Scam-tainted money may be moving the markets

The financial accounting course taught in every commerce college and business school — Accounting 101— includes a discussion on the sources and uses of funds. In all the discussions on the scams pertaining to the Commonwealth Games (CWG), the Indian Premier League or the 2G spectrum, the focus is on sources, not uses. For instance, in the case of the 2G spectrum scam, which involves an opportunity loss of upto Rs1,76,000 crore to the national exchequer, the documents indiacate that a substantial portion of the funds for the bidding came from tax havens like Cyprus, Channel Islands and Mauritius.

The last date for the submission of applications was advanced from October 1, 2007 to September 25, 2007 through an announcement made much after that period was over. On January 10, 2008 the department of telecommunications (DoT) posted an announcement on its website around 2.45pm saying letters of intent for telecom licences along with spectrum would be issued between 3.30-4.30pm that afternoon and that application fees (worth over Rs1,000 crore) would have to be paid immediately by demand draft along with the supporting documentation.

Licences were given to those who deposited their fees using the infamous ‘first-come-first-served’ system. In short, spectrum licences were given through a system unknown even for pre-school admissions. The prime minister, if he was serious about tackling corruption, should have ordered an inquiry immediately and sacked the telecom minister.

Now let’s see who got licences. More than 45% of Etisalat DB, which acquired a stake in Swan telecom which got the licence, was held by Tiger Trustees Pvt Ltd, a firm 99.8% owned by Dynamix Balwas, a real estate group. UAE-based Etisalat owned its stake through a Mauritius arm, while Delphi Investments, a Mauritius-based company, owned the remainder. All were clearly linked to tax havens.

Interestingly, the Central Bureau of Investigation (CBI) stumbled upon damning evidence of money transfers in the spectrum case while probing the arrest of Maharashtra and Goa chief postmaster general MS Bali. He had allegedly accepted a bribe of Rs2 crore from a builder for issuing a no-objection certificate to build on postal land in Mumbai. Along with him one Arun Dalmia was also arrested. During interrogation, Dalmia allegedly told the sleuths about two Swiss accounts, some property details and high-volume cash transactions flowing into bank accounts in Delhi, Chennai, Singapore, Dubai, Malaysia and other tax havens abroad. But this angle was never probed. Similar is the case with the CWG scam, wherein substantial sums of money have gone to tax havens.

Funds are being siphoned off from India to tax havens by political leaders in cahoots with bureaucrats and business barons. A recent report by Global Financial Integrity, a think-tank based in Washington, suggests that nearly US$460 billion is held illegally by Indians in tax havens. This can only be an underestimate.

Funds — whether in white or black — are always in rotation, and the further the funds flow away from the taxman, the faster they rotate. The same funds often come back as foreign investment in sectors like telecom or real estate, or even as portfolio investments in the stock market. Information about foreign investment in stocks is opaque — to say the least.

Our stock market has decoupled from the economy and its movement is related to scams which generate funds to be sent to tax havens abroad and which are then recycled back. Our economic growth comes primarily from the services sector — which has more than 60% share of GDP — and which is dominated by firms in trade, hotels, construction and other activities performed by the so-called “unorganised” sector. The share of household financial savings going in to stock market is less than 5%.

What we need to probe is this: is major economic activity being financed by resources drained from our own system? Is our stock market largely driven by scam-tainted money? Our political leaders seem to know all about it.

Is there a way out? The only hope is for the Supreme Court to order a special investigation under its control and supervision, away from the CBI and the Central Vigilance Commission, which appear compromised. We need to probe the scams and create a fast track court to punish the guilty within a timeframe and create a process to bring the illegal money back from tax havens. If a couple of leaders are jailed for 20-50 years, some sanity can be injected into the system. Otherwise, we will lose our political freedoms too. Our economic freedom has already been mortgaged with the tax havens and foreign intelligence agencies know all about this. They are, thus, in a position to dictate our economic policies. Will the Supreme Court step in to protect our sovereignty and integrity?


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