Billions of dollars of Indian wealth could be stuck in Swiss bank accounts simply because of the absent-mindedness of their original account holders.
Apart from the money that living tax evaders may have stashed away in tax havens, there is a large chunk that is irretrievable simply because those who originally parked the money in these bank accounts have died without informing their heirs of all pertinent details, according to R. Vaidyanathan, professor of finance at the Indian Institute of Management, Bangalore. He was delivering the Nani Palkhivala Memorial Lecture on “Tax Havens and the Illegal Wealth of India” here on Saturday.
“After a period of time, the bank swallows the money, if the account holder dies without passing on account information…How to get back this frozen money that has been swallowed by these banks should be a top priority,” Professor Vaidyanathan said, pointing out that a substantial quantity of Indian wealth had been lost in this way.
According to the Global Financial Integrity group, which tracks illegal financial flows out of the developing world, India lost about $27 billion every year in this fashion during 2002-2006, said Professor Vaidyanathan, adding that about a third of this amount was stashed in Switzerland.
Over the 60 years since Independence, the Republic of India could have lost as much as $1.5 trillion, he said. In fact, the International Narcotics Control Strategy Report says that about 40 per cent of all Indian transactions abroad are hawala.
“Illegal money flow”
Professor Vaidyanathan explained that the flight of capital from India became an exodus during the 1950s and 60s, when India had high tax rates and strict forex limits. Today, many on the Who’s Who list of corporations, entertainment, and politics in India are involved in this illegal money flow, he said.
He urged the Prime Minister’s Office to insist upon accountability with regards to Ministerial trips abroad, as many of them were clubbed with personal trips to nearby tax havens.
Developed countries are working together, especially through the Organisation for Economic Co-operation and Development (OECD), to put pressure on tax havens to release details about tax evaders’ accounts. If some foreign agency manages to get its hands on Indian names on that list, the country could even be vulnerable to blackmail on a grand scale.
“Our decision-making could be compromised,” Professor Vaidyanathan warned. The other major concern was that these tax havens were being used as a source of funding for terrorist activities, he added.
The issue should be taken up urgently on a bipartisan basis, as a problem of national concern, he said. Both Houses of Parliament should come together to make a declaration that all this money belongs to India. This would provide a legal basis for future decisions and courses of action on the international stage.
The Indian government should take up the issue at international fora, where the clout of larger players in the world economy can also be used.
Already, the OECD’s threats to blacklist Switzerland may have helped in getting that country to agree to renegotiate its double taxation treaty with India, as the Finance Minister announced earlier this week.