Millennium Post

The Commodore Papers

A large tranche of recently leaked documents show how the SBI was repeatedly pressured by the government to expedite sale of electoral bearer bonds in as many branches as possible in its rush to lap up political funding through the controversially opaque method of poll financing

The State Bank of India sold 12,313 Electoral Bearer Bonds (EBB) worth Rs 6,128 cr from the moment the scheme was started in March 2018 to October this year. While there are numbers that show what proportion of these bonds were donated to respective political parties, based on a comparison of their accounts and the number of EBBs sold; the mystery remains as to which corporations and interest groups have donated to which political party. Of course, this is no mystery for the Bharatiya Janata Party government - by its own design.

When the then Finance Minister Arun Jaitley announced his government's plans to introduce a new instrument for electoral funding - the Electoral Bearer Bonds - he had made tall claims of how these bearer instruments would clean up poll funding in India, which has largely relied upon large cash donations, that left no paper trail until that point. But what he did not mention was that the new scheme would just legalise anonymous political funding and that only the government of the day would know which individual/group had funded which political party.

As the political drama in Maharashtra was entering its peak, a large tranche of documents was leaked through a leading news website, which exposed how the BJP-government rushed through the entire process to get the EBB Scheme implemented expeditiously and ignored the serious concerns flagged by the Reserve Bank of India, the Election Commission of India and several opposition parties. The papers came to be known as 'The Commodore Papers' after Commodore Lokesh Batra (Retd), a transparency activist who had over two years gathered these documents through dogged RTI filings.

The journalist who first published the contents of these documents later released the entirety of 'The Commodore Papers' in the public domain, in what he said was in the public interest and the "spirit of the law".

Pressurising SBI

The documents, which have been reviewed by Millennium Post, now show a pattern of hounding that the Central government employed with the State Bank of India (SBI), the only bank authorised to sell these poll-funding instruments. Correspondence between the Ministry of Finance and the SBI has now revealed the government kept pressurising the bank to make sure the EBBs are sold from all 53 notified branches as soon as possible.

Right after the SBI had reluctantly accepted a direct request from the Prime Minister's Office to open a special and additional window of sale between May 1 and May 10 of 2018, interestingly in the run-up to the Assembly polls in Karnataka, which was due in the same month; the SBI had written to the Finance Ministry citing reasons for reducing the number of branches from where the EBBs were sold.

In its communication to the Ministry on April 23, the bank had noted that the second phase of the bond sales had shown EBBs being purchased at only five out of the 11 branches from where the sale was authorised between April 2 to April 10. As a result, the SBI had asked that the number of authorised branches for EBB sales be reduced for the special window of sale which was to begin on May 1.

However, notings in Ministry files show a hand-written note by then Joint Secretary (Budget) which rejects the bank's request to reduce the number of authorised branches for sale, citing that it was "too early to draw any conclusions" from SBI's sale records of the second phase. The note goes on to say: "We should rather try to expand it to all branches as per our notification." Duly, the special window was opened and SBI sold EBBs through the 11 authorised branches as in the earlier phase.

But right before the fourth sale window was to be opened from July 2 to July 11, the Ministry of Finance had reviewed a draft press release from the SBI announcing the opening of the window, which said 11 authorised branches across the country would be selling the bonds. In response to this, the Ministry wrote to the Transaction Banking Unit (TBU) of SBI on June 27, asking it to "make suitable arrangements to include all the remaining states/UTs of the country" and issue a "modified" draft press release announcing the fourth sale window.

A General Manager of the TBU had responded to this letter via email on June 28, saying that they would not be able to expand the sales to all the 53 branches because of "too short" of a time before the fourth phase would be opened. She had also noted that it "was a big challenge" for the bank given the nature of the transactions, training officials, delivery of stationery and the bonds themselves. The bank, however, conceded to expanding its sales by the fifth phase scheduled in October of 2018. The Ministry reluctantly accepted SBI's request, with officials noting that "SBI must get ready" to expand its sales for the next edition in October.

And before the fifth window was opened, SBI duly notified the Ministry on July 30 that they would be expanding sales to 29 branches, which would cover all 36 states and UTs (at the time). Following this, the Ministry shot off two letters to the TBU – one on August 16 and the other on August 21, asking the bank to include all 53 branches as per the government notification and issue a draft press release accordingly.

This time the SBI responded to the Ministry on August 28 and noted once again that the sale data so far did not correspond to the "large operational expenses and logistical issues" that would arise out of authorising all 53 branches for sale of the electoral bonds. While the Budget division, which was handling the EBB Scheme, talked about discussing a method for expanding sales to all branches, the Ministry eventually accepted the bank's request and decided to pursue this matter for the next tranche scheduled for sale in January 2019.

Overlooked concerns

In case the government's rush to implement the electoral bond scheme was not apparent yet, the Commodore Papers go on to reveal that before the government introduced the Electoral Bearer Bond Scheme in January 2018, the Reserve Bank of India, the Election Commission of India, and several opposition parties flagged serious concerns about the nature of this new instrument – which by its name itself is opaque.

The first concern the RBI had flagged was precisely the nature of these instruments being 'bearer'. The entire Mossack Fonseca operation that was run in secrecy for more than three decades – laundering money for some of the most powerful criminals, politicians and businessmen of the world – ran on bearer instruments. The Panamian law firm would create shell companies and issue bearer shares to the beneficial owner. The bearer shares had one objective – anonymity for the beneficial owner.

The RBI had on January 30, 2017, written to the Department of Economic Affairs, raising these concerns. It said the move would allow multiple, non-sovereign entities to issue bearer instruments, thereby "militating" the RBI's sole authority as the issuer of bearer instruments. It had also noted that because bearer instruments are transferrable by delivery, the intended objective of transparency may not be achievable.

Besides, the RBI had also observed that this scheme, by nature of its proposal of anonymity, might also end up affecting the principles and spirit of the Prevention of Money Laundering Act. Moreover, the RBI noted that the intended objective of using such bonds for political donations could be achieved through existing instruments such as cheques, demand drafts or electronic mode of payment. "There is no special need for, or advantage by, the creation of an Electoral Bearer Bond, that too by disturbing an established international practice," the letter said.

The RBI was responding to an email from the Finance Ministry asking for observations on the proposed amendments to the RBI Act, which would be necessary for introducing the EBB Scheme. The Reserve Bank had strongly opposed the addition of a clause to Section 31 of the Act, which allowed the Central government to authorise any bank to issue electoral bonds.

Soon after the Finance Ministry dismissed the RBI's concerns, it received a letter from the Election Commission of India on May 26, 2017, concerning the proposed amendments to the Representation of People Act, Income Tax Act and Companies Act, which would be required for the EBB's implementation. The ECI said taking EBB donations out of the ambit of reporting under the Contribution Report is a "retrograde step as far as transparency of donations is concerned and this proviso needs to be withdrawn".

The ECI also noted that the proposed changes to the Companies Act, allowing companies to donate any amount of their profits to political parties, specifically opens up

the possibility of "shell companies being set up for the sole purpose of making donations to political parties, with no other business of consequence having disbursable profits."

Donor anonymity?

While the sole purpose of bringing the EBB Scheme was to make sure only tax-paid money comes into political funding and ensure total anonymity of donors; two queries remained: Are donors really anonymous? And why the need for anonymity? The first question has of course been answered, time and again, by journalists who discovered that the bonds have a unique identification number printed in fugitive ink. The Quint had first reported that the bonds have a "hidden number" embedded, which appear under UV light.

However, what has now been revealed is that the entire nature of the scheme had forced the SBI to recommend embedding the secret numbers: if not for anything else, but for logistical and security purposes.

Finance Ministry correspondence revealed that when the bank had made these recommendations, the government had first rejected it saying it defeated the intended purpose of donor anonymity, but later accepted it saying that the identification can be used by enforcement agencies – under the Centre's control – as and when required.

In multiple Ministry files, the government tells stakeholders that the identification numbers can be accessed by law enforcement agencies during an investigation. The minutes of a meeting to discuss security features for the bearer bonds at the Security Printing

and Minting Corporation of India Limited (SPMCIL) further show that it was decided to use "invisible fluorescent ink... for printing numbers, which fluoresces under UV light".

Coming to the second question as to why donor anonymity was required in the first place, the Commodore Papers show an anonymous, unmarked and undated note in the Finance Ministry files, which mentions the need to keep identities of donors secret - "to protect them from rival political parties". Secondly, the government has claimed that donors had expressed their wish to make political donations anonymously and the scheme was brought in to facilitate that.

But another RTI reply from the Department of Economic Affairs shows that: "No representation or petition or communication has been received from the donors, regarding the need for maintaining confidentiality of their identity while making donations to political parties."

The only mention of the "need for anonymity" is in a letter written to the Finance Minister's office on August 17, 2017 from the General Secretary of the Bharatiya Janata Party, which says: "Many companies have been unable to join the political funding process because of their fear of disclosure of their identities..."

With just the declared list of donors of the ruling BJP including loan-defaulting companies like Videocon Industries and companies which are being investigated on charges of alleged money-laundering and possibly of terror-financing like the DHFL Group and RKW Developers; it is anybody's guess as to which companies have now been able to donate to the ruling party through the opaque EBBs.

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