Black money trail spreads to island nations from Swiss Alps

As India expands its probe into suspected black money stashed abroad, the trail appears to have gone much beyond the Alpine mountain ranges of Switzerland to various island nations and global financial centres like Dubai, Singapore, Luxembourg and Cyprus.

While Switzerland has agreed to cooperate and share details in cases where probe by Indian authorities have independently shown 'tax crimes' prima facie, ‘a few cases’ where such information exchange is taking place involve entities and transactions much beyond Swiss shores.

While exact number of these ‘few cases’ could not be ascertained, sources said that the ongoing cooperation between Swiss and Indian authorities is generating many more leads for further investigations and they suggest routing of funds through various other jurisdictions that range from well- established financial centres like Dubai, Singapore and Luxembourg to numerous small island nations.

India is strengthening its bilateral tax information exchange treaties with many such jurisdictions, but a further push might be required for 'technical assistance'.

While Switzerland has been the focus of India's fight against suspected black money stashed abroad, investigations into various cases show large-scale instances of illicit funds having been channelised abroad through other locations too.

A number of island nations in Caribbean and other parts of the world figure among such locations. India has also signed information exchange pacts on tax matters with a number of such locations including Saint Kitts & Nevis, Bahamas, Bermuda, Liechtenstein, Gibraltar, British Virgin Islands, Isle of Man, Cayman Islands, Jersey, Macau, Liberia, Argentina, Guernsey and Monaco, among others.

A Special Investigation Team is currently looking into the black money issue, including the cases related to untaxed money stashed abroad by Indians.

In one of its reports recently submitted to the government, the SIT, however, observed that absence of legal treaties between India and tax haven nations is one of the major impediments in initiating steps to bring back illegal funds stashed abroad by Indians.

The role of some banks, including those outside Switzerland, has also come under scanner for acting in concert with the suspected black money hoarders and also for making 'safe haven' promises for their funds.

The suspected lapses on the part of these banks are also being probed for allegedly facilitating re-routing funds of certain Indian corporate houses back into their listed companies as foreign investments.

Such transactions are suspected to have taken place in case of 15-20 Indian companies, a senior official said, but refused to disclose their names as also that of the banks saying it might impede the investigations. Some portfolio managers at these banks, which have a significant presence in the Indian financial markets, are suspected to have helped clients route money back into the country as foreign funds using investment vehicles across jurisdictions.

The banks are also said to be lobbying with their respective governments that they should ask the Indian authorities to put in place a 'settlement' mechanism to deal with the suspected entities, including the banks and their customers, before seeking any assistance in its black money probe.

On the other hand, some banks are said to be advising their clients to use various 'layering' methods, including by way of share market and export-import routes, to move funds from Switzerland to other locations including India.

Other risk-wary banks are, however, have turned cautious about dealing with their Indian clients in the wake of a growing scrutiny of such accounts, as a huge public outcry has made even genuine Swiss bank accounts look like suspicious.

Some banks are also telling their Indian clients to sign undertakings that are aimed at 'derisking' the banking institutions from potential risks arising out of regulatory actions against the bank customers by foreign governments.

These banks are also asking clients to close their accounts if they are not ready to take such risks, or if they have apprehensions about such accounts not being compliant to regulatory requirements in their home countries.

Through these 'derisking' undertakings, the customer agrees to take responsibility for any possible regulatory or administrative compliance with international norms.

Following a high-level delegation visit from India, Switzerland last month agreed to cooperate on matters related to verification of genuineness of accounts and reply to requests for banking account details in a time-bound manner, and also to initiate a process to include India among the countries eligible for 'automatic exchange of information'.

Under this new agreement, Switzerland has also promised to assist Indian authorities on a priority basis.

There has been a huge political uproar over Indian black money allegedly stashed in Swiss banks and the new government has said it is committed to tackling this menace.