Unearthing of illegal funds is time consuming

Can government ever find out black money deposited by Indians in foreign banks, particularly in Switzerland? Judging by records of the past governments, one wonders if Modi government can perform a feat- unearth back money stashed in foreign banks. Making election promises is one thing and fulfilling them is another thing. One of the main electoral promise of Narendra Modi was to unearth black money and reveal names of culprits  and that too within 100 days of occupying office. On its first day in power, the BJP-led government did announce the formation of a Special Investigation Team (SIT) on black money but, gradually got bogged down in procedural and legal wrangling.

As of now the matter is before the Supreme Court with the apex court thwarting fresh attempts by Modi government to go slow on black money probe. Rapped by the apex court, government has submitted in a sealed cover names of 627 Indians holding accounts in foreign banks. There are only 350-odd residents of India against whom action has been initiated, others are NRIs who enjoy immunity from Indian tax laws.

Information on the 267 individuals had already been given in June to SIT set up by Supreme Court to probe black money cases. Apex court says only the SIT chairman will open the covers. SIT Chief, Justice M B Shah says that list is ‘same as before’ and that there is no new information.

What is the reality? Thousands of Indians go abroad each year to study and work and almost every one of them opens a bank account overseas. Thus merely having a bank account abroad is neither illegal nor is a sign of tax evasion. RBI general provisions were modified in 2004 to allow Indians not just to have accounts abroad but also to remit money from India to that overseas account. The current limit is $1,25,000 per person per annum. Therefore, this business of naming and shaming by revealing all the names of foreign account holders is at best puerile and at worst stupid.

There is lot of black money in Switzerland. Swiss banks and most tax havens actually pay very poor rates of interest on deposits, often 1-2 per cent. Thus they are often merely temporary holding places before money managers move the money to assets offering more attractive returns, such as real estate with returns of 15-20 per cent. Thus a lot of black money actually comes back into India through what is called ‘round tripping’.

These obstacles cast some light on why bringing back black money will be a slow, long process, not an overnight affairs. What government can do is to crack down on two types of individuals. First, those tax-payers who exploit secret laws of off-shore jurisdictions in an attempt to conceal assets and income subject to tax in India. 

They usually use abusive schemes which set up a deceptive non-resident entity as the owner of assets and income tax. Second, income generated from illegal activities- global terror business, drug running, arms dealing, Hawala transactions, to name just a few.

Between the two. the second is infinitely more harmful to India and Indians and these names, if available, with at least prima facie evidence should be made public without any delay. 

Retrieving black money depends as much on international actions and co-operation among sovereign nations as it does on creditable action at home. Government can begin by starting prosecution against those whom it has evidence.

The black money story has been going on for nearly 23 years, since a Swiss magazine named the then prime minister Rajiv Gandhi as one of 14 politicians with Swiss bank accounts. Since then it has been going on with successive governments promising to bring back the black money but no one could succeed yet.

In the year 2006, a disgruntled Geneva-based HSBC Private Bank employee, Herve Falciani, collected details of customers. In 2008, being pursued by Swiss authorities for data theft, he escaped to France and handed over the data to the authorities there. The list submitted by him names 628 Indians. In February 2011, the BJP-led NDA released a book titled- ‘Indian Black Money Abroad in Secret Banks and Tax havens’.

In June 2011, the then Prime Minister Manmohan Singh said all possible steps are being taken to bring black money back. 

In the same month, France handed over the list of 628 Indians to India. In November 2011 at G20 summit, India committed to activate participation in the global fight against black money and said it would sign the Convention on Mutual Administrative Assistance in Tax Matters that deals with sharing information.

In January 2013, Indian government and HSBC devised a consent waver scheme to get Swiss secrecy laws. Waivers were obtained in 174 cases, and HSBC handed over details for 75. In November, same year, BJP’s prime ministerial nominee Narendra Modi promised to bring back money stashed abroad. 

In February, 2014, Prime Minister Manmohan Singh said his government would sit with political parties to discuss ways to deal with the black money problem. In March the Congress election manifesto said the party will appoint a special envoy to track down and recover black money. 

In April this year, the BJP suggested setting up a task force to retrieve black money. In May during the elections, Swiss envoy said his country could not share details on HSBC list as it comprised stolen data.  On the first day in power, Modi government announced the formation of an SIT on black money. How long till he gets something substantial done on it?