Recycling of hidden money

BRP Bhaskar
Gulf Today

Another black money chase has begun with the leaked Panama Papers revealing the names of more than 500 Indians linked to companies registered in tax havens.

It is widely believed that corrupt politicians and bureaucrats hold black money abroad but these documents contain no big names from these categories. The only politician named in them is Anurag Kejriwal, who was President of the Delhi unit of the small Lok Satta Party, founded by former bureaucrat Jayaprakash Narayan, until his expulsion two years ago.

This does not necessarily mean the politicians are a better lot than the public imagine. The Panama Papers came from just one of the many firms facilitating offshore accounts.

The best known names in the papers are those of Bollywood veteran Amitabh Bachchan and his daughter-in-law and former Miss World, Aishwarya Rai, a star in her own right.

Bachchan claimed someone might have misused his name. Aishwarya Rai’s media advisor told the Indian Express, which was involved in the global media investigation of the leaked papers, that the information was false.

The Indian Express said the documents showed that Rai, her father, mother and brother were appointed directors of a firm registered in the British Virgin Islands in 2005. Her status was later changed from director to shareholder. Still later the name was shortened to A. Rai “for reasons of confidentiality”.

Most of the persons are businessmen. The big ones include Samir Gehlot of India Bulls and KP Singh of DLF, both of whom are realtors, and Vinod Adani, elder brother of Gautam Adani, who reportedly looks after the Adanis’s foreign operations. Shishir Kumar Bajoria, a Kolkata industrialist who joined the Bharatiya Janata Party after being associated with the Communist Party of India (Marxist) for many years, also figures in the list.

The businessmen whom the Indian Express contacted said they were not involved in any illegal activity. They may well be telling the truth, for the laws of the land permit Indians to own companies and park money abroad in accordance with guidelines issued by the Reserve Bank of India.

Some of the offshore company owners are Non-Resident Indians who are not subject to Indian regulations. Under the RBI’s remittance scheme, drawn up to help service overseas requirements for purposes of education and medical treatment, as it now stands, even a Resident Indian can put in up to $250,000 a year in 100 per cent subsidiaries and joint ventures.

As soon as the Panama Papers came to light, former Supreme Court judge MB Shah, who heads a special investigation team on black money constituted by the government in 2014, asked it to ascertain if the Indians’ offshore activities were in accordance with the RBI guidelines.

If they acted with the RBI’s permission, it was legal, Justice Shah said. Otherwise action could be taken. The process would take time.

According to media reports, Prime Minister Narendra Modi does not want the Shah team to go into this matter as it lacks expertise to deal with the complex modus operandi of offshore operators. He asked a team comprising officials from different agencies to probe the matter and give him a preliminary report within 15 days.

In his 2014 election campaign, Modi had repeatedly lambasted the Manmohan Singh government for not taking steps to bring back the black money hoarded abroad and declared he would bring it all back within 100 days if he became the Prime Minister. The Opposition has been taunting him since the expiry of the deadline.

Not that the Modi government has done nothing. Last year it passed a law to give black money holders an opportunity to come clean, paying taxes. Some 644 persons, mostly IT professionals, doctors and small businessmen, revealed concealed income of Rs 41.64 billion and paid Rs 24.28 billion in tax and penalties. A second tax compliance scheme is planned for this year.

Some estimates put Indians’ illegal foreign holdings at $1 trillion. Few expect the big operators to respond to tax compliance schemes since they seem to be able to send black money abroad and bring it back laundered when needed.

One analyst wrote recently that black money is no longer static. It moves on the click of a mouse to chase better returns.

According to former Central Board of Direct Taxes Chairman R Prasad, scam money sent abroad was coming back through routes such as foreign direct investment, foreign institutional investment and fake exports. The fact that about two-thirds of the foreign investments of the last 15 months came from small countries like Mauritius, Singapore, Cayman Islands and Cyprus appears to bear this out.

Unending black money chase

BRP Bhaskar
Gulf Today

Prime ministers come and go, chief justices come and go, but the Indian black money chase goes on for ever.

The Supreme Court has been seized of the black money problem for several years. The pace of the proceedings is so slow that a final outcome cannot be expected for many more years.

The Bharatiya Janata Party raised the black money issue in its parliamentary election campaign, and Narendra Modi vowed to bring the money hoarded abroad back within 100 days if he became the prime minister.

As the deadline he had set passed with no new development, the government came under attack for dragging its feet the way the previous Congress-led United Progressive Alliance government had done.

Responding to the criticism, Finance Minister Arun Jaitley said the Congress party would be embarrassed when the names of the account holders came out. Later the government revealed three names, whose foreign accounts were under investigation.

The Modi government, like its predecessor, claimed that the double tax avoidance agreements signed with other countries prohibited it from disclosing names of holders of foreign accounts except in connection with legal proceedings. As investigations progressed, more names would be released, it said.

This, coupled with leaked reports that a former Congress minister was under investigation, led to speculation that the government planned to disclose information selectively to derive political benefit.

Hopes rose momentarily when the Supreme Court directed the government to give all the names to it in a sealed cover within 24 hours. On receiving the list, the court turned it over to the special investigation team (SIT) headed by two retired judges chosen by it earlier this year.

SIT chairman MB Shah, who opened the cover, found it was the same list the government had given to it directly earlier. It contained the names of 627 Indians who had accounts in the HSBC Bank in Geneva. The list, extracted from the bank’s records by an employee in 2006, was turned over to India by the French government in 2011.

The SIT chairman said investigation of those figuring in the list would be completed by March 31, 2015, as directed by the apex court.

When information about secret foreign bank accounts is received, the Indian government’s standard practice is to collect tax on the concealed income and close the case. There is no prosecution.

The HSBC list, which contains no big names, is already several years old and the account holders may have taken out all the money by now. According to Income Tax officials, the average amount in the accounts was about Rs500 million, and the government can at best hope to get about Rs30 billion by way tax and penalties.

A fair estimate of the extent of wealth hoarded abroad can only be made when details of accounts in other banks in Switzerland as well other tax havens become available.

Early this year the Swiss National Bank said Indian entities held over two billion Swiss francs (Rs140 billion) in 283 banks in that country. All of it may not be unaccounted money.

Switzerland has said it is ready to provide details of individual accounts if the information is required in connection with any investigation but there can be no ‘fishing expedition’. Obviously due diligence is needed to get information on the black money accounts.

Three years ago, the Washington-based research group Global Financial Security estimated that Indians held $644 billion in tax havens.

Professor Arun Kumar of Jawaharlal Nehru University, who once estimated Indian black money, circulating at home and parked abroad, at $2 trillion, rubbishes the government’s claim that the double taxation avoidance agreements hinders pursuit of money held abroad. He commends the example of United States courts which forced the Swiss to reveal the names of about 4,500 American account holders.

In a broadcast on Sunday, Modi said no one knows how much black money is stashed abroad. Sensing that people doubt the government’s ability to bring the money back, he asked them to trust him.

Incidentally, two of the three persons whom the government named publicly as holders of illegal foreign accounts said they had done no wrong. One of them had made substantial donations to both the Congress and the BJP — more to the BJP than the Congress. There lies the crux of the matter.

It is widely believed that black money in secret foreign accounts flow into the country at election time. -- Gulf Today, Sharjah, November 4, 2014.

Black money is piling up

BRP Bhaskar
Gulf Today

There was a spurt in money stashed by Indians in secret accounts in Switzerland last year. The last time a big jump occurred was in 2006. The gap of five years is significant.

According to Swiss bank data, Indian deposits increased by one million Swiss francs in 2006 to touch a peak of 6.5 billion francs (about Rs400 billion). Thereafter the deposits started falling and were as low as about Rs93 billion at the end of 2010. Last year fresh inflow of funds raised the total to Rs127 billion.

 

It is not unreasonable to draw a link between the swelling of Swiss bank deposits and national and state elections in India, normally held at intervals of five years. The fall in deposits since 2006 can then be explained in terms of repatriation of funds to meet the expenses of the elections of the last five years, including the parliamentary poll of 2009. And the recent spurt can be seen as part of the preparations for the upcoming elections, including the Lok Sabha poll due in 2014.

The Association for Democratic Rights, a non-governmental organisation monitoring election malpractices, estimated that campaign expenses during a five-year period could be anywhere between Rs350 billion and Rs810 billion. It reckoned that one-fourth of the estimated Rs100 billion spent during the 2009 Lok Sabha poll was black money. 

Reacting to the Swiss disclosure, Finance Minister Pranab Mukherjee said all the money parked abroad by Indians was not black money. Businessmen and business houses could have legitimate deposits abroad.

If the public tends to view all deposits in foreign banks with suspicion, the blame rests entirely with the government, which has been unwilling to gather full facts and publish them. A month ago, the government placed before Parliament a white paper on black money. The voluminous document did not name black money holders or reveal the extent of their holdings. Overlooking the political connection, it blamed foreign investment, corporate activity and the stock markets for generating black money.

India could not get information on tax evasion from the 77 countries with which it had signed double taxation avoidance agreements since the pacts did not provide for exchange of information on tax evasion. New agreements have been negotiated with 37 countries in the last three years. However, no information obtained from them on illegal wealth of Indians has come into the public domain so far.

A few years ago Germany made available information about the bank accounts of 15 Indians and three foreign-registered trusts with Indian connections in the tax haven of Liechtenstein, contained in stolen database which it had bought paying $7.4 million. The government said it was investigating the matter but there was no action against any of the account holders.

Speaking at the first Interpol Global Programme on Anti-Corruption and Asset Recovery in New Delhi in February this year, Central Bureau of Investigation director AP Singh put the illegal money held abroad by Indians at $500 billion. He said some recent CBI investigations had revealed that money reached Switzerland and other tax havens through Singapore and Mauritius.

In the white paper the government talked of setting up fast-track courts and awarding deterrent punishment to check black money. However, it has not come up with a concrete plan in this regard.  It is widely believed that the government is reluctant to act because powerful political, bureaucratic and business elements are involved.   

Yoga guru Ramdev, who recently fasted in New Delhi, along with anti-corruption campaigner Anna Hazare, has demanded steps to recover black money hoarded abroad. Several national and regional parties have endorsed his demand. However, few regard him and his backers as credible agents of change.

The Election Commission, a statutory body with wide powers to ensure free and fair polls, has taken several steps since 2010 to check the use of black money in campaigns. Last year it seized more than Rs1.2 billion of unaccounted money in election-time raids. When five states went to the polls early this year, it deployed more than 200 income tax officials to check the flow of black money. They hauled in Rs470 million in cash and large quantities of liquor and drugs.

The Election Commission has the power to disqualify a candidate found guilty of electoral malpractices. However, in the absence of political will to unmask the evildoers, getting a guilty verdict is no easy task.--Gulf Today, Sharjah, June 19, 2012.

Anti-graft stir at crossroads

BRP Bhaskar
Gulf Today

Two months after Maharashtra social activist Anna Hazare put the issue of high-level corruption at the top of the national agenda through a Gandhian campaign, the movement is in the doldrums.

Hazare’s indefinite fast at New Delhi’s Jantar Mantar, under extensive visual media coverage, had drawn wide support from the urban middle class, and forced the government to set up a committee to draft a new bill to set up a Lokpal with powers to investigate charges against top functionaries.

Political parties were cool to the goings-on. The Bharatiya Janata Party, the main opposition, was unhappy that it had no role in it. Hazare had turned away its leaders when they went to Jantar Mantar to pledge support to him. The Communist Party of Inda-Marxist, which views the civil society with suspicion, distanced itself from Hazare’s ‘apolitical’ movement.

As the drafting committee, with equal representation for the government and civil society, started work it became evident that the two sides differed so widely on certain crucial matters that an agreed formulation was unlikely to emerge.

Hazare and his colleagues want the Lokpal to have the power to look into complaints against all top functionaries including the Prime Minister, members of Parliament and judges of the Supreme Court. The government wants to keep the PM beyond the Lokpal’s reach. Also, it favours internal mechanisms to deal with charges against members of Parliament and the Judiciary.

There is little chance of the government and Hazare agreeing on the composition of the Lokpal. The former envisages an authority which will be somewhat amenable to the Executive’s influence. The latter wants an independent authority, which, political parties fear, may become a Frankenstein.

Against this background, it is not surprising that political parties are playing games with a view to advancing their own interests. The government and the opposition are trying, in their own ways, to weaken the civil society movement. Recent statements by Kapil Sibal, a minister and member of the drafting committee, indicate that the government is preparing to announce the failure of the efforts to produce an agreed bill and place before Parliament its own draft.

Even as the drafting committee was continuing its work, Baba Ramdev, a yoga guru who has built up a cult following with the help of his own television channel, announced he would go on an indefinite fast at the Ramlila Grounds in Delhi demanding that black money hoarded abroad by Indians be declared national asset and steps taken to bringing it back.

The BJP saw in Ramdev’s plan an opportunity to carve out a role for itself with assistance from the Sangh Parivar associates. The government viewed him as a possible foil for Anna Hazare who was proving a difficult customer. As Ramdev flew into the capital in his private aircraft it gave him a grand reception at the airport with three ministers in attendance.

Ramdev’s fast and television coverage of it set the stage for another urban middle class carnival. The government realised that the saffron-clad Ramdev could be more dangerous than the khadi-clad Hazare. Late in the night a large police contingent was sent to break up the Ramlila Grounds show and fly the guru out to his ashram in Hardwar.

The opposition parties from the BJP to the CPI-M and the Maoists came together to condemn the high-handed action against the Baba and his followers. Since Ramdev continued the fast at Hardwar, he was removed to a hospital in Dehra Dun and given glucose drips.

The government will be making a grievous mistake if it imagines it can get off the hook by outwitting Hazare and Ramdev. The issues they have raised have made a deep impress and cannot be wished away. With former Communications Minister A. Raja in jail since April, pending trial, and his predecessor Dayanidhi Maran apparently set to join him there, the United Progressive Alliance government stands discredited as one reeking with corruption.

Jawaharlal Nehru University professor Arun Kumar, who has studied the black money problem, has estimated that India has a parallel economy of Rs20, 500 billion (about $500 billion), half the size of the official economy. As much as 80 per cent of the black money is generated from legal businesses.

The Executive’s inability to act except under pressure from the Judiciary has exposed it as an accomplice in illegal activity and a possible beneficiary of it. Unless it exorcises the ghosts of corruption and black money they will haunt it relentlessly.--Gulf Today, Sharjah, June 13, 2011

The black money chase

B.R.P.Bhaskar
Gulf Today

According to a message circulating in cyber space, a Swiss bank official has said Indians are holding “280 lakh crore rupees” (about $606,000 million) in secret accounts in that country. It is safe to assume the figure was cooked up locally. After all, a Swiss bank official is unlikely to use very Indian terms like “lakh” (100,000) and “crore” (10 million).

Also in circulation is a purported extract from a Swiss Banking Association report of 2006 which says Indians hold the most black money in banks there. The five countries mentioned in it as the biggest sources of black money are: India $1,456 billion, Russia $470 billion, UK $390 billion and Ukraine $100 billion.

These figures, too, appear to be fabrications. The Association’s annual reports for several years, including 2006, which are available on the web, do not contain any information about foreign black money deposits. The Global Financial Integrity (GFI) report of the US-based Center for International Policy, published this month, says the developing countries had lost about $6.5 trillion during 2000-09 on account of illegal money transfers. Its list of 10 countries which suffered the most losses does not include India.

The fact is that there is no reliable data on money held abroad by Indian nationals. However, last week, the Supreme Court, while hearing a set of public interest petitions, appeared ready to give credence to reports that Indians hold an estimated $1 trillion in foreign bank accounts.

The petitions, which have been pending before the court for nearly two years, are now receiving increased attention in the light of recent revelations about various corrupt deals, including the 2G scam, which led to the resignation of a central minister.

The government’s counsel handed over to the court in a sealed cover a list of 26 Indians with secret bank accounts in Liechtenstein, obtained from the German authorities. He informed the court that the Income-tax department had raised a demand of Rs242.6 million from the 18 resident Indians whose names figure in the list. The court expressed displeasure at the government’s inability to get information about money held in other tax havens. It also upbraided the authorities for focusing on tax evasion, overlooking corruption and other criminal acts involved in the generation of black money, and called for a comprehensive report by Thursday.

Black money, generated in the country and stashed away in foreign banks, has been a source of worry for the Indian authorities for a long time. To begin with, the offenders were mainly industrialists who under-invoiced exports and over-invoiced imports. Corrupt politicians and officials are believed to have joined their ranks later.

The government offered amnesty on a few occasions with a view to drawing black money into the tax net. The efforts were not great successes.

Switzerland is probably the most favoured parking station of Indian black money. Under an agreement negotiated last year, the Swiss government was to give India access to secret bank accounts of Indians beginning this month. Since the Swiss parliament has not adopted the necessary protocol, the agreement has not come into force yet.

The Indo-Swiss agreement has only limited application. It cannot be invoked to seek information about pre-existing bank accounts. Even with regard to new accounts, the Swiss commitment is confined to providing administrative assistance to track cases of tax evasion and fraud. The Swiss Bankers Association has said it will not permit “fishing expeditions.”

With the apex court calling for action to unearth black money and the Bharatiya Janata Party, the main opposition, demanding a law to track down money in secret foreign accounts, pressure is mounting on the government to act.

According to S. Gurumurthy, a chartered accountant and columnist who has a record of exposing some corporate misdeeds, the government lacks the will to go after foreign bank accounts since its own leadership is not free from blemish. In this context, he cites a 1991 article in Schweizer Illustrierte, a Swiss magazine, which said Sonia Gandhi, who is now chairperson of the ruling United Progressive Alliance, was controlling secret accounts with 2.5 billion Swiss francs (equal to $2.2 billion) in her son’s name at that time.

Gurumurthy, whose pro-BJP sympathies are well-known, steers clear of the question why the BJP did nothing to bring back the money in foreign bank accounts when it was in power from 1999 to 2004. Obviously there is more in the black money issue than meets the eye. -- Gulf Today, Sharjah, January 24, 2011.