How to bring home a trillion?

BR Lall

The BJP’s manifesto promises to bring to India the ‘Everest of cash’ lying in foreign tax havens while Manmohan Singh fights shy of joining the G-20 campaign to end the evil banking system

Transparency International recently exposed how the Indian government was avoiding asking for information from the German government about the billions of dollars of un-accounted money belonging to the people of India lying in Liechtenstein, a small German county. A number of other countries -- the United States, Finland, Norway, Sweden, Canada, Italy, Britain and Ireland --whose nationals are also included in the same list, are seriously collecting information from the same source about accounts held by their citizens. The German government had issued an open offer to all governments to seek the truth from the records it had come to possess, free of charge.

Unbelievable but true, India is deaf to the offer. I had visualised such a situation long back while dealing with this issue in my book, Who Owns CBI: The Naked Truth, (Manas, 2007). I wrote: "It will not be easy to take any step in this direction, as the first obstacle will come from Indian elites, who are holding such accounts/ assets abroad. They will oppose any such move tooth and nail".

No meaningful fight against corruption, black money and economic offences can be really successful without radical measures. I had attempted the analysis in the context of Switzerland alone and had assessed Indian wealth in that single country at $5 trillion. There are some other, well known slush parks: St. Kitts, Antigua, Bahamas, Isle of Man, etc. that would multiply such holdings manifold .Of course, Switzerland is the jewel in the crown.Needless to say, if the Indian wealth lying there is brought home, we would turn overnight into one of the richest nations in the world.

The countries of the developing world suffer heavily from the drain of resources. They are driven into debt traps. If the outflow of their resources could be checked, some of these countries, like India, may have enough of foreign exchange resources and may not need to avail international borrowings at all. But, what is happening is that other countries are developing and prospering at our cost. No wonder Switzerland has the second highest per capita income in the world, and they have their criminal banking industry to thank.

This drain from the third world will continue unabated unless certain structural changes are brought about. Banking secrecy laws give the Swiss banks undeserved immunity. However, the slush money accruing from the drug trade is treated differently. If it is suspected that the money in a bank has some linkage with narcotics, the secrecy laws stand automatically suspended. This was done on the insistence of the big western powers, as drug abuse is a major problem for their societies. After the attack on the World Trade Centre on September 11, 2001 money held by terrorists has been frozen.

For countries like India, all economic offenders, including the corrupt as also the cooperating Swiss-bankers, are financial terrorists or their harbourers. The major problem of the developing world is corruption, and the secrecy laws aid and abet it. It would not be an exaggeration to say that the people of countries like Switzerland are more like receivers of stolen property and are leading a parasitic existence.

This hypocrisy does not go well with their famed high stance on morality. They should abandon such laws and throw their banking business open and transparent. India should take up this question with Swiss banks, the western world and with all possible international organisations, including the UN, OECD, etc. The countries of the third world, and India in particular, should agitate for relaxation of banking secrecy laws.

Apart from bank accounts, another dimension is that property or some other assets that could be purchased abroad. Since the agency of one country cannot conduct investigations in another country, some rules need to be framed so that the particulars of deposits or properties held abroad could be known to the mother country, in the name of whose citizens these may stand.

The following measures are suggested in the Indian context and they hold good for all other countries similarly placed:

a) Whenever a bank account is opened by an Indian citizen abroad, the particulars of such account should be communicated to the Indian authorities, through its embassy/high commission in that country. On receipt, the account number and other details should be fed into the National Property Register (NPR) immediately and could also be compiled in the CBI. National property registered is visualised as a master computer that will store all the assets in the names of all the individuals with each being allotted a unique identity as per finger print classification.

b) If the person is found involved in some crime or a criminal case, particularly of corruption or any other white-collar crime registered against him in India, then the particulars of balances in account and the copy of the account, if asked for authentically by the investigating agency, should be supplied. One such nodal agency will be nominated by each country. In this context, the authorised agency for India should be the CBI. If any state agency or any other agency of the government of India needs some information, it could approach the CBI. The foreign bank/government should have no discretion but to supply duly certified copies of accounts/ information whenever demanded by the nodal agency, in this case the CBI.

c) Whenever an Indian purchases a property abroad, its details should be passed on by the registering authority there to the Indian Embassy/High Commission, which would transmit the same to India. This information could also be fed into the National Property Register and also compiled in CBI and used when required.

d) Details of all the properties and the bank deposits held abroad by the Indian citizens at present should be supplied to Indian Embassy/High Commission in the respective countries.

e) Further, on instructions from the CBI, the accounts should automatically be frozen, the lockers, the properties and other assets sealed and ultimately these assets be disposed of as per directions of the Indian courts.

f) For obtaining/supplying such information, the dual criminality may not be insisted upon, as corruption is a crime everywhere, only some technical details may differ. Similarly, the blanket sovereign guarantee of reciprocity may be executed once at the level of the governments and should not be insisted upon for every case separately as that causes tremendous delays.

Once this happens, hiding black incomes abroad would become very difficult and practically impossible. India will start looking up, immediately. But to get such amendments to their rules, India has to take other countries of the developing world along, build up a powerful lobby and initiate very persuasive and aggressive propaganda underscoring the point that we are also readily helping them in their fight against drug and terrorism.

The country expects action from Prime Minister Manmohan Singh who is revered as an economist, an academician and as an honest person. It's another matter that this image of him has been sculpted by the very people who have amassed huge wealth through fraudulent means. It may be argued that any government that tries to tinker with the status quo would fall as the elite of India, which includes the bureaucrats, are benefiting from Switzerland's famous secrecy laws. The moot point is, does the Prime Minister owe his loyalty to such criminals or to the nation?

-- The writer is a former DG of Police and author, Who owns the CBI? (Manas, 2007)



Tax Havens: India should get back its illegal Funds
R. Vaidyanathan (10 April 2009)

Barack Obama is concerned about it, Merkel is furious about it and Sarkozy wants to regulate it but the leaders of one of the most affected country namely India is not saying or doing anything about them. They are the Tax havens or off-shore financial centers where the ill gotten wealth of tax evaders of many countries is hoarded. These tax havens are now in the news since developed economies like USA; Germany ;France etc wants them to return the ill gotten wealth from their citizens.

Tax Havens:

The US Government as well its congress are most concerned about these tax havens due to the severe economic crisis faced by the country and also due to pressure from sections of economists etc to “clean up” the global financial system. There are also concerns regarding the financing of terror groups by some of the tainted money from tax havens.

The detailed discussions on tax havens are provided by Internal Revenue Service of United States Department of Treasury in a paper on “abusive Offshore Tax Avoidance schemes –

We quote from that paper

These are foreign jurisdictions that offer financial secrecy laws in an effort to attract investment from outside their borders. These jurisdictions are commonly referred to as “tax havens”, because in addition to the financial secrecy they provide, they impose little or no tax on income from sources outside these jurisdictions. Tax haven service providers and their clients know their actions are veiled from tax authorities by banking and commercial secrecy laws and by lack of tax treaties or tax information exchange agreements. They create paper entities to disguise the real parties to the transactions, and many are willing to create false documents to disguise the real nature of transactions. At least forty countries aggressively market themselves as tax havens. Some have gone so far as to offer asylum or immunity to criminals who invest sufficient funds. They permit the formation of companies without any proof of identity perhaps even by remote computer connections. Generally though such extremes are found in emerging nations where the stability and security of the financial, legal, political systems is questionable

The largest concentrations of assets are attracted to the stable secure environments of the established tax havens –those that have existed a number of years and enjoy the diplomatic protection of former colonial powers.

These tax havens are estimated more than 70 in numbers but as the IRS discussion reveals around forty of them aggressively market themselves. The popular ones are Switzerland, Luxemburg, Lichtenstein, Channel Islands, and Bahamas etc.

Lichtenstein affair

Recently one of the tax havens namely Liechtenstein was in the news. Liechtenstein is a country as well as a convenient “letter box” for moneyed people all over the world to hide their ill gotten wealth. It is a small principality where if you jog a little longer you may end up in the next country. The crown prince with a difficult to pronounce name like Alois von und Zu Liechtenstein [notice that the Prince’s surname is that of the country!] is angry with Germany for launching a massive tax-evasion investigation involving funds hidden away in his countries vaults. Germany’s intelligence agency seems to have paid an unnamed informer more than USD 6 million for confidential and secret data about clients of LGT group a bank owned by the Prince’s family. The revelations have already led to the resignation of the head of Deutsche Post—the former German mail service---which is currently the world’s largest logistics company in the world. The Lichtenstein leaders are furious and have focused all their ire at the theft of the data rather than on the facts of the case.

The German Government has announced that it would share information on accounts held in the tax haven with any Government that wanted it. The spokesman for the German Finance ministry Thorstein Albig has indicated that they would respond to such requests without charging any fees for the information. Finland, Sweden, and Norway have expressed interest in the data obtained by the Berlin intelligent agency. But our Government has been lukewarm in this issue. It should have despatched immediately senior officials to get the names.

It is common knowledge that trillions of dollars of Indian money is in various tax heavens like Antigua, Switzerland, Bahamas, Liechtenstein, Isle of Man, and St.Kitts etc. Throughout the Nehruvian socialistic period under invoicing of exports and over invoicing of imports was very common and the funds were siphoned off to these tax heavens. In a socialistic way all leaders be they business, political, film, sports or bureaucratic participated in creating what we may call Secular ill gotten Wealth that is cutting across any type of caste or creed distinctions.

Tax Havens and Developed Economies

Under pressure from US federal authorities, the largest Swiss bank UBS is closing the hidden offshore accounts of its well-heeled American clients, potentially allowing their secrets to spill into the open. In a step that would have once been unthinkable in the rarefied world of Swiss banking, UBS will shut about 19,000 accounts that prosecutors suspect have gone undeclared to the Internal Revenue Service.

UBS will transfer the assets to other banks or other divisions within UBS, or will mail checks directly to the account holders, creating paper trails for federal prosecutors who are examining whether UBS clients used such accounts to evade taxes.
The clients now face stark choices: they can cash their checks, and thereby alert the authorities to any potential wrongdoing, or not cash them, effectively losing their money. Or they can transfer the money to new banks, a procedure which, in the case of foreign banks, requires depositors of more than $10,000 to report the new account to the Treasury Department.

UBS has also committed to pay a fine of USD 780 million to settle claims that it has de-frauded US Internal Revenue service. Now US State department is compelling it to disclose about 52000 American accounts kept with UBS.

The sudden explosion of indignation and anger against banking secrecy and the illegitimate money it breeds and protects seem to have shaken the Swiss government. While, in the past, Swiss government used to stress that bank's secrecy was “non-negotiable” it is no more able to maintain that stand. It has now acknowledged that it would have to “compromise”. The foreign and justice ministers of Switzerland have hinted that it would have to give up its protection to foreign tax evaders. Swiss government has also indicated that it would change its present law that regards tax evasion as a 'civil offense' and make it a 'criminal offense'. We in India know; how the Swiss laws were used to manipulate and cover up in the Bofors case.

Read tomorrow - Everything about India’s money in Swiss bank and India’s role....

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The author is Professor of Finance and Control, Indian Institute of Management-Bangalore, and can be contacted at vaidya@iimb.ernet.in This e-mail address is being protected from spambots. You need JavaScript enabled to view it . The views are personal and do not reflect that of his organization



Swiss secrecy no longer assured
Jayshree Sengupta
http://www.dailypioneer.com/168747/Swiss-secrecy-no-longer-assured.html

Precision and discretion were the distinguishing features about the Swiss but now, under global pressure, its fortress-like banks are being forced to yield, if only in inches

I am writing this in Geneva, where Saturday Special found me in its search for a writer on the issue of Swiss banks and the Indian gold therein. Knowing the Swiss and their ways rather well, I am extremely doubtful how any government, much less the government of India can succeed in cracking their legendary code of secrecy.

Swiss bankers are sworn to secrecy by a 75-year-old law and their banks look like plush hotel lobbies. For years, this little Alpine country has profited from holding foreign money in secret accounts and has enriched itself profoundly in the process. Seriously, what does Switzerland have to boast of apart from breathtaking scenery, chocolates, watches and cheese?

In India, the concept of 'Swiss bank account' has been a middle-class fantasy for decades. Around one-third of the world's private wealth is kept in Swiss banks and the Swiss Banks and Bankers' Association and Consultants estimate it at $2.2 trillion. It is indeed the world's biggest offshore centre--way ahead of Britain and Luxembourg. The code of secrecy which was laid down in a 1934 Law now faces its toughest challenge because it has been revealed that Switzerland's biggest bank, UBS, had helped Americans hide billions of dollars. The UBS not only had to name the tax defrauders to the American authorities but also agreed to pay $780 million in fines.

This development has brought home to the Swiss the fact that they cannot hide behind their secrecy laws forever. They also realise that Switzerland is too small a country, without leverage in world matters to resist the combined zeal of the US and European Union in ending this regime. The bankers admit that these days they have discarded the no-questions-asked policy on the source of moneys. They are getting strict about money laundering and quiz new customers on their links with terrorist organisations.

Other sectors of Swiss society now put forth the strong conviction that their national image has been tarnished by the banks and their code of silence. This is causing some confrontation with the banking sector because, obviously, the banks would like to cling on to their privileges, at least for some more time. Many Swiss agree that it is immoral for this type of banking to go on as it only means that dishonesty and corruption are being promoted and much of the money that the rich countries invest in the developing countries or give them as aid, ends up in private Swiss bank accounts. Of course they also add 'Why only us and why now?' There are plenty of other tax havens in the world. It is also true that only recently when the industrial countries are in deep financial crisis, they have raised their voices against all offshore tax havens including Switzerland, demanding an end to banking secrecy in order to bring back their tax evading citizens' hidden money.

All said and done, if the US can ask for the names of its nationals holding accounts then others, including India, could also queue up. Provided there is political will.

It is indeed a shame that a country with 450 million poor, there are also a handful of citizens owning $ 1,456 billion in secret accounts. This is more than the combined amounts held by account holders from China, Russia, the US and Britain. There is no denying that if it were indeed possible to transfer all the money held in Swiss accounts held by Indians to India, it would boost our resources immensely. There would be less poverty all around because billions of dollars thus transferred would be able to help build infrastructure, hospitals, factories, schools, homes for the poor and provide safe drinking water in the villages. But unfortunately, it will take a long time because the Swiss, though shaken by the recent incident when they had to reveal the names of Americans who held Swiss bank accounts to the US government, are in no hurry to do so for others. Only when there is a clear and concrete proof of tax evasion by their clients would they reveal the names of persons to the governments seeking such information.

Everybody knows that Indians have a lot of money stashed away in Swiss secret bank accounts and to start a secret bank account, one does not need a million dollars. It can be done with a few hundred Swiss Francs. It is not only the big guys but small traders, bureaucrats and actors who keep their money in Swiss banks. Like the US, India could also offer an amnesty scheme that would reduce penalties and promise no criminal prosecution if account holders themselves come forward and pay taxes at a future date.

In a similar vein, why is it only now that there is so much noise about Indian money in Swiss banks? It should have been done years ago. Why is it following the US example so late in the day? Perhaps it is necessary now to do so and India has also sought membership of the Financial Action Task Force, an inter-governmental body combating money laundering and terror financing. The membership is essential because it is a precondition to access to US banks and markets. India also faces slow growth and a huge budget deficit like the US and Swiss accounts could help.

-- The writer is an author and columnist


Swiss bank to ITO
Hari Sud
http://www.dailypioneer.com/168758/Swiss-bank-to-ITO.html

Saturday Special salutes LK Advani for articulating an old demand for economic justice: but will it come easy?

The hyperbole generated over some alleged anti-Muslim remarks at an election meeting attributed to BJP candidate Varun Gandhi has unfortunately taken public attention away from a more important issue. On Ram Navami day, LK Advani announced that if elected Prime Minister, he would ensure that the black money stashed by rich Indians in tax havens abroad is brought back to the country and spent for developing infrastructure.

Perhaps the Indian media is obsessed with trivia, or its denizens are too ill-educated to grasp the import of the statement. It could also be that the bang and fire is deliberately over 'secularism' is being generated to ensure that people don’t come to know about the Manmohan Singh government's total unwillingness to participate in the global campaign now underway to ensure that banks and their fiduciaries reveal all the accounts held by tax evaders, racketeers and criminals. This campaign now has a personage no less than the United States President as its chief. Yet, the government of India is shying away from joining it. Why? The answer is well known.

The recent G-20 summit in London resolved to crack down on tax heavens worldwide. Yet, the national media of India did not report this. Now it's clear that unless a LK Advani is at the helm, New Delhi would not budge to make this campaign work. Perhaps, at best, an anaemic effort will be made. Then, with the full cooperation of our media divas, the issue will be given a discreet burial.

The Swiss Banking Association reported in 2006 that there are about $1,400 billion of Indian money stashed in Swiss banks alone. That's $1.4 trillion and greater than the national GDP of India, and amounts to more than $ 1,000 per Indian. If even half this money could be brought home (mind you, there may be another trillion in St. Kitts, Cayman Island, Mauritius, etc.), our government would not need to solicit cash for development from foreign banks, private investors and generous donors. Simply put, there is a Mount Everest of cash waiting to be scaled.

Why do rich Indians like the Swiss Banks for depositing their private loot? There is a mythology behind it, which predates the two Word Wars of the last century. Switzerland has been a neutral country for the last 300 years. It set up a banking industry where both the Allied and Axis powers could safely deposit their moneys for later use. Switzerland enacted laws that prohibited banks from making disclosures. Hence, money started to flow in greater amounts behind this secrecy. Some of this was illegal"war loot while some of it was legitimate, sent by individuals and institutions for safe keeping.

When prosperity struck after World War II, the aura of the 'Swiss Bank' was born. Corrupt politicians and bureaucrats, politicians, gun runners, drug cartel operators from every continent began to take advantage of the legendary Swiss secrecy. This led to greater and greater amounts flowing in. At first, wealthy Americans did not use Swiss banks. They had their own tax heavens in the Caribbean. It was only later that they recognised the benefits offered by Switzerland. Moreover money accounting in the US and Canada is very strict. It is hard for anybody to fool the authorities continuously and get away with it. Also for the last 50 years, America is the magnet for other nation's money. Hence, money always pours into America. Only ill-gotten wealth leaves its shores.

Let us not blame wealthy Indians only for stashing money abroad. Take for example the Russians: they are reported to have $470 billion. Besides there are the Brits ($390 billion), Ukrainians ($100 billion) and others. None of this is legal money. Politicians, bureaucrats and businessmen hide away wealth in numbered accounts where the law cannot catch up with them. Each of them is personally responsible for these criminal activities. The reputed international NGO, Tax Justice Network, in a five-year-old study estimated that worldwide close to $11,500 billion is held by individuals in about 70 tax heavens. The irony is that $5,000 billion of this is money from poor countries and Switzerland is prospering from it.

Without going into how did so much money got accumulated abroad in the course of our 62-year-old history, let us deal with what is this money is doing other than gaining some interest for the depositors. For Swiss banks this money is as white as white can be. They do not wish to discuss how they got it. They only want to talk about what do they do with it. Banks usually lend money to other banks or businesses or governments or trade in futures or accumulate assets and become bigger and bigger. A number of Swiss banks are among the world's top ten. Switzerland does not have a large economy other than tourism, specialty watches and chocolate. So, it cannot absorb all this money in its own economy.

Financing international projects is the easiest option. Some of these projects could well be in India. There were hints that some of this money did find their way back to India as Foreign Institutional Investment (FII) and drove our stock markets up before withdrawing at the first sign of uncertainty. Without a doubt this had happened.

For India there are three great problems with money stashed abroad. These are: a) Paying taxes on this money so that it becomes white; b) Bringing it back home so that you have control over it, and, c) Dealing with the corrupt at home. None of all this is possible with the stroke of a pen. You need the cooperation of the individual who is holding the account. Is that likely to happen?

In the United States, Barack Obama has gone to the extent of promising American tax haven account holders an amnesty scheme. They have been assured that they would not be touched by the law if they quietly paid up their outstanding taxes at discounted rates and thereby allowed the money to enter the American mainstream.

Mr Advani would face an uphill task both at home and abroad. It would be far fetched to expect cooperation from the Swiss. They are sworn to secrecy. Still, the US has greater influence than others and could get a foot on the door. At the G-20 meet, France, Briton and Germany joined the US in calling for greater transparency in Swiss bank laws to put an end to tax evasion and bring back their citizens hidden wealth. India also gave lip service. But are the Swiss listening? Apparently not. The hallmark of their prosperity is accumulated foreign loot. And can they be expected to give it all up without a fight?

Courts can be used to force disclosure from the Swiss. Remember all this money has been deposited with deceit with deceitful bankers; they will do their best to stay anonymous as much possible. Courts can try for ten years and still come to a naught.

The nation wishes Mr Advani success in his noble endeavour. At least he has proved to be different from other politicians. One only hopes his party had crafted a campaign which could have promised every Indian $ 1,000 (Rs 50,000) in his pocket. Directly or indirectly.

-- The writer is a Canada-based columnist on South Asian issues