Time to get back India’s Sovereign Wealth Fund

Adequate steps must be taken to open up the closed vaults of the tax havens to get our money back. The amount involved can be at least ten times our current GDP and can be used to write off the loans of all marginal farmers. This is the real sovereign wealth of our country belonging to billions of poor and weak people.

Sovereign Wealth Funds (SWF) have become an area of interest in the recent past. The US Federal Reserve and the European Commission are concerned about issues of transparency in the case of SWFs, particularly pertaining to funds from West Asia, Singapore and China.

It is felt that that the SWF of Norway is one of the best in terms of disclosure and transparency. It is also suggested that SWFs should invest based on commercial considerations and not on geo-strategic reasons. It has also been discussed in Indian financial papers that the country should take steps to create one. The response from many experts is that India does not enjoy a surplus on the current account and, to that extent, the concept of SWF may not apply to India.

In all these discussions one critical aspect is either forgotten or not brought to the surface. That is the wealth hoarded by Indians in the areas of commerce, politics, arts, entertainment, even the military, in foreign banks for the last five to six decades. A recent development pertaining to such tainted money makes us alert to our own wealth abroad.

Liechtenstein

First, the facts. Liechtenstein is a country as well as a convenient “letter box” for moneyed people all over the world to hide 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 the difficult-to-pronounce name Alois Philipp von und Zu Liechtenstein, 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 $6 million for confidential and secret data about clients of LTG 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 — the world’s largest logistics company. 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.

Interestingly, the Swiss are also furious regarding the method adopted by Berlin since they feel that a similar fate can befall their bank vaults, where most secret wealth is stored.

The Swiss banking association was forced to apologise for remarks by its Chairman that the activities of German intelligent agency in a nation-wide crackdown on tax evaders are reminiscent of Gestapo methods. Of course, any mention of Hitler or his methods creates significant unease in Berlin, and the choice of words by the Swiss was somewhat inappropriate.

The German foreign intelligent agency BND seem to have got details of more than 700 clients of the LTG bank, and German prosecutors are using this information to target hundreds of suspected tax-evaders in the last few days. In the meantime, LTG claims that the “stolen data’ contain information about 1,400 clients, only 600 of whom are Germans.

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, Mr 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.

Tax havens

Now the interesting and intriguing part. The Indian government is totally silent on this issue and has not approached the German Government for looking at that data without any charges. It is common knowledge that trillions of dollars of Indian money are lying in various tax havens, such as Antigua, Switzerland, Bahamas, Liechtenstein, Isle of Man, St. Kitts, and so on.

Throughout the Nehruvian socialistic period, the under-invoicing of exports and over-invoicing of imports was very common. Along with that, a substantial portion of external earnings were siphoned off to these tax havens. In a socialistic way all leaders, be they from the world of business, politics, film, sports or bureaucracy, have participated in creating what we may call ‘secular wealth’ that cuts across caste or creed distinctions.

A good portion of the Defence commissions too was settled abroad. This apart, some of our bureaucrats, entertainers and artists have also accumulated wealth in foreign countries. This lobby is well entrenched and one of the main losers in the appreciation of the rupee. Hence, they will try to keep rupee artificially high. There are also reports that some of the FII money flowing into India is our own money kept abroad by those fattened on the bonanzas of the permit-license-quota raj.

The worst part of the story is the loss of these deposits to the Swiss banks themselves upon the death of some of these depositors who have not passed on the relevant account information to their heirs. The Swiss banks appropriate such sums some years after the death of the beneficiary if there are no claimants. These are operated using codes but most of them require a passport and its number as a proof. That is the reason one finds some persons travelling to Switzerland with expired passports. Zurich is the only European town where Hindi slogans are written on the side of the tram-cars. Of course, it is supposedly linked to Bollywood, but the other India traffic to Zurich is to be seen to be believed.

 Lifting the veil

No doubt, sooner or later, some serious leaders will bring up in Parliament and other public fora compelling reasons for our Government to initiate action to access this free data from Berlin.

To start with, we can add one column in our election affidavits regarding wealth accumulated abroad. Of course, politicians are not going to declare ill-gotten wealth. But it may be useful for the future in considering provision of false affidavits.

The second issue is about linking globalisation to this ill-gotten wealth. India, as a responsible member of various world forums, can and should demand transparency by these tax havens, which should provide information regarding the ill-gotten wealth, and the source.

India would have immensely helped many African and Latin American countries in the process of lifting the veil of secrecy that keeps these funds in the vaults of banks in these tax havens. These funds are as dangerous to global welfare as global warming or carbon toxics.

It is required for the G-7 leaders to address the issue of these funds to bring orderly growth in the global financial markets. The entire tax efforts of countries such as India are subverted by such deposits.

The third, and most important, issue pertains to financing of terrorism. These secretive and non-transparent tax havens can be a global threat since the sources and uses of funds are not clear. The gap between tax evasion and terror financing is getting smaller. The less the transparency, the greater the threat to civil societies.

The fourth, and also important, point is that this should become a major issue in world trade and financial negotiations as that which belong to us cannot be denied to us for long. The entire issue of global financial flows and cross-country free flows become meaningless because of the presence of these tax havens. The younger leaders of today in various fields should demand that adequate steps are taken to open up the closed vaults of many of these tax havens to get our money back. We are not a banana republic. We owe it to ourselves and the future generations to start this cleaning up.

The amount involved, according to back-of-the-envelope calculations, can be at least ten to twelve times our current GDP which will run to several trillion dollars which can be used to write off the loans of all marginal farmers of the entire world. This is the real sovereign wealth of our country belonging to billions of poor. This is our Sovereign Wealth Fund.

It may be of interest to some that the Prince of Liechtenstein has used the proceeds from banking to diversify into other areas and, in 1997, Rice Tec, a small Texas rice grower owned by the Liechtenstein royal family, won a US patent for breeding a new strain of US-grown basmati rice that it believes is superior to many other varieties. The Indian government described the granting of Rice Tec’s patent as “a classic case of economic hijack” and argued that it was “like saying that Scotch whisky can be made in India”. That is an interesting link to the princes and paupers.

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