Dealing with Tax Havens


In the last decade there have been major developments in the global financial markets which are of utmost importance to the emerging countries. The global reach of the off shore centers or Tax havens with their instruments and institutions bring to focus the inadequacies of the existing premises and policies of the national regulatory authorities.

This issue of tax Havens has occupied the Centre stage in the discussions on Global financial architecture particularly in the context of the Global meltdown in Financial markets and 9/11 terror attacks. There exist more than seventy tax havens or secretive tax jurisdictions and all of them are facing pressures from G-20 /OECD/IMF/World bank type organizations to become transparent and cooperative in reducing tax evasion and finding tax evaders.

Global campaign against Tax Havens:

US officials had tried to crack down on these off-shore tax abuses at least since 1961, when President Kennedy asked Congress for legislation to drive these Tax havens “out of existence”. [Users of Tax Havens beaten by Political Gale– New York Times 26th Feb 1961].Currently, 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. How seriously countries like the US have taken up the issue of under-the-ground economy, which undermines the over-the-ground economy, can be judged by how they are preparing to tackle and tracking this evil money.

The detailed inputs on tax havens have been provided by Internal Revenue Service [IRS] of United States Department of Treasury, in a paper [2008] on “abusive Offshore Tax Avoidance schemes –Talking points“.

We quote from that paper: [1]


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.

It is difficult to quantify the amount of assets being held offshore or the rate at which the industry is growing. But it is estimated that some USD 5 trillion in assets is held ”offshore “in tax havens. One authority estimate that the annual revenue loss to the USA at a minimum of USD 70 billion.

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 to number more than 70 but as the IRS discussion reveals around forty of them aggressively market themselves as tax havens. The popular one is Switzerland, besides Luxemburg, Lichtenstein, Channel Islands, and Bahamas etc.

The US President Barrack Hussein Obama is concerned about it, the German Chancellor Angelina Merkel is furious about it and the French President Hollande wants to regulate it. They are the Tax havens or off shore financial centers where the ill-gotten wealth of tax evaders of many countries is hoarded. The leaders of one of the most affected country, India should be taking the lead among emerging markets. 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.

II. Definitions of Tax havens and Illegal Funds

The definitions of Tax havens vary but one can identify many of these jurisdictions by their Characteristics. Raymond Baker, in his pioneering work on the issues of dirty money and renewing the free market system, mentions in detail about the extent of tax havens [2]


There are some delightful places where you can situate or purchase your secret companies. In the Caribbean you have Anguilla, Antigua and Barbuda, Aruba, Bahamas, Belize, Bermuda, the British Virgin Islands, Barbados, Cayman Islands, Dominica, Grenada, Montserrat, the Netherlands Antilles, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, and the Turks and Caicos Islands. Or there are Panama and Costa Rica in Central America and Uruguay in South America. If you prefer the Pacific the choices include the Cook Islands, the Marshall Islands, Tonga, the Maldives, the Marianas, Nauru, Niue, Vanuatu, and Western Samoa. Asian and Middle Eastern secrecy jurisdictions include Hong Kong, Macau, Singapore, Labuan off the coast of Malaysia, Bahrain, Dubai, and Lebanon.

Africa is getting into the game with Mauritius, the Seychelles, South Africa, Liberia, São Tomé and Principe and the little enclave of Melilla, one of two parts of Spanish Morocco. And, of course, Europe offers some of the most experienced and discreet jurisdictions, including the Isle of Man, the Channel Islands of Jersey, Guernsey, Alderney and Sark, the Åland Islands, the islands of Cyprus, Malta, and Madeira, plus Gibraltar and Monaco at the southern edges of Europe, as well as Switzerland, Austria, Liechtenstein, Luxembourg, Belgium, Hungary, Ireland, the lovely enclave of Campione d’Italia surrounded by Switzerland, and the Principality of Andorra tucked in between France and Spain. Off the coast of Newfoundland the French territory of Saint Pierre et Miquelon is reportedly a player in this business. This totals 63 jurisdictions providing varying degrees of incorporation concealment and protection from probing eyes.

As you select a place to acquire your anonymous international business corporation and plan your circuitous travels to meet clandestinely with a shady lawyer prepared to provide you with a dummy corporation to serve your unrevealed interest in moving ill-gotten gains with the utmost secrecy, you may actually be disappointed to learn that you don’t need to go there at all. In almost every one of these jurisdictions, the whole thing can generally be done with a phone call or fax or online. Using your search engine, enter “international business companies” or “offshore corporations,” and scores of web sites will pop into view offering instant service, comparing the pros and cons of various jurisdictions and quoting fee schedules for creating your own shadowy company.

I have lost count of the number of anonymous entities existing in these jurisdictions. Several years ago, the British Virgin Islands alone reportedly had 180,000 and the Caribbean as a whole had 500,000. More were being formed at a reported rate of nearly 200,000 a year. The total is certainly well over a million by now, and some experts put the number as high as three million. According to various estimates, half of cross-border trade and investment passes through a tax haven or a secrecy jurisdiction at some point along the way.


The other researchers like Nicholas Shaxson suggests that tax haven is a place

“That seeks to attract business by offering politically stable facilities to help people or entities get around the rules, laws and regulations of jurisdictions elsewhere,” [3]

It is similar to the definition offered by Richard Murphy of Tax Justice Network. Shaxon also suggests that More than half of world trade passes, at least on paper, through tax havens. Over half of all banking assets and a third of foreign direct investment by multinationals corporations are routed off shore.

The US Government accountability office reported in 2008 that 83 of the USA’s biggest 100 corporations had subsidiaries in tax havens. Tax justice Network discovered that ninety nine of Europe’s hundred largest companies used off shore subsidiaries. In each country the largest user by far was a bank. IMF estimated in 2010 that the balance sheets of small island financial centers alone added up to $18 trillion –a sum equivalent to about a third of the world GDP [Shaxon—Opp. Cited Page 8]

These tax havens are estimated to number more than 70 but as the IRS [USA] discussion reveals that around forty of them aggressively market themselves as tax havens. The popular one is Switzerland, besides Luxemburg, Lichtenstein, Channel Islands, and Bahamas etc.

III. Estimates of the Illegal Funds

First let us look at the volume of the untaxed black money that is estimated to circulate in and dominate the global financial markets unquestioned and unsupervised. These monies, which have no declared or known owners, are laundered into the official financial markets of the world through the intervention of tax havens, which are countries that levy no tax or levy what is an apology for tax, so as to attract capital to their countries. These tax havens are largely tiny tots in the global geography and demography but they hold the rest of the world to ransom, as explained in detailed later. These are currently called “Secretive Jurisdictions”. Now, let us see the latest estimate of the volume of the black money that traverses through the financial system of the world.

1. IMF estimates global black money – excluding Switzerland, China, Taiwan and Oil exporting economies — at $18 trillion; that still an underestimate, says IMF.

This estimate of responsible financial bodies of the world has shocked the world. The extent of black and unsupervised financial economy in the world is now believed to be almost a third of the global GDP. The study reports that there may be as much as $18 trillion of foreign dollars parked in small international financial centers, which does not include Switzerland. This does not exhaust the world economies, particularly those economies, which generate lots of export and cash surplus. Leading, cash-rich economies such as China, Taiwan and many of the oil-exporting countries do not participate in the IMF’s survey.

Gian Maria Milesi-Ferretti, an economist for the IMF in Washington, said statistical information on Luxembourg, one of the largest offshore financial centers in Europe, illustrated the extent of the problem. He said: “Luxembourg is one of the few offshore centers that disclose detailed statistics on assets and liabilities held in the financial sector, which makes it invaluable to understand cross-border money flows.”

The latest available IMF figures show portfolio assets held by foreigners in Luxembourg to be worth $1.5 trillion at the end of 2008. But looking at statistics provided by the Luxembourg Government on portfolio investment liabilities for the country – the mirror image of the asset information held by the IMF – there is a big discrepancy. The investment liabilities in Luxembourg were $2.5 trillion – $1 trillion (€726bn) more than the assets reported.

Milesi-Ferretti said: “This is a huge difference, almost 40%, and is unlikely to be entirely accounted for by the fact that some countries do not report their portfolio investments or their destination to the fund.” 

Richard Murphy, the well-known Economist and accountant and founder of Tax Justice Network, commented:

“I admit I can’t resist the temptation to say that some of us have been saying this for a long time. The Tax Justice Network wrote on this in 2005, suggesting there were £11.5 trillion of assets offshore. Time and again this has been attacked by organizations that should have known better and by academics with a right wing axe to grind. But now, like so much else I and others have argued, it is being validated. And the issue itself, once dismissed as inconsequential is now being considered seriously.

The IMF’s $18 trillion number dramatically exceeds previous studies, and even it acknowledges that it probably underestimates the amount of money floating around in tax havens.”[4]

2. Black Money in Swiss Banks

Now let us look at what kind of black money from elsewhere is lodged in secret Swiss bank accounts. Nearly one trillion out of 2.8 trillion of Swiss money –CHR—is black money says KonradHummler –The Chairman of the Swiss private Bankers association. [see August 2009 Swiss review. In the article “Atlantic hurricane hits Switzerland in full force” KonradHummler says: [5]


Black day for banking confidentiality.

Switzerland has become a paradise for foreign capital on which tax is not paid. The uproar from foreign governments is understandable.”

These are not the words of a critic of the banks, but of private banker KonradHummler. He says that around 30% or CHF.1000 billion, of the CHF 2800 billion or so of foreign assets in Swiss banks is untaxed “black money”.


As to what this means, in August 2009 one Swiss franc –CHR- is nearly same as one US dollar. It means that one trillion US dollars out of the $2.8 trillion kept in Swiss banks is black money.

This money, besides being tax evaded, is entirely unsupervised. It does not need to pontificate on the evil effect of this kind of untaxed, unmonitored and uncontrolled money, to the global financial system. The Western world, which was winking at their rich indulging in this costly luxury for decades, was rudely shaken and woke up to this evil money when the global financial system has been fatally hit to near death, from which it is struggling to recover even now. It is the shock that this evil money had administered to the global financial system that has made the governments in the West to realize the damage that untaxed and unsupervised money can inflict on them and on the world. This has led to a powerful campaign against tax havens and secret banking.

IV. Chasing the black money – the success stories of different countries:

The US President Barrack Hussein Obama is concerned about it, the German Chancellor Angelina Merkel is furious about it and the French President Sarkozy wants to regulate it. They are off shore financial centers where the ill-gotten wealth of tax evaders of many countries is hoarded. But surprisingly the leaders of one of the most affected country, namely India, are not even making any noises about them and doing virtually nothing about them.

These Secretive Jurisdictions are now in the headlines news since developed economies like USA, Germany, France etc wants them to return the ill-gotten wealth from their citizens. This rising noise and the consequently rising public opinion and political anger against the Secretive Jurisdictions in different countries have led the government and secret banks of Switzerland, the most popular secretive jurisdiction, increasingly frightened and this fear has helped the angry and indignant countries to recover their lost wealth as the Swiss Government and the Swiss secret banks have tended to respond to the demands made on them to share information about the tax evaders.

While powerful countries like the USA have used their geo-political power to arm-twist the Swiss banks to part with the information and recover their lost wealth and even coerce them and extract penalties for abetting in the evasion of tax by their citizens, the less powerful ones have sought and aroused empathetic public opinion to force the Swiss banks to part with the information about the wealth illegitimately stashed away by their corrupt rulers and recover the same, as explained later.

US officials have tried to crack down on this off-shore tax abuse at least since 1961, when President Kennedy asked Congress for legislation to drive these Tax havens “out of existence”. [6]. 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. How seriously countries like the US have taken up the issue of under-the-ground economy, which undermines the over-the-ground economy, can be judged by how they are preparing to tackle and tracking this evil money.

In the last few years many countries in Europe as well as USA have taken several steps that included geo-political coercion, financial penalties and bribes, to secure information and get back their illegal funds from abroad. The USA forced and got names of more than US 4000 clients of UBS bank from Switzerland by sheer geo-political force, after persuasion first, threat next and related legal actions later. Similar is the story of France and Germany.

The latter even officially bribed the Lichtenstein Bank officials to get the secret names of Germans and others who had stashed away their black wealth in LGT bank of Lichtenstein. The stories of how different countries go about their agenda to track and take back their wealth illicitly secreted abroad are an interesting exposition for the Indian public.

1. The US coerced and threatened the UBS to give the details

Under pressure from federal authorities, the 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 has agreed to shut about 19,000 accounts that prosecutors suspect have gone undeclared to the US Internal Revenue Service. UBS has agreed to transfer the assets to other banks or other divisions within UBS, or would 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.

This has forced the clients to face two stark choices, with no third: they can cash their cheques, and thereby own up their secret monies and alert the authorities, or not cash them, effectively losing their money. If 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, the consequence is the same as in the first case.

Under sheer geo-political pressure and coercive national measures taken by USA, UBS – the largest Banking Institution from Switzerland — has also committed to provide names of top 250 persons who have kept money in offshore account out of 19,000 accounts mentioned earlier, to US authorities. UBS has also originally committed to pay a fine of USD 780 million to settle claims that it has abetted in defrauding US Internal Revenue service.

Now US State department is compelling it to disclose about 52000 American accounts kept with UBS. The original charges are that the UBS off shore accounts have helped Americans to hide USD 18 billion in 19,000 accounts. As of now the settlement is that anyone opening off-shore account has to do it through US regulatory bodies.

Traditionally Swiss authorities used to argue that if there is no criminality under Swiss laws [which never recognized currency violations and tax evasion as offences] the information on offshore accounts could not be divulged. The same position was taken in Bofors case of India. Now that wall has been breached by this US agreement with Swiss authorities. The Swiss banks now recognize tax evasion in any country as amounting to an offence in Switzerland. This breakthrough accomplished by the US has opened up a huge possibility for the rest of the world to access the tax-evaded funds of their countrymen secreted in Swiss banks.

The tough measures of USA have led to the UBS, the world’s largest private bank, also declaring that it would stop offering to American clients offshore private banking services that are not declared to the I.R.S.

The US Inland Revenue prosecutors contend that UBS helped wealthy Americans hide about $18 billion, thereby evading taxes of $300 million each year. UBS is struggling to maintain its centuries-old tradition of Swiss banking secrecy amid mounting legal pressure from the Justice Department to turn over client records. It began handing over some records last summer, causing consternation in the Swiss banking community. The cheques and transfers insisted upon by the US authorities will create paper trails because they move through bank clearing systems. So the US has almost plugged the future secreting of black wealth from the US into Swiss and other secret jurisdictions.

2. Other stories of successful chase by less powerful countries

It has also been successfully demonstrated by countries, which are comparatively less powerful and less influential in geo-politics that monies illegally stashed abroad by their corrupt leaders and businessmen could be recovered.

They had been able to accomplish it by exposing and prosecuting the corrupt leaders of their countries who had stashed and secreted away their national wealth in Swiss banks and making their judiciary to seek the cooperation of Swiss government and banks.

They had also appealed to the conscience of the world generating the empathy of the world. This feat has been accomplished by small and insignificant countries, like those as under [7]

Philippines slogged for 18 years but finally successfully got repatriated the bribe money of its former President Ferdinand Marcos ($ 624 million) held in Swiss Bank accounts.

Between 2001-2004, Peru recovered $180 millions stashed away in tax havens by VladimiroMontesinos.

Between 2005-2006,Nigeria recovered USD 505 million of the SaniAbacha money frozen and forfeited by Swiss authorities.

The Jews got back the money [in 2002] appropriated by these banks from Jews in the 1936-1945 period of Hitler’s dictatorship and mass deaths.

This could be accomplished by these countries by first exposing the corruption and the corrupt leaders of their countries and thereafter by tracking their corrupt wealth into the secret banks.

3. Recent Tunisian Example

Recently, private, but publicly motivated, citizens of Tunisia were able to freeze the ill-gotten wealth of its rulers and their fellow buccaneers in Swiss banks. The following report of Associated Press in Chicago Tribune is very instructive. [8]


BERNSwitzerland (AP) — Switzerland on Wednesday immediately froze assets linked to Tunisia’s ousted president and about 40 people in his entourage, as well as funds tied to the president of Ivory Coast, who is refusing to step down.

Swiss President and Foreign Minister MichelineCalmy-Rey announced the new measures targeting Tunisia’s former president, Zine El Abidine Ben Ali, who was ousted Friday by a popular revolt, and Ivory Coast incumbent leader Laurent Gbagbo, who refuses to cede power to the man who beat him in an election.

“The Federal Council wanted to act very quickly,” Calmy-Rey told a news conference in the Swiss capital. Calmy-Rey said she and the other six members of Switzerland’s governing federal council agreed the measures should encourage those two African nations to seek help from Western nations in putting together a possible criminal case against the leaders.

“These measures are aimed at encouraging the two countries to present requests for judicial assistance in a criminal matter,” said Calmy-Rey, whose post is a largely ceremonial one. “Switzerland wants to avoid our financial center being used to hide funds illegally.”

Switzerland is trying hard to shed its reputation as a favored location for “potentate” money because of its banking secrecy rules, and has set up an investigative unit to help track downhidden funds. The assets will be frozen for three years so the nations can prepare criminal cases.

Ben Ali fled Tunisia on Friday amid massive public protests — and Swiss officials estimate Tunisian government officials have put about $620 million into Swiss banks. It was not clear how many assets Gbagbo had in Switzerland. He recently sold a $15 million villa in Geneva and he might have had access to millions in assets belonging to the late former Ivory Coast president Felix Houphouet-Boigny. Swiss officials gave no concrete figure.

The Swiss government was acting under a constitutional measure because a new law affecting the seizure of assets doesn’t go into effect until Feb 1-2011. The government’s reforms over two decades have made it harder to hide money in Switzerland, and the country has become a world leader in returning such cash.


The examples of successful recovery of black monies by the powerful US and the less powerful other nations show that any country can do it, if it has the will and the determination to pursue its wealth secreted abroad. Such actions not only help recover the lost wealth but also act as a deterrent to generate black wealth in future. Viewed in this background the India emerges as a contrast to the trend in the world to hot pursue the black money. India is neither doing anything within India to expose and prosecute the corrupt and the offenders nor take geopolitical or legal steps outside to recover the black wealth of India stashed away abroad

4. Mubarak and others

The other recent example is that of Hosni Mubarak the deposed President of Egypt. As suggested by a Reuter report of 11th Feb 2011.

“Switzerland has frozen assets possibly belonging to Hosni Mubarak, who stepped down as president of Egypt on Friday after 30 years of rule, a spokesman for the foreign ministry said “[9]

Mubarak weathered 30 years of iron-fist rule, which relied heavily on Egypt’s emergency law. With today’s news that Mubarak resigns, it is uncertain what the 82-year old former head of Egypt will do. Stashing his cash in British and Swiss banks, rumors place Mubarak’s wealth at $70 billion.

Keeping the funds offshore ensured that monies would not be seized by Egypt’s military in the case of a coup. The fly in the ointment may be thedecision of Swiss Banks to freeze assets associated with Mubarak. [10]

In another report we find the estimated assets of Mubarak are $ 70 billion. It also give details of other leaders like Benazir Bhutto and Baby Doc Duvalier involved in keeping illegal money in Swiss accounts and how they were frozen.

Pakistan Opposition Leader Benazir Bhutto

Benazir Bhutto was opposed by former Prime Minister Nawaz Sharif, Al-Qaida, and the Taliban and Pakistani jihadist groups. She was eventually assassinated in 2007. Ten years prior to her death, Swiss Banks went ahead with a move to freeze assets belonging to Bhutto and her extended family at the request of Pakistan.

Haiti’s Jean-Claude “Baby Doc” Duvalier

Another customer of Swiss banking institutions, Jean-Claude Duvalier, saw frozen assets not once but twice. The most recent freeze occurred in February, 2011 when roughly $6 million were put on ice until further adjudication.

Another report suggests that the Swiss Banks have banned transfer of funds held by the Libyan dictator Gaddafi and his relatives. [11]


ZURICH, March 4 (Reuters) – Switzerland ratcheted up pressure on Libyan leader Muammar Gaddafi by banning transfers of money that could end up in the hands of his family and associates. Switzerland is working hard to improve its image as a haven for ill-gotten assets and in February the Swiss government froze assets of 29 Libyans linked to Gaddafi. It has also frozen any assets belonging to ousted Egyptian president Hosni Mubarak.

“Switzerland wants to prevent any financial support of Muammar Gaddafi and his circle,” the government said. It will also be forbidden to give people linked to Gaddafi direct or indirect access to money or economic resources, it added.


V. The Indian scene

When this issue came up before last general elections [April2009] to Parliament, the initial reaction of some of the leaders in the ruling establishment was outright denial of the issue. They even questioned the existence of such money.

But when the issue deepened with the progress of the campaign for the general elections and it became an important election issue with all opposition parties taking up the issue in a big way, the Ruling Congress-led UPA Alliance was also forced to admit that huge Indian black money had been stashed away abroad and the Chairman of the United Progressive Alliance Mrs. Sonia Gandhi committed in her address to her party workers meeting at Mangalore on April 27, 2009 that the UPA, if elected, would work to bring the black monies illegally stashed away by Indians abroad.

The Prime Minister Dr Man Mohan Singh also came out with similar undertaking to the people of India that the monies illegally stashed away abroad would be brought back.

Thus almost the entire political spectrum without exception – from the ruling UPA to the opposition NDA and all other opposition parties – has committed to the people of India to bring back the black money illegally stashed away abroad by Indians. So it is no more an exclusive issue of one party or another

The media has begun highlighting and pursuing the issue of black money stashed by Indians abroad as never before. With the stench of 2G spectrum scam and Commonwealth Games scam dominating of the national scene, the wealth stashed abroad is being increasingly linked to bribery and kickbacks. Added to these are the un-pursued and unresolved instances of Indian wealth stashed away abroad like the Hasan Ali case, Quattrocchi affair and the Lichtenstein Bank matter.

Indian black wealth abroad $500 billions, says Global Financial Integrity

The Global financial Integrity – a Non-profit research organization – working in the area of Tax Havens has estimated for India that the present value of illegal financial flows held abroad is nearly $500 Billions[12] Our GDP or national income[Nov 2010] at that time was nearly USD 1200 billons. And so nearly 40 % is outside as illegal wealth. At say 50 rupees to a USD-at that time- it comes to INR 25000 Billions.

So now there can be no dispute about the amount of Indian wealth stashed away abroad. GFI says that more than two-thirds of this amount has been stashed away after the liberalization of the Indian economy in 1990s. It means that those aspects of the liberalization policies, which must have facilitated this process, must be scrutinized as part of the preventive efforts needed to tackle the accumulation of Indian black wealth abroad on an ongoing basis.

Now let us look at what kind of black money from elsewhere is lodged in secret Swiss bank accounts. We saw that nearly one trillion out of 2.8 trillion of Swiss money –CHR—is black money says KonradHummler –The Chairman of the Swiss private Bankers Association. Julian Assange of Wiki leaks fame has told an Indian TV channel that Indians are largest investors in Swiss Banks.

That means out of 1 trillion USD [the Swiss Currency is nearly same as US Dollar] more than 50 % is owned by Indians. This alone comes to USD 500 billion. This is only Bank deposits. Then there are other exotic financial products offered by Swiss Banks –offshore also-where Indians are invested. Plus there are funds accumulated directly abroad through commissions in defense contracts [remember Bofors!] which is not going out of the country due to trade mis-pricing. This does not also include gems/diamonds/and other precious metals stored in safe boxes.

The International Narcotics Control Strategy Report –Money Laundering and Financial Crimes –March 2009—by US department of state suggests that 30-40 percent of the inflows may be by Hawala market –not accounted. During 2007-2008 according that report formal inflows were USD 42.6 billion and so 40 percent of this namely USD 18 Billion could be reflected as illegal “flows” not captured by the law. This sum could be paid for in rupees here but stored in tax havens abroad. This Hawala deals are for only one year.

Hence one can conclude that GFI estimate of USD 500 billion is a lower band and 1.5 trillion USD can be an upper band. That means it is between Rs.25 000 Bn and 75 000Bn [at 50 Rs per USD].

Not just tax evasion, but “theft” and “plunder” – says the Indian Supreme Court

But on the 19th of January-2011 [Wednesday] the Supreme Court of India made an historic observation about this shameful phenomenon of Indian funds kept illegally abroad and the obstructionist attitude of the Central Government in unraveling the truth. The Bench was observing on the Petition filed by Ram Jethmalani and others with reference to the illegal money kept by Indians in the Lichtenstein bank [13]


Describing black money stashed away abroad by Indians as “pure and simple theft of national money,” the Supreme Court on Wednesday questioned the Centre’s approach to tackling this menace and retrieving the huge amount kept in foreign banks.

When Solicitor-General GopalSubramaniam furnished in a sealed cover a list of 26 names who had accounts with Liechtenstein Bank, a Bench of Justices B. Sudershan Reddy and S.S. Nijjar was not convinced of the steps taken by the government for getting back black money.

Justice Reddy, after perusing the list, told the SG: “This is all the information you have or you have something more! We are talking about the huge money. It is a plunder of the nation. It is a pure and simple theft of the national money. We are talking about mind-boggling crime. We are not on niceties of various treaties.”

The Bench was hearing a petition filed by the former Union Law Minister, Ram Jethmalani, and others. Appearing for them, senior counsel Anil Divan earlier alleged inaction on the part of the Centre in bringing back black money parked in foreign banks.


The Supreme court in its wisdom has very correctly analyzed the malaise as the “plunder of the nation” and not a simple tax avoidance issue.

Bribes as important source of Indian black monies stashed abroad

Corruption in our country has a historical perspective of its own. As pointed out by the Supreme Court (State of MP vs. Ram Singh 2000 (5) SCC 88):


Corruption is termed as a plague, which is not only contagious but if not controlled, spreads like a fire in a jungle. Its virus is compared with HIV leading to AIDS, being incurable. It has also been termed as royal thievery. The sociopolitical system exposed to such a dreaded communicable disease is likely to crumble under its own weight. Corruption is opposed to democracy and social order, being not only anti-people, but aimed and targeted against them. It affects the economy and destroys the cultural heritage. Unless nipped in the bud at the earliest, it is likely to cause turbulence – shaking the socioeconomic- political system in an otherwise healthy, wealthy, and effective and vibrating society.


There are various categories of culprits. Some are traditional business leaders who have been accumulating money since the 50s; some are new rich entrepreneurs and politicians and bureaucrats who influence decision making for large global purchases. The third category is the money launderers for nefarious purposes including financing of terrorism.

There is a need to look at the larger issues of not only corruption but also the impact on our foreign exchange, inflation and interest rates due to these illegal funds stashed abroad. Had these funds been available to India, its foreign exchange situation would have been totally different and the exchange rates would also be very favorable to India.Groups would be more than willing tobring it back –already they aresuspected of doing this through theParticipatory Note process in the stockmarket.[14]

The returns in India are veryattractive and India is one of the fewcountries, which are growing at more than 9 per cent even in the midst of aglobal meltdown. Plus, the severeactions contemplated against the taxhavens by the OECD countries etc. willalso be a cause of concern for the Indianholders of illegal funds.

VI.The Tide May be turning against Tax Havens

Given the economic meltdown many developed countries like USA/Germany/France are after these tax havens and applying pressure to priss open the details regarding illicit wealth kept by its citizens in Tax Havens. Not only that they are using multi-lateral forums like EU/OECD/FATF/G8etc. to enhance transparency in the functioning of tax havens.

 Many of the developing countries including India are in the process of finalizing bi-lateral treaties with most of the tax havens regarding sharing of information. But these treaties are mainly prospective in nature and also do not provide for “fishing expedition”. Some of the jurisdictions still treat tax evasion as not a crime and hence it becomes difficult to gather information unless some criminal intent is established.

A recent report in India suggests the difficulties faced by emerging markets in this regard. It says that jurisdictions likeSwitzerland, United Arab Emirates (UAE), Hong Kong, Singapore, Samoa and Seychelles are some of the countries which have been requested to share information  but have not done so effectively. In fact, with Switzerland and UAE, India has tax agreements for sharing of information but it has not helped much.[15]


India to blacklist tax havens not sharing info.

If so, Switzerland, UAE, Hong Kong and Singapore will find it difficult to do business with Indians.

The government is considering blacklisting foreign jurisdictions not sharing information on money parked by Indians in their country, despite a tax information exchange agreement with India.

Blacklisted countries would find it difficult to do business with Indian citizens. Besides a higher tax burden, Indian taxpayers dealing with such jurisdictions would be disallowed deductions in respect of expenditure, allowance or payment made to a financial institution in that country.
Officials said Switzerland, United Arab Emirates (UAE), Hong Kong, Singapore, Samoa and Seychelles are some of the countries which have been requested to share information but have not done so effectively. In fact, with Switzerland and UAE, India has tax agreements for sharing of information but it has not helped much.

In Budget 2011-12, the finance ministry had inserted Section 94A in theIncome Tax Act to notify countries that were not cooperating in information exchange.

It said an Indian resident entering into transactions with such notified territories would be denied certain income tax benefits.While the provision came into effect from June 2011, the government did not notify the rules in this regard as it just wanted to use this provision “as a threat” and did not want to jeopardize India’s trading relations with any of those countries. It is now planning to notify the rules, within a week, and this may be seen as a precursor to blacklisting of one or two non-cooperating countries.

“We are expediting the notification of rules because a few countries may have to be notified as non-cooperating and blacklisted,” said a government official, who did not wish to be identified.

Another official said a small country might be blacklisted to send a signal but it would be difficult to take any action against important trading partners, like UAE, as it might spoil India’s relationship with the country. He added a political will was required to take action against a large country.

India’s trade with UAE constitutes 9.4 per cent of the country’s total trade. Switzerland and Singapore have 3.9 per cent and 2.7 per cent share in India’s total trade, respectively.

The trade with Seychelles is barely 0.01 per cent of total trade, while it is negligible with Samoa.

India is not the first country to have such blacklisting provisions. Some European countries like France too have it. There is a provision of all countries being blacklisted, unless they share information.

Recently, India approached half a dozen foreign jurisdictions, including Singapore, Samoa, British Virgin Islands, Cayman Islands and Cook Islands, for banking and other financial details of 500 individuals and entities that might have ‘secret offshore accounts’ at those places. The names and listed addresses of 505 India-linked entities were made public after a global expose on secret offshore accounts by US-based rights group, the International Consortium of Investigative Journalists.


VII.Developing countries should Care about Results

This leads to the issue of multilateral actions than bi-lateral treaties to exert pressure on tax havens. This is what has been suggested by Global Financial integrity and now the Financial transparency has been stressing for long.

There are issues like Automatic Tax information exchange; Country by Country reporting; disclosure of beneficial ownership using public registries etc. which affect emerging markets significantly and it is required for them look ahead for further steps. This has been summarized nicely by Ann Hollingshead [16]


Why Developing Countries Should Care About the G8 Summit

June 19, 2013 by Ann Hollingshead

The leaders of the world’s eight wealthiest economies have finished their meetings, headed home, and issued a final communiqué for the G8 summit in Lough Erne. And though emerging economies are not represented at the meetings[ Russia is an ambiguous exception].

There are plenty of reasons they should deeply care about what was said. In general, the G8 communiqué goes a long way to calling out important tax issues, but in particular understands the importance of tax in the context of mobilizing domestic resources, curtailing illicit financial flows, and promoting development.

And while the G8 did not go as far as they should have on some issues, they did make a fair number of important promises on tax and transparency to developing countries. Developing countries should take heed of these promises—and hold the G8 accountable to them.

Before I dive down into the specifics, I’ll start with a quote from the G8 communiqué that reiterates the importance of these ideas:

It’s in everyone’s interests for developing countries to be able to: strengthen their tax base to help create stable and sustainable states; improve their ability to fund their budgets through their own domestic revenues; and increase ownership of their own development processes.

This quote is significant. First, it acknowledges that the world is not a zero sum game. In the last few years, the world accepted that a less polarized global economic system, one in which all of the players drive economic demand and where wealth is more diffuse, would benefit everyone. That developing countries should grow their economies is not only in the interest of those in the developing world, but in the industrialized world, as well. Second, this quote draws a strong connection between development, sustainable economic growth, and taxes. In particular, it acknowledges the importance of mobilizing domestic resources in the context of economic development. It’s a simple idea that has gained a lot of traction in the last few years. I’m glad the G8 has paired these ideas together—and taken them as given.

To the end of development and capacity in tax collection, the 2013 Lough Erne G8 Leaders Communiquépoints to several issues—and makes several promises—with varying degrees of forcefulness. I outline these issues below, noting the next (concrete) steps we should watch for or take, and call out some actions developing countries should forge on these fronts.

Automatic Tax Information Exchange

G8 commitment. In light of the recent bilateral and multilateral, yet piecemeal approaches to this issue in the United States and Europe, the G8 has committed to “developing a single truly global model for multilateral and bilateral automatic tax information exchange building on existing systems.” The leaders go on to note that it is “important that all jurisdictions, including developing countries, benefit from this new standard in information exchange.”

Next steps. Expect the OECD to take over. To that end, the OECD has already released a reportoutlining four concrete steps to achieve a global, secure and cost-effective model of automatic exchange of information.

Developing countries should join the Convention on Mutual Administrative Assistance in Tax Matters, which is open to all countries and provides a legal basis for automatic exchange of information. They should also start looking for explicit and specific details on implementation—it’s time to move beyond generalities.

Country-by-Country Reporting

G8 commitment. Acknowledging the importance of ensuring that tax rules do not encourage multinational enterprises to “reduce overall taxes paid by artificially shifting profits to low-tax jurisdictions,” the G8 noted that “multinationals should report to tax authorities what they pay where.” The communiqué also agreed the best way to accomplish this is via “comprehensive and relevant information on the financial position of multinationals… in a standardized format focusing on high level information on the global allocation of profits and taxes paid.”

Next steps. Sadly, this commitment doesn’t really commit these countries to doing much of anything. Broadly speaking we can look to the OECD for a common template for country-by-country reporting to tax authorities. But to achieve real change, we need multinationals to publicly report revenues, profits, losses, taxes paid, and number of employees in each country where they operate. We’ll have to keep pushing.

Developing countries should be heartened by the G8′s acknowledgement that developing countries should be able “to secure the benefits and progress made on this agenda.” Unfortunately, they also remain exposed to risk from abusive transfer pricing and profit shifting.

Beneficial Ownership

G8 commitment. On generalities, the G8 hit the mark. In specifics, it fell flat. In the communiqué, the G8 leaders agreed that “a lack of knowledge about who ultimately controls, owns and profits from companies and legal arrangements, including trusts, not only assists those who seek to evade tax, but also those who seek to launder the proceeds of crime, often across borders.” But the G8 advocated achieving more transparency on this front with central registries, rather than public registries.

Next steps.The difference between central and public registries is immense. In the first case, this information would only be available to already resource- and cash-strapped law enforcement officials, who lack the capacity to effectively oversee and use this information. On other hand, public registries would allow citizens, journalists, and members of civil society to hold companies accountable for their actions. We’ll need world leaders–especially the Obama administration–to accept this difference and support public registries. For now, though, the ball on beneficial ownership is in the Financial Action Task Force’s (FATF) court.

Developing countries should go it alone, until further notice. They can, for example, follow the lead of the UK’s Financial Services Authority which reviewed the nation’s banks, looking to how well they deal with the risk of money laundering, and the threat to the financial system from corrupt money. Individually, they have the option of passing legislation that would require companies, trusts, and foundations to put information about their beneficial owners in the public domain.


It is important the G-8 considers the concerns of emerging markets and until and unless itis done the possibility of leaks of beneficial owners of tax haven accounts gets increased as it is indicated by the disclosure by International Consortium of Investigative Journalists [ICIJ]


It is important that emerging markets learn from the way developed countries are dealing with tax havens. Along with EU and G8 it is required for emerging markets to stress on a multi-lateral frame work regarding the Tax havens, They need to focus on

  1. Automatic Tax Information Exchange
  2. Country-by-Country Reporting
  3. Beneficial Ownership

They can form a joint body like G8 exclusively for the issue of tax havens since for emerging markets the issues are not just tax evasion but also illicit wealth accumulation by dictators in the tax haven jurisdictions. The money belongs to poor people of respective countries.

They should also use fully the information getting spread by the investigations of International Consortium of Investigative Journalists [ ICIJ] to explore avenues to get back illicit money stored in these tax havens.

The important question is whether leaders in the emerging markets have the political will to act since some of these leaders themselves are suspect. But the sustained efforts of some of the EU members and social agencies like Financial Transparency Coalition [ formerly known as Task Force on Financial Integrity and Economic Development] ; Global Financial integrity etc. may yield results in at least having more transparency. In that Emerging markets will have collateral benefits. Any which way slowly and steadily it is recognized that the global financial architecture needs to be re-cast and the role of secretive financial jurisdiction or tax havens is reduced in the scheme of things.




2. Raymond W Baker: Capitalism’s Achilles Heel— Dirty Money and how to renew the free

market system— page 36 John Wiley & sons Inc NJ -2005

3. Nicholas Shaxson –Treasure islands- Tax heavens and the men who stole the world: Page 8;

The Bodley Head London 2011.


Author: EJ Fagan–is a communications intern at Global Financial Integrity and Wealth

Bulletin, on the recently released IMF study: Cross-Border Investment in Small International

Financial Centers (via Richard Murphy)


6. Users of Tax Havens beaten by Political Gale– New York Times 26th Feb 1961—quoted

in Nicholas Shaxson –op cit

7. R. Vaidyanathan Get Back the Money Illegally Held abroad–Eternal India April 2009 –New


8. frozen-

assets, 0, 5236590.story

9. idUSLDE71A20X20110211

10.Swiss Banks Again Freeze Assets; Target: Hosni Mubarak

11.Swiss ban financial transfers to Gaddafi clan libya-idUKLDE7231NR20110304








Note: This is a modified—abridged- version of the paper presented at 17th Asia Pacific Risk and Insurance Conference held at New York towards end July 2013



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