Posts Tagged 'tax havens'

Black money haunts Congress

Black money haunts Congress

S Gurumurthy

The manner in which a bold initiative to unearth Indian black money lying abroad was aborted by the then Congress Government in the 1980s was suggestive. Then, as now, the party leadership acted as if it had skeletons to hide

Switzerland was accused of giving shelter to black money and there has been a lot of inflow of such wealth from India and other countries of the world.” This is not Mr LK Advani speaking in an election rally but the Swiss Ambassador to India briefing the media in New Delhi last year. The occasion was the 60th anniversary of Indo-Swiss Friendship Treaty. Admitting that Indian black money gets hoarded in his country, he added that the new law in Switzerland would not stop it but control it “up to a certain limit”.

The Swiss diplomat authentically answered the first of the FAQs, that is, whether lots of Indian monies are really stashed away in Swiss banks. Swiss banks are not the only secret destination. There are 37 such shelters in the world, says US Inland Revenue. The secret owners of the monies operate in secrecy — venal businessmen, corrupt politicians and public servants, drug lords, and criminal gangs like the D-company. These slush monies are the financial RDX for terror, besides weapons of mass destruction of national and global finance. That there is secret money is no more a secret. Only the amounts and the owners of that money are secret.

But how large could be such stolen Indian wealth hoarded in Switzerland so far? Specific estimates of this later. Before that, here is a side show, but a relevant one.

An apology would be in order. For, I figure in this show. In late 1980s, at the behest of an English national daily, while investigating a corporate scam, I had attempted to trail the Indian currencies stashed abroad. In the course of the probe, I had contacted Fairfax, a US investigative firm. Impressed by its skills, I persuaded the Government of India to engage the firm for the task. Fairfax agreed to work for a slice of the black wealth uncovered by them as fee. According to the Swiss sources then, the Indian money stashed in Swiss banks was estimated around some $300 billion. That was enough to excite the Fairfax to go for the kill.

But, soon my efforts landed me in jail on March 13, 1987, when the Central Bureau of Investigation arrested me on charges that later turned out to be bogus, but were enough to stop the probe. The whole nation knew then that real reason why rulers struck was their fear that the probe had targeted the Bofors pay-off and secrets monies of the ruling family abroad. Rajiv Gandhi, the then Prime Minister, moved honest and bold civil servants like Vinod Pandey and Bhure Lal out of the probe and eventually sacked the then Finance Minister VP Singh, who had authorised the efforts.

The chain of events that followed led to corruption emerging as the major issue in the 1989 poll in which Rajiv Gandhi, who had wiped out the Opposition in 1984 election, was defeated, and VP Singh became the Prime Minister. But there is a big lesson in these developments that often goes unnoticed. And that is the way the bold national interest initiative to unearth the Indian black wealth abroad was aborted clearly confirmed that the ruling party was mortally afraid of any probe into secret monies abroad. This fear haunts the Congress even today. That is why the 1987 episode is relevant now.

Now cut to the main story.

Illicit monies are the dirty outcome of modern capitalism. But, after the 9/11 terror attack, the United States realised that not just the buccaneers in business but terrorists like Osama bin Laden could hide their funds in secret havens and use them to bomb the world. Campaigns against dirty money as high security risk commenced with the path-breaking research done by Raymond W Baker, a Harvard MBA and a Brooking scholar. His research was published in a book titled Capitalism’s Achilles Heel: Dirty Money and How to Renew the Free-Market System in 2005.

This set off intense debate in the US as the exposure linked dirty business and black money with terror and national security. Raymond Baker had estimated, using authentic data, tools and reasons, the tainted wealth stashed in banks at $11.5 trillion to which, he found, one more trillion was getting added annually. He added that in the process the West was getting an annual bounty of $500 billion from the developing countries, including India.

Global Financial Integrity, a global watchdog headed by Baker to curtail illicit money flows, has recently brought out detailed estimates of the black money hoarded in secret havens from different countries. GFI research shows that during the period from 2002 to 2006, annually $27.3 billion was stashed away from India, making a total of $137.5 billion for the five-year period (the Executive Report of GFI in http://www.gfip.org on ‘Illicit Financial Flows from Developing Countries 2002-2006’ Economists’ version). That is, in just five years, Indian wealth amounting to Rs 6.88 lakh crore was smuggled out of India. This gives clue as to how much Indian money would have slipped out of India in the last 62 years, particularly during the Nehruvian socialist regime when the income tax (97.5 per cent) and wealth tax (almost equal to the income earned on investments) together constituted double the income earned!

It is undisputed that the Nehruvian socialist model had forced huge sums of Indian money out of India. So the amount of Indian black money stashed away in the last 60 years — estimated at from $500 billion (Rs 25 lakh crore) to $1400 billion (Rs 70 lakh crore) — do not seem to be wide off the mark. Economists call it flight of capital. This is the Indian people’s money stolen away from them.

See the consequence even if part of it is brought back. A portion of it would make India free from all external debts which is now over $220 billion; India will transform into an economic superpower; some 10 or 15 Indian Rupee could buy a US dollar which today 50 Indian Rupees cannot. A litre of petrol on our roadside would cost some Rs 15 or even less, against today’s 40 plus; the cost of imports in rupee terms would be down to a third or half; India’s entire infrastructure needs can be funded; India will become so energy efficient and cost-competitive that exporters may need no sops at all; India will lend to — presently it borrows from — the world. India’s housing can be funded at affordable cost; rural poverty can be wiped out… The list is endless.

http://www.dailypioneer.com/170858/Black-money-haunts-Congress.html

Getting India’s money back from Tax Havens Congress caught in its own web

Getting India’s money back from Tax Havens Congress caught in its own web

– Dr. Arun Shourie

Stupefied by the strong endorsement all across the country of the demand that the money looted from India must be brought back, the Congress has tied itself in knots. Its spokesmen – led, as will be clear from the arguments they have advanced, by four lawyers – have given five reactions:

Why is Mr. Advani taking up this matter now, on the eve of elections?

The GE-20 meeting was not the proper forum for taking up the issue.

There is doubt about the figures.

Why did the BJP government to replace FERA by FEMA, and thereby make the offences compoundable?

Is Mr. Advani not unwittingly alerting those with illegal money abroad to spirit it away from Switzerland to other tax havens?

What was the NDA doing when it was in office? In any case there is doubt about the figures.

The reactions betray panic as even the littlest reflection would have shown the “arguments” to be indefensible. Let us consider them one by one.

Why is Mr. Advani taking up this matter now, on the eve of elections?

The fact, of course, is that Mr. Advani took up the matter with the Prime Minister in April last year. He wrote to Dr. Manmohan Singh soon after it became known that the Government of Germany had succeeded in obtaining names of persons who had stashed money in the LGT Bank in Lichtenstein. The reply that P. Chidambram, the then Finance Minister, sent him showed that the Government intended to do little except keep going through the pretence of taking some steps. Soon thereafter, we were alarmed to learn that a senior official of the Finance Ministry had written to the then Indian Ambassador in Germany not to press the Germans for release of the names of Indians in the list that they had obtained from Lichtenstein — lest the Germans take offence and conclude that they were being pressurized and their bona fides were being questioned! [This information was later confirmed by report filed by Amitabh Ranjan in The Indian Express of 31 March 2009.] Subsequently, we took up the matter in Parliament also. And yet the evasion, “Why now?”

The GE-20 meeting was not the proper forum for taking up the issue.

This customarily self-serving rationalization was put out by one of the Congress party’s lawyers and spokesmen. At this very time the party was trying to insinuate that, actually speaking, the Prime Minister had taken up the matter at the G-20 Summit. As its spokesmen could not point to any statement he made either at the Summit itself or even at the press meet the PM had held after the Summit, they drew solace from a passing reference to the matter in the speech he had made at the dinner hosted by Gordon Brown.

In any case, if the G-20 Summit was not the right forum for taking up this matter, how is it that in the communiqué that the G-20 leaders issued on 2 April 2009, in paragraph 15, entitled, “Strengthening the Financial System,” they pledged themselves “to take action against non-cooperative jurisdictions, including tax havens. We stand ready to deploy sanctions to protect our public finances and financial systems. The era of banking secrecy is over. We note that the OECD has today published a list of countries assessed by the Global Forum against the international standard for exchange of tax information”?

Were they also, in the view of the Congress party, acting inappropriately when they made such a strong commitment in their communiqué at the Summit?

And recall that no sooner had they issued the threat of imposing sanctions that countries which had been black-listed by the OECD that very day began declaring that they would indeed sign up on the agreement to exchange tax information, and that includes evasion.

In any case, there is doubt about the figures.

As is its custom, the Congress is trying to cover up the basic question of the money which has been looted from India and is lying in tax havens, by raising questions about the precision of figures and estimates. This is exactly the kind of legalisms with which persons like Mr P. Chidambaram and other legitimizers were fielded to cover up the loot from Bofors. In its paper, “Overview of the OECD’s Work on International Tax Evasion,” the OECD itself lists studies that state that there are $1.7 trillion to $11.5 trillion which are today parked in tax havens. This paper of the OECD has been widely reported in the Indian press. The basic point is: even if the amounts are just a few scores of billion dollars and not one and a half trillion dollars, why should they not be brought back to India? And the fact is that other countries, much smaller countries with none of the pretensions of being a “super power, have succeeded in getting their money back. Even as of October last year, when the OECD released its paper, little Ireland had succeeded in recovering almost a billion Euros through an investigation into offshore banks.

Given that even small countries like Ireland have got money back, is it not a shame, is it not an outrage that, as of yesterday, 18 April, 2009, The Times of India, should be quoting the Swiss Ambassador to India as stating on record that till now, the Swiss Government has received no request – not even a request – from the Indian Government?

The real question is different: can the money looted from India be brought back to the country when the attitude of the government continues to be as determinedly inactive as that of the present Government?

Can the Government which allowed Ottavio Quattrochi to take his money out of banks – where it was lying frozen on court orders – be trusted to bring back the loot that is lying in Swiss banks and other tax havens? Can the Government which prostituted the CBI so that he may get away from Argentina be trusted to bring the loot back?

Why did the BJP government to replace FERA by FEMA, and thereby make the offences compoundable?

Again, the Congress is relying on the short memory of its audience. The fact of the matter is that no one had been pressing more for the replacement of the harsh provisions of FERA than the Congress itself. The changes were being contemplated since 1996. The demand for doing away with the harsh provisions came to a crescendo during the Government of Mr. VP Singh when FERA came to be used for interrogating captains of industry – like Mr. S.L. Kirloskar – under harsh circumstances. As news reports of that period themselves indicate, FEMA which was approved by the Government in July 1998, was on the lines of a draft which had been prepared under the leadership of the preceding finance minister, Mr P. Chidambaram. Even today, you can go to the website of Rediff-on-the-net, go to their dispatch of 25 July, 1998, on “FEMA, Money Bills: Cabinet nods, Parliament’s turn next,” and you will read, “The Bills were broadly on the lines of a draft prepared under the leadership of then Finance Minister Palaniappan Chidambram.”

In any event, there is no mystery about the reasons on account of which the law was changed. They are well set out in the following passage:

“Until recently, we had a law known as the Foreign Exchange (Regulation) Act. Its object was to conserve and augment the forex reserves of the country. The way to hell, it is said, is paved with good intentions. Like many well-intentioned laws, FERA paved the way to disaster. FERA created a flourishing black market in foreign exchange. It brought into the economic lexicon the word ‘Hawala’. Illegal forex transactions became the fuel for the growth of crime syndicates with trans-border connections.

“FERA also became a tool of oppression. Successive governments persisted with FERA and added COFFEPOSA and SAFEMA. International markets do not respect draconian laws that run counter to common sense. India’s reserves, far from being augmented, dwindled at an alarming rate… Mercifully, FERA was buried finally on May 31, 2000.”

When and where was this written? In an article that appeared The Indian Express on 25 August 2002. Who wrote the article? None other than P. Chidambaram!

Is Mr Advani not unwittingly alerting those with illegal money abroad to spirit it away from Switzerland to other tax havens?

Another clever little statement by yet another clever lawyer of the Congress party! Would the looters who have stashed away money in tax havens from India still need to be alerted after Germany got the names from Lichtenstein as long ago as last year? Would they still need to be alerted after Germany offered to furnish the names to governments that asked for the names? Would they still need to be alerted after the United States got the names from the leading bank of Switzerland, UBS in February this year, and got it to submit to paying a fine of $ 800 million to boot? Would they still need to be alerted after the G-20 leaders, including Dr. Man Mohan Singh as the Congress would like to remind us, declared their determination to get the tax havens to disgorge the names? But such is the confusion in the Congress party and such the brilliance of its lawyers that all it can do is to seek to deflect the nation-wide demand for getting the loot back from tax havens by such witticisms!

What was the NDA doing when it was in office? In any case there is doubt about the figures.

Leaders of the Congress party would be better advised to ask, “During that very period, what was the Congress party doing, what were its lawyers and leaders doing, to thwart the efforts of the NDA Government to uncover the names of persons who had looted the country even on defence deals like Bofors?” But even if the NDA had done nothing – whether on terrorism or money abroad – is that any reason for not hurrying to avail of the unique opportunity that has arisen now?

Even while replacing FERA by FEMA, the NDA Government made sure that it would have an additional two years to file prosecutions under FERA. And it filed as many as 2000 cases against those who were under investigation before FERA lapsed. The reason for doing so, a reason that is well known to lawyers in the Congress party, was that, when a prosecution is filed it is adjudicated according to the law which prevailed at the time at which the case was filed. These are the very cases which the Congress later on did not pursue.

The fact of the matter is that it is now that the unique opportunity has arisen to get the loot back: Germany has succeeded in getting the names; the US has succeeded in getting the names; the G-20 leaders have pledged themselves to ensure the end of bank secrecy; countries that had hitherto refused to share the requisite information are pledging to do so – within a week of their names being published by OECD in the list of countries that were dragging their feet on the question, Costa Rica, Malaysia, Philippines and Uruguay pledged to enter into the relevant agreements.

Conclusion

There is a real fight ahead: a fight in the national interest, a fight that will have to be waged doggedly to get the names from the tax havens and to get the amounts back to India – as tax havens will not easily part with their route to lucre. And not all countries will be eager to wage the fight – so many rulers in Africa, in Latin America, to say nothing of the prince lings of China – will be loath to see the fight succeed. So, determination and leadership will be required of India, and persistence, and forging alliances with civil society in Europe and elsewhere.

Nor are bilateral agreements any substitute to multilateral pressure. With close to seventy tax havens, decades will pass before agreements are concluded with each haven, even as money is spirited from the haven that has signed up to the one that is holding out.

As has been correctly emphasized, a consensus is already emerging across the country. Leaders outside the political realm, parties such as the CPI(M), SP, BSP, JD(U), AIADMK have all demanded that the Government act energetically to get the names from the tax havens and to get back the amounts. Instead of quibbling, the Congress would be well-advised to endorse the consensus, and act on it. Not joining secular forces on even so secular an issue?!