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| Vol. 4, Issue 5 May 2012 |
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Perspectives |
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Politics |
The Swiss Flight
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| How the new agreement signed by Pranab Mukherjee with the Swiss government will not help bring back the illicit trillions that have fled the country |
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Published : 1 October 2010 |
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GAETAN BALLY / KEYSTONE / CORBIS |
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| An estimated 65 to 230 trillion rupees is stashed away in 73 tax
havens around the world.
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NE MORNING IN THE WINTER OF 1994, Finance
Minister Manmohan Singh was tipped that
there was pressure on the investigating officer in
Mumbai to let Harshad Mehta go free in the 330
billion-rupee banking and securities scam—until then the
largest swindle in Indian history. |
The investigating officer, Kulyadi Vasanth Pai, Commissioner
of Income Tax Mumbai, had a reputation as an
upright, uncorrupt officer. But as the scam got bigger, the
pressure on Pai increased.
Pai called TS Srinivasan, Member (Investigations) at the
Central Board of Direct Taxes in Delhi, who told Manmohan
Singh that Pai was under tremendous pressure and
needed assurances that the government wanted a free and
fair investigation.
Manmohan Singh, in his next Mumbai visit, called Pai
over to the governor’s bungalow in Malabar Hill, and
sought the names of people who tried to influence him. The
meeting lasted for 20 minutes, and the minister assured
him to continue the investigation fearlessly. Manmohan
Singh kept his word. And what was once thought to be a
mere 1 billion-rupee scam thus became 330 times bigger.
Now, when the same Pai—retired from service and living
in Mangalore, researching fulltime on India’s black money—
writes to Prime Minister Manmohan Singh about illicit
financial flows from India, the PM simply ignores him. It is
not that the economist Manmohan Singh needs to know the
volume and influence of Indian black money saved abroad
from anyone else, or that the Indian PM should respond to
a former officer’s enthusiasm to take up a national cause.
But when it comes to fixing substantial issues of the black
economy, such as the flight of Indian money to Swiss banks
and 72 similar tax havens, Manmohan Singh’s track record
is abysmal and that is hurting the economy—as well as law-abiding
citizens.
Today, India tops the world in tax embezzlement. The latest
estimate of the Washington, DC-based Global Financial
Integrity puts the value of India’s illicit financial flows from
2000 to 2008 alone at 5.8 trillion rupees, and the Indian
money parked outside the country, in varying estimates,
comes somewhere between 65 trillion to 230 trillion. The
gravity can be best understood from a petition currently being heard in the Supreme Court, which says the value
of illegal overseas deposits of rich Indians exceed the total
amount of income tax collected by the government of India
for the last 61 years.
That is telling us that during this period the government
simply watched as a few thousand rich and powerful Indians
violated laws, stashed their black money abroad, and
the quantum of their covert savings is more than what you,
your parents, and grandparents—three generations—paid
the government overtly.
Doesn’t that hurt you to know there are two financial
systems in play? One for the majority of Indians who pay
direct and indirect taxes—from salt, wheat and lipstick to
new apartments—and a second system for those who ship
their wealth out of India, escaping taxmen. And if you are
a public figure, faced with the embarrassment of people
knowing how filthy rich you are, you can still keep your image
of an austere and humble Indian intact.
In perpetuating this corrupt second system, our politicians
need to take the blame. Irrespective of the colour of
their party flags. It was under Congress rule, what Kushwant
Singh beautifully described as the “suitcase culture,”
flourished at all levels of the administration, and many politicians,
bureaucrats, and industrialists made disproportionate
wealth that needed shielding, which they took out of
the country. The BJP, who in 2009 suddenly invented a big
election issue out of this, when they had the opportunity to
make amends, watched an estimated 2.2 trillion rupees flee
India in the last two years of their government, from 2002
to 2004. No government was committed to change this, I
thought, until I woke up to the TV ticker scrolling one day in
August announcing that India and Switzerland had signed a
new treaty that would bring such money back home.
But a closer look at the development would tell me—no,
nothing was going to change. The TV ticker was wrong.
On 30 August, Finance Minister Pranab Mukherjee and
Swiss Foreign Minister Micheline Calmy-Rey signed a protocol
amending an existing agreement on double taxation—
the Double Taxation Avoidance Agreement. In the amendment,
the secretive Swiss government did not significantly
budge. Replying to a question the next day in parliament,
the finance minister confirmed this: “I would like to make
it quite clear that as far as Swiss laws are concerned they
don’t give any information of their banking transactions.”
The amendment would apparently help get some information,
however limited. But this vaguely placed some is
toothless. Mukherjee continued, “We cannot share the information
with any other authority, including parliament.
This information cannot even be shared with the Enforcement
Directorate.” So what is the amendment good for?
Nothing. Its application is farcical.
The base of the amendment, crudely put, is that if India
manages to produce convincing evidence of tax evasion,
and if the Swiss government approves as per their laws to
help India, then they may consider giving further information.
There are several ifs and mays there, and that is
precisely why the several trillion rupees in foreign banks
will be safe. And those account holders can relax. No one is
watching you either.
According to immigration records, 80,000 Indians enter
Switzerland annually, and 25,000 of them are frequent
visitors, and to have at least one of the numerous agencies—
Enforcement Directorate, Central Board of Direct Taxes,
Central Economic Intelligence Bureau, or the investigation
wings of several Income Tax offices— to monitor each case
is doable. But it is not done.
If information is what the Indian government lacks, it
can take a lesson from Germany. In 2008, Germany’s foreign
intelligence agency, BND, paid 4.3 million euros to
an informer who brought them a DVD full of details of its
citizens’ secret accounts in Liechtenstein, a microstate
tax haven in western Europe. The DVD contained names
of 900 wealthy Germans, and their 4 billion hidden euros.
Knowing that such tax-haven countries have laws that will
not ensure their agencies to co-operate, the Germans did
an even smarter thing to get the money back home. The
government fined the defaulters three times. So a 100
million-euro account holder had to pay 300 million euros,
meaning that the account holder brought the 100 million
in Liechtenstein back home. There was no point in stashing the money when the word was out, reputation ruined, and
slapped with big fines.
Going by the BND, if there is political will, RAW, or even
one of our economic intelligence agencies can go after tax
defaulters. Former RAW officer Bahukutumbi Raman mentions
about his covert assignment in Geneva in his book Kaoboys
of the RAW, Down Memory Lane. If Indian espionage
officers work in Geneva on political assignments, making
them go after economic leads isn’t any harder.
“Our laws are too weak, and our politicians lack the will,”
said Baldev Raj Lall, a former joint director of the Central
Bureau of Investigation (CBI). Lall was discharged after a
money racket scam he probed, the Jain Hawala case, began
to reveal some big names. Sitting in his apartment in a cooperative
housing society in Gurgaon, Lall said, “The Jain’s
diary jottings had almost all names you could think of. Rajiv
Gandhi: 20 million rupees; Lal Krishna Advani: 6 million;
Madhavrao Scindia: 10 million; Balram Jakhar: 11.7
million; Rajinder Kumar Dhawan: 5 million; Kamal Nath:
2.2 million; and Lalit Suri: 105 million, among several others.”
But to convict, there had to be further evidence than
the payee’s diary notes, and first—a free and fair investigation
had to be carried out. But Lall was asked to go, and the
court acquitted the biggies citing lack of evidence.
It could be every Indian’s guess as to why our governments
are not serious about bringing illicit money saved
abroad back home and punish the guilty. If a government
decides to act, it will destroy some big political and corporate
idols and dynasties.
If not all politicians are corrupt, those who wanted to act,
can also not act, because their political party is so dependent
on the men with black cash to fund their elections. So
election-fund reforms are integral to acting against illegal
financial outflow. Even in the Jain Hawala case, the justification was that it was the money collected for elections.
Corrupt or non-corrupt politicians is not the question. If
there is a direct correlation between election funding and
black money, how committed can the elected representatives
be in going after defaulters?
Also, unlike the recession-hit Americans, Germans or
French, there is no desperation on behalf of India’s public
exchequer to get such monies back. But the irony is that
India dwarves these developed countries as far as its share
of illegal money stashed abroad goes. In Swiss banks alone,
India has more money stashed than the rest of the world put
together, according to an annual Swiss Bank Report. And
that could be the case in any of the other 72 tax havens.
And it hurts to know that these are the trillions needed
in India to build roads, buy people food, and get babies vaccinated.
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Readers' Comments |
Total Comments
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Janakinath
25 May 2011
11:38 AM
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It seems some independent investigation like wikileaks, The-Hindu in Bofors case, etc is the only resort! If politicians from all parties had at some time been corrupt, how can they do something against corruption? The current generation of politicians have to die and new generation can possibly give limited info on the endless corruption happening till now...
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Tanveer Ahmed
31 January 2011
10:44 PM
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Excellent analysis. Comments in response are also very spirited.
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Vijay
6 December 2010
05:55 PM
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This is a brilliant article. Also the idea that RAW should be roped in to get this information on black money out of Switzerland is excellent! The Germans have done it very efficiently, its a shame that our government does not have the balls to do it.
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poonia
31 October 2010
12:17 AM
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Its just the matter of time when we will also do what Germany has done. At the moment the 'power' is only in the hand of few 100 or people of the country. Time will soon come when this power will distribute among the very bright youth of India. India is growing and growing at the very right time. Now the country is been run by some ambanis ,tatas and birlas but when this new genration of India, having enormous talent, knowledge and zeal to excel and lead, will take part in growth this power will distribute. There will be hunderds of Ambanis and tatas. Then this monoply will end. Political parties wont have to be slaves of these few people. There will be atmosphere of a very healthy compitition. There will be ample fund for political parties that too unconditional. Even the politicians will not be the same as today. We will highly educated and 'ture' leaders to lead this country. Then they will have the guts and will power to take actions as the German govt. took.
We can just wait and do our part in the development of the country and hopefully we will soon see India of our dreams.
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Arjun
28 October 2010
03:34 AM
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Why media is not so active on this topic as it were before elections?
And now isn't there any way left to get the money back ?
Can I hope that if next time BJP comes to rule, it will take some serious action?
Please reply.
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