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Corruption is a significant obstacle to business in Pakistan, and companies should expect to regularly encounter bribery or other corrupt practices. Corruption is rampant in all sectors and institutions. The Pakistani Penal Code applies to individuals and makes it illegal to offer, pay or accept a bribe. Companies can be held civilly liable under the Prevention of Corruption Actand the National Accountability Ordinance. Facilitation payments and gifts are prohibited but are common practice. Pakistan does not ensure integrity in state bodies and is unable to prevent corruption despite strong institutional and legal frameworks.
Last updated: September 2015
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Pakistan's judiciary is characterised by insufficient resources and personnel, corruption and political interference and presents and obstacle to business. The law provides for an independent judiciary, but powerful economic, religious and political actors influence the lower levels of the judicial system (BTI 2014). Most Pakistanis believe the judiciary is corrupt (GCB 2013). Even though the Supreme Court is efficient, a lack of resources paired with a high-level of insecurity and high crime rates overburden local courts and lead to speedy, negligent trials (BTI 2014). Fear of reprisal in terrorism and blasphemy cases further hamper judicial operations (HRP 2014).
The legal framework is inefficient for settling disputes and challenging regulations (GCR 2014-2015). On average, enforcing a contract takes 993 days, similar to the regional average (DB 2015). The Pakistan Arbitration Act provides a mechanism for arbitrating commercial disputes and was further strengthened by the accession of Pakistan to theInternational Center for the Settlement of Investment Disputes (ICSID).
Pakistani police services do not reliably protect companies from crime (GCR 2014-2015). Crime and terrorism are very costly for businesses in Pakistan; police effectiveness varies greatly in the country, and various reports tell of corruption, arbitrary behaviour and human rights abuses from police forces (HRR 2013). Most Pakistanis believe the police is corrupt (GCB 2013). Corruption among police is particularly prevalent in the lower levels (HRR 2013).
The Pakistani military has a strong influence on matters of security and economy and controls a large share of the economy, despite Pakistan having an elected civilian government (FitW 2015). In June 2015, tensions between the miliatry and political parties intensified over mutual corruption allegations (Reuters, June 2015).
Inefficient government bureaucracy together with high-levels of corruption present significan barriers to business in Pakistan (GCR 2014-2015). Irregular payments, bribes and especially gifts are commonly exchanged when obtaining public services and licences (ES 2013). Similar to the regional average, one in three companies expects to give gifts when acquiring water connections, construction permits or operating licences (ES 2013). Giving gifts is most prevalent when obtaining electricity (ES 2013). Daily power cuts lasting several hours per day in large parts of the country due to corruption and mismanagement represent a major obstacle to doing business in Pakistan (Reuters, June 2015). Most Pakistanis believe public officials and civil servants are corrupt (GCB 2013).
Companies are likely to encounter corrupt practices when dealing with the Pakistani land administration. Private property is protected by both secular and religious law (BTI 2014). However, property rights protections are lacking (ICS 2015). Corporate farming is permitted, though only companies incorporated in Pakistan can own land used for this use (ICS 2015). Registering property takes an average of 50 days, which is substantially better than the regional average, while construction permits can take up to 249 days, 50 days more than the regional average of South Asia (DB 2015).
The Pakistani tax administration is susceptible to bribery and other corrupt practices. Tax rates and regulations represent a problem to business (GCR 2014-2015). One-third of firms report being expected to bring gifts to meetings with tax officials (ES 2013). Only 0.5% of Pakistan's citizens pay taxes, leading the government to consider tax reforms to broaden the tax base and to boost revenues (Reuters, June 2015).
Corruption at the border and burdensome import procedures are problematic for businesses in Pakistan (GETR 2014). The transparency and efficiency of Pakistan's border administration is poor (GETR 2014).
Corruption in Pakistan's public procurement sector is widespread (ICS 2015). The diversion of funds and unethical behaviour of firms create an unfavourable business environment (GCR 2014-2015). Ninety percent of firms report being expect to give gifts to secure a government contract (ES 2013). The Competition Commission of Pakistan addresses corrupt activities such as collusive practices, abuse of market dominance, deceptive marketing, and harmful mergers and acquisitions. Companies are recommended to implement special due diligence procedures to counter the likelihood of encountering corruption in Pakistan's procurement process.
The Prevention of Corruption Act and the National Accountability Ordinance (NAO) serve as principal corruption laws in Pakistan. Most importantly, the NAO contains a passage stating that unexplained assets are seen as corruption and the responsibility to present proof that the assets were legitimately obtained rests with the accused. Acts of corruption and attempted corruption in the form of extortion, active and passive bribery, bribing a foreign official, abuse of office, andmoney laundering are illegal. The NAO criminalises both public and private sector corruption and sets the maximum penalty for corruption at 14 years rigorous imprisonment (implying hard labour) with a fine and confiscation of assets acquired through corruption in the name of the accused or the accused's dependents/beneficiaries. The Pakistan Penal Code penalises public servants accepting gratifications as well as bribery or fraudulent behaviour in relation to property or elections. Pakistan's Government Servants (Conduct) Rules offers regulations on gifts and hospitality offered to civil servants, abuse of office and disclosure of assets and property.
Money laundering is criminalised by the Anti-Money Laundering Ordinance, with penalties of up to ten years of rigorous imprisonment, fines, and the recovery and confiscation of illegitimate assets and property. Public procurement is regulated by the Competition Act, which prohibits anti-competitive practices such as collusion, abuse of market dominance, deceptive marketing and harmful mergers and acquisitions. The Freedom of Information Ordinance guarantees any citizen access to public records but is criticised for having too many exceptions (ICS 2015). In May 2015, the Prime Minister accorded formal approval to a summary on a draft Whistle Blower bill (Pakistan Today, May 2015). The National Accountability Bureau (NAB) is the main anti-corruption institution addressing corruption throughawareness, prevention and enforcement. It is constrained by scarce funding and a shortage of staff (ICS 2015).
The Securities and Exchange Commission is another key regulatory authority for the corporate sector and capital market, as well as insurance companies, non-banking finance companies and private pensions. Corporate regulatory framework include the Code of Corporate Governance in 2012, the Business Code of Conduct and the Fraud Investigation Unit (NIS 2014). Its Company Law Division ensures facilitation, monitoring and compliance of laws and regulations.
Pakistan has not signed the OECD Anti-Bribery Convention but is a signatory of the Asian Development Bank/OECD Anti-Corruption Initiative and of the United Nations Convention Against Corruption (UNCAC).
Freedom of expression is protected by the Constitution but can be subject to restrictions in practice. Pakistan is one of the world's least safe places for journalists, and the media is frequently censored by state and non-state actors (FitW 2015). Strict anti-blasphemy laws penalise blasphemy on religious matters with fines, imprisonment or death sentences.
Even though civil rights are protected by law, practical constraints arise from insecurities, corruption and societal taboos (FitW 2015). Accordingly, NGO's are tolerated by the government but face insecurities due to radical Islamist groups (FitW 2015). Freedoms of assembly and association are granted but are subject to arbitrary restrictions (HRR 2014). The NGO Registration Policy 2013 compels NGOs to full transparency of activities and funding sources (HRR 2014). The current Sharif administration is widely criticised for clamping down on civil society and for targeting foreign NGOs allegedly working against Pakistani interests (DW, July 2015). The internet is considered 'not free' (FotN 2014).
- US Department of State: Investment Climate Statement - Pakistan 2015.
- World Bank Group: Doing Business - Pakistan 2015.
- Freedom House: Freedom in the World - Pakistan 2015.
- Freedom House: Freedom of the Press - Pakistan 2015.
- Deutsche Welle: "Why Pakistan wants to rein in its civil society" 1 July 2015.
- Reuters: "Pakistani military, politicians swap jibes over corruption", 18 June 2015.
- Al Jazeera: "Pakistan adopts army courts in 'terror' cases", 6 June 2015.
- Reuters: "Pakistan budget targets more tax payers to bring down deficit", 5 June 2015.
- Pakistan Today: "So that oppressed don’t stay quiet…", 27 May 2015.
- World Economic Forum: The Global Competitiveness Report - Pakistan 2014-2015.
- World Economic Forum: The Global Enabling Trade Report - Pakistan 2014.
- US Department of State: Human Rights Practices Report - Pakistan 2014.
- Bertelsmann Foundation: Bertelsmann Transformation Index - Pakistan 2014.
- Freedom House: Freedom on the Net - Pakistan 2014.
- Transparency International: "National Integrity Systems - Country Report", Pakistan 2014.
- Transparency International: Global Corruption Barometer - Pakistan 2013.
- World Bank Group: Enterprise Survey - Pakistan 2013.