Why is government reluctant to retrieve funds stashed abroad?

The Global Financial Integrity — a non-profit research organisation  working in the area of tax havens — has estimated that the present value of illegal financial flows of India held abroad is at least US$462 billion.

This means that the money stashed abroad is nearly 40% of our GDP of US$1.2 trillion. When this became an issue before the last Parliamentary elections, some leaders in the ruling party denied the issue outright. But the current prime minister was gracious enough to acknowledge the gravity of the issue and promised action on coming to power.

Since then the whole world has moved against the menace of untaxed money. But the Indian response has been just symbolic, like signing tax treaties, with no decisive attempt to get at the root of the problem.

As early as February 2008 German authorities had collected information about illegal money kept by citizens of various countries in the Lichtenstein bank and the German finance minister offered to provide the names to any government interested in the list. Our government did not take any action for many months and, only after much prodding by the opposition, asked for the list in late 2008.

Recently it agreed, in the Supreme Court, in response to a petition moved by Ram Jethmalani and others that “18 Indians have put Rs43.83 crore in Liechtenstein bank”. The list is said to contain names of more than 100 Indians. Interestingly, in the case of Hasan Ali of Pune, who was found to have been operating massive Swiss accounts, the Union government indicated that tax demands of Rs71,848 crore have been raised on the said person, his wife and other associates. If this were the tax demand, then the income on which this would have been raised would be more than Rs1.5 lakh crore. Likewise, the IPL, 2G spectrum, Madhu Koda and CWG scam issues, all point to linkages to tax havens.

The Enforcement Directorate (ED) is not inclined to reveal even the “total volume of such money” to an applicant using RTI. During the hearing, ED stated that they cannot either confirm or deny media reports about the likely volume of black money stashed away in foreign banks illegally by Indian nationals.

It is suggested that India is updating its double taxation treaty with many countries, including Switzerland. Actually the double taxation treaty is only a part of the solution. Many of these tax havens do not consider tax evasion by depositors in host countries as a crime. Also they have stringent laws to punish bankers providing any information regarding the depositors. Nearly 1 trillion out of 2.8 trillion of Swiss money is black money says Konrad Hummler, the Chairman of the Swiss Private Bankers Association.

The steps needed to monitor and control funds which are diverted and used for terror financing from these tax havens also need to be looked at. As early as 2007 the concern was expressed by the then-national security advisor, MK Narayanan, about possibility of terror funds coming in through financial markets. A recent report suggests that “on instructions from finance minister Pranab Mukherjee, the Intelligence Bureau has taken up the task of identifying the sudden quantum jump in the foreign money flowing in the country through withdrawals by foreigners on credit and debit cards issued by the foreign banks.

In the last few years many countries in Europe as well as the US have taken several steps to get back their illegal funds from abroad. For instance, the US got names of more than 4000 clients of UBS bank from Switzerland after persuasion, threats and related legal actions. It has been successfully demonstrated by countries which attempted to recover the assets stashed abroad by their corrupt leaders and businessmen that this can be accomplished.

There was a report in India Today (February 18, 2008) regarding foreign travels of Central ministers. It stated that a large number had visited Switzerland, including on personal trips and certainly not for skiing in the Alps. Given all these aspects why is the government not initiating any action?

One possible reason could be the culpability of our leaders. There was a report in the Swiss journal Schweitzer Illustrierte, which did an expose on politicians of the third world and developing nations who had stashed their wealth in Swiss banks. In its issue dated November 11, 1991, the magazine, citing the newly opened KGB records, reported ‘that Sonia Gandhi, the widow of the former Prime Minister Rajiv Gandhi, was controlling secret account with 2.5 billion Swiss Francs (equal to $2.2 billion) in her minor son’s name’.

Interestingly there has not been any defamation suit against the magazine nor any denial of that report, either by the government or by the oldest political party. The prime minister has announced to “redouble efforts” to “cleanse the system” in 2011. For a start, can he inform the nation about the total number of foreign trips — including personal trips — undertaken by his cabinet colleagues to various tax havens after UPA-2 came to power?

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