Fifty shades of black money

There is a lot of talk of bringing back black money stashed away in different tax havens abroad. The ruling Bharatiya Janata Party had made it a campaign issue for the Lok Sabha elections. The party had accused the previous Congress-led government of a lax approach towards retrieving black money, which according to its estimate ranges between $500 billion and $1,400 billion. A study by Global Financial Integrity put the current value of illicit money outflow at  $462 billion.

The previous government said in Parliament that the CBI Director’s statement on $500 billion of illegal money was an estimate based on a statement made to Supreme Court in July 2011. Some reports claim a total of $1.4 trillion stashed away in Swiss banks. However, the Swiss Bankers’ Association and the government have denied these reports, calling them “false and fabricated”.

Clearly, there are no definitive figures available. The BJP had earlier accused the Congress-led government about its inability to bring back the black money, while smaller countries like Vietnam and South Korea took firm steps to recover wealth that escaped their authorities.

If one looks back into history, questions arise about what governments, past and the present, had done to bring back the known amount of money stashed in the Royal Bank of Scotland approximately 66 years ago? The amount is estimated to be GBP 30 million or over Rs 3 billion. The amount dates back to the time of Independence, when the seventh and the last Nizam of Hyderabad’s finance minister Moin Nawaz Jung transferred 10,07,940 pound sterling and nine shillings in the name of the then Pakistan High Commissioner in London HI Rahimtoola in the National Westminster Bank, now called the Royal Bank of Scotland. Including the interest earned on the deposit, the amount now is estimated to be over GBP 30 million or Rs 3 billion.

India had raised objection to the transfer saying the Nizam was not an independent ruler and prevailed upon the bank to freeze the account. Since then, however, the status quo remains.
The United Kingdom’s House of Lords had later ruled that the account can only be unfrozen, though an agreement between three parties - India, Pakistan and Nizam’s heirs. However, the amount deposited in the Royal Bank of Scotland has no will or trust deed.

The cultural advisor to the Nizam’s Trust, Muhammad Safiullah had estimated in 2008 that Nizam’s heirs may get 20% of the money, while the Indian government will receive a major share. The last Nizam of Hyderabad had 18 daughters and 16 sons, of which two sons and three daughters are still alive, besides the presence of 104 grandchildren.

The Nizam had refused to accede to India after the country attained Independence from British rule
in 1947. He wanted Hyderabad to remain as an independent princely state or join Pakistan. However in September 1948, Hyderabad had to join the Indian Union after an operation by Indian security forces. Nizam, who was known as the richest man of his times, also financed Pakistan’s first national budget.

In 2008 the UPA government, through a Cabinet decision, decided to pursue for an out-of-the court settlement. The Nizam’s descendants met then Prime Minister Dr Manmohan Singh and Finance Minister Pranab Mukherjee. In fact Mukherjee had gone to Islamabad in 2008 and offered a settlement on the issue. But the dialogue process was soon derailed after the 26/11 terror attack in Mumbai. After briefly reviving diplomatic channels earlier this year, the dialogue process was once again derailed after the Pakistani High Commissioner in India met the Kashmiri Hurriyat leaders just before foreign secretary level talks were slated to be resumed in Islamabad. Thus the matter still remains unresolved.

Despite raising such a hue and cry over the failure of past governments to bring back unaccounted money, it has not yet made any  effort to bring back wealth, stashed away by the Nizam in the Royal Bank of Scotland.

Of course Prime Minister Narendra Modi made some effort to set up a Special Investigation Team (SIT) to trace black money at the instance of the Supreme Court. He raised the issue of black money on the margins of G20 summit in Brisbane. The G20 Leaders’ Communiqué noted some transparency in tackling the menace of black money like dealing with base erosion and profit shifting (BEPS) of multinational companies by deciding that “profits should be taxed where economic activities deriving the profits are performed and where value is created.” The leaders committed to finalising the work in 2015, including transparency of taxpayer-specific rulings found to constitute harmful tax practices. They welcomed the progress being made on taxation of patent boxes.

The G20 leaders also decided to begin a global common reporting standard for automatic exchange of tax information (AEOI) on reciprocal basis by 2017, subject to completing necessary legislative procedures.

The government has received some initial information of about 800 account holders with HSBC and working on ways to conclude the matter. With an eye on the future, the government is planning to modify the Double Taxation Avoidance Agreements and other such agreements inked with several countries, so as to make bring about greater disclosure. It is also mulling new such agreements, where transparency could be enhanced.

But what is needed immediately is to take up the issue of known quantum of wealth stashed away in the Royal Bank of Scotland by the erstwhile Nizam’s finance minister. The amount is substantial at 30 million pounds or Rs 3 billion. The government’s coffer stands to gain substantially, as this wealth rightly belongs to the Indian government after the merger of the princely state. IPA
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