakistani authorities as well as representatives of Cotecna and SGS.
When asked why it was Zardari who had organised these meetings, de Braekereer said: "I assume that it's because of the need for political support. I mean by my response, as it is a political decision, it is necessary that the meeting be organised by a politician."
Negotiations on the contractual modalities were undertaken between SGS and Cotecna, which had just been purchased by SGS, on the one hand, and the Pakistani authorities, on the other hand, during the summer of 1994. The judgment says: "Upon the decision of Benazir Bhutto, who was not only Prime Minister but also Minister of Finance of the Islamic Republic of Pakistan, the inspection contract was awarded to SGS and Cotecna, despite the opposition of the customs services of the country, on 29 September 1994."
Cotecna having been purchased by SGS in June 1994, the internal allocation between SGS and Cotecna was made on a 50-50 basis, SGS and Cotecna sharing the verification of imports to Pakistan depending on the country of origin of the imports. The contract entered into force on January 1, 1995.
The judgment recites in detail how Schlegelmich "had personally overseen the payment by SGS and Cotecna of Commissions due to Bomer, Nassam and to himself". There were nine phone calls and a letter to SGS enclosing bills, for Bomer. The payments demanded corresponded to commissions of 6 per cent due to Benazir Bhutto and Zardari and 1 per cent for himself. There were likewise nine bills to Cotecna on behalf of Bomer and 14 for the 3 per cent commission for Nassam under the contract of September 29, 1994 and nine bills for his commission. For each of them, precise dates and payments demanded are given.
The judgment summed up: "Thus, from the commencement of the contract, the commissions provided by the agreements of 11 March and 29 June 1994 were regularly paid on the following accounts between May 1995 and September 1997 for a total of: Bomer Finances Inc. USD 8,190,085 (eight million one hundred ninety thousand eighty-five dollars); Nassam Overseas Inc. USD 3,807,338 (three million eight hundred seven thousand three hundred thirty-eight dollars); Mr. Jens Schlegelmich USD 1,538,014 (one million five hundred thirty-eight thousand and fourteen dollars).
"In effect at the time of the first payment of commissions by SGS, on 24 May 1995, Mariston Securities Inc., which was initially going to be used to receive 6 per cent of the billed amounts, was replaced by the company Bomer Finance Inc., a company incorporated in the Virgin Islands whose beneficial owners are Mr. Asif Ali Zardari and Benazir Bhutto... By a decision of the shareholders of Bomer on 25 June 1991, Mr. Jens Schlegelmich is the Sole Director/Chariman... Schlegelmich had received from Mr. Asif Ali Zardari, a management mandate for the company BOMER."
Under interrogation, Schlegelmich spilled the beans. He "acknowledged having started to hold the accounting for account No.552.343 of the company Bomer at UBS Geneva: ... such accounting mentioned: 50 per cent AAZ - 50 per cent BB... when interrogated regarding that accounting sheet, Mr. Jens Schlegelmich indicated that he had received instruction from Asif Ali Zardari according to which in case of death, the sum should be divided between his family and the family of his wife... the instruction had moreover shown that Benazir Bhutto had a true discretionary power on the disposition of the Bomer account."
This raises a fundamental issue of constitutional governance. What was Zardari's locus standi at all? Constitutionally, none. But he was much more than the Prime Minister's husband fixing deals as "Mr. 50 per cent", as he came to be known. He had built an alternative power structure by his own exertions, wielding authority by proxy. He was paid for his own labours. In a short period, he had come to acquire power in his own right which she could not, would not, ignore. Schlegelmich's evidence shows she profited by the arrangement. This disclosure alone suffices to show Benazir Bhutto in her true colours.
Add to it another piece of evidence. In August 1997, when her husband was in prison and she was out of power, she bought a diamond necklace in London for a whopping 117,000. It was paid for partly in cash. The rest was paid by a cheque from the account of Bomer. The necklace was then deposited in the vault of a bank in Geneva from where it was seized.
The judgment concluded: "That by taking effective means to enrich herself or enrich her husband by way of a contract concluded for the account of the state of which she assumed the supreme direction, Benazir Bhutto was guilty, at least, of acts relating to the unfair management of the public interests which she had the mission of defending... nothing effectively permits the conclusion that the SGS and Cotecna, for themselves, Hans Fischer and Robert Massey, had consented to a sacrifice of more than USD 5 million for the sole purpose of making a donation, without compensation, to the couple Bhutto-Zardari. These payments were without a doubt made in order to obtain the desired contract, in such a manner that SGS and Cotecna therein found their benefit. If Benazir Bhutto had acted fairly, it would not be herself or her husband, but rather the state of Pakistan, which should have benefited, for example, in the form of a discount on amounts billed by SGS and Cotecna, from the financial sacrifice that SGS and Cotecna were prepared to make." She and her husband enriched themselves at the expense of public funds.
On May 1, 2000, the Swiss Penal Code was amended to punish money laundering as well as bribery of foreign officials. Swiss law punishes "passive corruption". Article 305bis was inserted to punish "whoever undertakes an action designed to obstruct investigation into the origin, the discovery or the confiscation of assets which he knows, or must assume, stem from a crime". Schlegelmich came within Article 305bis from May 1, 2000.
The judgment says: "Since unfair management of public interests is a crime and it does not matter whether this crime was committed abroad (Art. 305bis, al. 3 CP), Mr. Asif Ali Zardari may be reproached in Switzerland for having committed acts of laundering money arising from the criminal activities of Benazir Bhutto... under Swiss law, the author of the principal crime may also be prosecuted for money laundering if he carried out actions proscribed by Article 305bis... . A fortiori he who, without being the so-called author of the principal crime, however contributes to its commission, must be prosecuted if, additionally, he participated in the putting into place of a structure having as its purpose that certain assets be paid according to modalities clearly destined to camouflage their real destination... Zardari not only carried out actions so that the agreement between Bomer Finance Inc. be kept secret, but he also participated in the putting in place of companies which he knew would serve as a screen to camouflage the real recipients of funds which he would cause to be paid by SGS and Cotecna. That use of `screen' companies is typical of acts punishable under Article 305bis.
"Zardari thus knew that his wife Benazir Bhutto was acting in a criminally reprehensible manner by abusing her role in order to obtain for herself or her husband, considerable sums in the sole private interest of her family at the cost of the Islamic Republic of Pakistan."
Benazir and Zardari were, thus, paid $8,190,085 in the account of Bomer Finance Inc. at UBS Geneva; and $3,807,338 in the account of Nassam Overseas Inc. at Barclays Geneva; a total of $11,997,423. Both Benazir and Zardari were sentenced "to reimburse" these proceeds of "the unfair management of the public interests" of Pakistan which were "laundered in Switzerland". There were $2,484,000 in the account of Bomer and $3,748,373 in the account of Nassam at Barclays. Bomer transferred to Hospital Middle East Inc. at UBS, Geneva, $5,502,292. All these, totalling $11,734,665, were ordered to be confiscated.
Since the amounts fell short of the sum to be reimbursed, the couple were sentenced to pay the balance of $2,62,758, in Swiss francs, to the Government of Pakistan. They were given a suspended sentence of six months' imprisonment; granting them "the benefit of probation". The necklace was ordered to be forfeited and given to the Government of Pakistan.
On August 13, the accused appealed to the Tribunal de Police, Geneva. The appeal was heard on November 4, 2003 by a Bench of three Judges (Reyonel, Chairman; Grob and Braun). They dismissed every single objection made by the appellants - the Magistrate's lack of competence; defective indictment; improper service of summons and so on. The Tribunal remarked: "In any case, to the extent that the accused were to be found guilty, it is doubtful that a prison term of less than 18 months could be considered." It was the maximum sentence it could award. A higher court, the Cour Correctionnelle, which holds trials by jury, can award a jail sentence for up to five years. A suspended sentence is not allowed. Magistrate Devaud had awarded the maximum sentence he could - of 6 months and a suspended one.
Article 230 of Geneva's Code of Criminal Procedure empowers the Tribunal to refer a case to the Attorney-General if it considers itself incompetent to try it. Benazir Bhutto and Zardari asked for trial by the higher court and risked an enhanced, unsuspendable sentence, instead of accepting the light sentence given by the Magistrate.
The Tribunal, therefore, referred the case to the Attorney-General of Geneva Daniel Zappelli. He has three options - move for trial by the higher court, order fresh investigation or prosecute the accused. Given the state of the evidence, none of them offers much comfort to the couple. On the other hand, acceptance of the Magistrate's sentence would have exposed them to public opprobrium.
THE other case is as troublesome for them. On November 24, 2003, another Investigating Magistrate of the Canton of Geneva, Christine Junod, ordered that a sum of $2,390,133 held by Dargal Associate SA of Virgin Islands in a Geneva Bank, Cantrade Ormond Burrus Banque Private SA (today Ferrier Lullinet Cie SA), be transferred to Pakistan. Dargal was incorporated only on June 14, 1994. It was represented by Schlegelmich and his partner, another lawyer, Didier Plantin. They opened an account in the bank in December 1994 with Amer Lodhi as the beneficial owner. He denied this.
It was alleged that from January 1995 to March 1996, Dargal had been used to collect and partially to redistribute almost $2,400,000 of commission collected on the sale of tractors to the Agricultural Development Bank of Pakistan (ADB) under a programme to assist small farmers. The Polish company ZPC URSUS Traktorzystew (ZPC Ursus) had been awarded a contract for the supply of 8,000 tractors of the model Ursus 2812 without any public tenders. Two invoices dated February 27, 1995, had been found, addressed by Dargal to ZPC Ursus, over the signature of Schlegelmich, for $1,473,260 and $345,579 as "consulting and promotional fees" in relation to the sale of 6,000 tractors to ADB.
Besides Zardari, one of the beneficiaries of the operation, Steve Shanks, also intervened with ZPC Ursus for the payment of "commissions" promised to Dargal, by reminding them that "the practicability of business relations with Ursus depended upon a certain other person" (clearly Zardari) who "has the power to replace Chairmen, Ministers and others, if in his view, they fail in their duties". The relationship between Zardari, Shanks, the company Dargal and the Ursus transaction was confirmed in a handwritten note of Schlegelmich summing up a telephone conversation with Amer Lodhi who gave him instructions on the sharing of the Ursus "commissions", and asked him to "mention to Asif so that he is aware of his gesture".
A sum of $296,195 was retransferred to a company, which could not be identified, in Arab Bank (Switzerland). A sum of $592,195 was given to Shanks who split them by halves with Amer Lodhi (minutes of investigation hearing of 23.06.1998). The equivalent of some $220,000 was used to pay various fees and "disbursements". The balance on the account, value to date, must be over $5,000,000, the judgment noted.
When heard on October 22 and on December 19, 1997, by the Genevan Examining Magistrate, "Jens Schlegelmich explained that the beneficial owner of Dargal was indeed Amer Lodhi, `American citizen, whose sister (Maleeha Lodhi) has been appointed Ambassador of Pakistan at Washington by the government of Benazir Bhutto'. His partner, Didier Plantin, had finalised the contract between Dargal and Ursus. He said that he was surprised to find, in the mutual legal assistance file, two invoices for `consulting and promotional fees' which were made out by him in the name of Dargal on February 1996 for, respectively, $1,437,260 and $345,579. He had given sufficient explanations on the issue. When heard by the Examining Magistrate on October 22, 1997, Didier Plantin explained that: Schlegelmich had introduced Amer Lodhi to him, who wished to create a company `for the purpose of collecting commissions which should originate from a contract pertaining to Ursus tractors in Poland'. He had gone to Poland to discuss with a certain Steve Shanks, `in contact with the Polish authorities and the Ursus management'; that he had not `very well understood (the) relationships' which he (Steve Shanks) had with Amer Lodhi; he resigned from Dargal as soon as the matter had been concluded, and then remitted the file to Schlegelmich. He had comforted (satisfied?) himself, without explaining how, that Amer Lodhi was the beneficial owner of the assets on the Dargal account. When heard on June 23, 1998, by the Genevan Examining Magistrate, Amer Lodhi explained that he had no claim on the assets seized (minutes of investigation hearing of 23.06.1998); knew nothing of the account of the company Dargal with Cantrade, that company being fully controlled by Schlegelmich, who had, without his knowledge, made him appear as being the beneficial owner on the account opening documents."
The judgment, which was printed in full in the Lahore daily Nation on November 23, 2003, says: "In the instant case, the implementation of the request for mutual legal assistance has clearly established that the assets seized with Banque Cantrade originate directly from the offences for which mutual legal assistance has been granted. The documentary evidence and statements of the persons heard allow, without any ambiguity, to link the transfers credited to the banking relationship of Dargal, to the commissions paid by Ursus for the sale of its tractors to a Pakistani governmental entity. Also, the file establishes beyond any doubt that these commissions, under the cover of alleged `consultancy fees' were meant to remunerate the illicit advantages obtained by Ursus from the Pakistani administration thanks to the interventions of Asif Zardari. The structures put into place to conceal the illicit origin of these commissions, under the responsibility of the attorney-at-law Jens Schlegelmich, frontman of the Bhutto couple, confirm it. The necessary link between the origin of the funds and the offences prosecuted in the proceedings conducted by the requesting state is thus established."
It added: "There is no claim of a third party which would justify that they be held back in Switzerland. Amer Lodhi, beneficial owner of the account according to the account opening forms, has expressly excluded any claim on his behalf on these assets. Jens Schlegelmich, director of the company Dargal, has not pretended that any other person would be the true beneficial owner of the account, an allegation which could have led to Jens Schlegelmich being suspected of having given false indications on the account opening forms. The Bhutto couple, citizens of the requesting state, indicted in its national proceeding, may file their possible claims there on the assets at stake. The remittance of said assets is thus well-founded and may be ordered notwithstanding the absence of a forfeiture decision by a judicial authority of the requesting state.
"They will be transferred to the benefit of the Islamic Republic of Pakistan, at their current value, up to the amount of the undue commissions paid by Ursus, i.e., $2,390,133 in principal along with accrued interests."
Veronique Heldner, a member of the law firm Pythos, Schifferli Peter & Associates, acting for Pakistan, aptly told AFP on November 24: "We now have this sum and no one wants to be the economic beneficiary, and this hardens the suspicious about the illicit origins of the money." Her point is irrefutable.