ONE 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 co-operative 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.
Vinod K. Jose is the Executive Editor of The Caravan and an award-winning journalist. He has previously worked as a producer from South Asia for public radio stations in the US and Europe. Jose has an MA in Journalism from Columbia Journalism School, where he was a Bollinger Presidential Fellow. He also has graduate degrees in Communication and English, and a PhD in Sociology.