The trail of illicit funds

In this photo taken on Nov. 17, 2010, Indian Rupee notes of different denomination lie inside the cash counter of a retail shop in Mumbai, India. India has lost hundreds of billions of dollars over the past six decades as companies and the rich stashed cash overseas to avoid taxes and hide ill-gotten gains, widening inequality and depriving the poor of crucial resources, a new report showed. (AP Photo/Rajanish Kakade)   | Photo Credit: Rajanish Kakade

On July 4, 2011, the Supreme Court (a bench comprising Justice B. Sudershan Reddy and Justice S.S. Nijjar) delivered a judgment relating to illicit money stashed in foreign tax havens. This judgment has since then received both bouquets and brickbats. An astute well-wisher suggested an article setting out the facts, and only the cardinal facts, which would dissipate the fog caused by disinformation and misapprehension, to enable the public to form an independent judgment. Justice P.N. Bhagwati, after quoting with approval James Madison, who said that “knowledge will forever govern ignorance and a people who mean to be their own governors must arm themselves with the power knowledge gives,” had added: “The citizens' right to know the facts, the true facts, is thus one of the pillars of a democratic state.”

It is essential for readers to know that this author throughout appeared ‘pro bono' for the petitioners in that case. The petition, based on an article by Professor R. Vaidyanathan, was filed by Ram Jethmalani, MP; Gopal Sharman and Jalabala Vaidya, actors and theatre personalities; K.P.S. Gill, a former Director General of Police of Punjab; Professor B.B. Dutta, a former Congress MP; and Subhash Kashyap, a former Secretary General of the Lok Sabha.

The petitioners' case

The petition averred that according to the Global Financial Integrity Report, the estimated amount of illicit Indian money stashed abroad equals $1.4 trillion (equivalent to 70 lakh crore — the figure ‘7' with 13 zeroes); that the U.S. government had taken vigorous steps against the Swiss bank, UBS, and as a result it agreed to pay $780 million in fines under a “Deferred Prosecution Agreement”; that Hassan Ali Khan was alleged to have deposited over $8 billion with UBS in Zurich and the Income Tax demand against him was over Rs.40,000 crore; and that the German government had offered to give free of charge to any government the names of its nationals who have accounts with LGT Bank Liechtenstein (an independent European country). It further stated that “the colossal failure to enforce the law and get back the stolen property of the Indian nation is due to the fact that influential politicians in most of the political parties are involved in the offences in question” and that “the Indian people have been deprived of assets which if available would substantially contribute to developmental work in India.” Appropriate orders from time to time were prayed for to ensure a proper investigation.

Government's case

The government contended that it was taking active initiatives with the G20 countries to bring about greater transparency and disclosure of information by tax havens including Switzerland by renegotiating agreements. It said that the information that had come from Germany regarding LGT Liechtenstein bank accounts was confidential under the Double Taxation Avoidance Agreement (DTAA) with Germany. Also, the ‘nodal agency' as directed by the Supreme Court in the Vineet Narain Case based on the N.N. Vohra Committee Report to coordinate action into cases of politico-bureaucrat-criminal nexus was “currently functional;” the petitioners were not acting in a bona fide manner. According to the Additional Solicitor General, “the situation is totally under control” ( The Hindu, April 23, 2009). They wanted the petition to be summarily dismissed.

Undisputed or admitted facts

It was admitted that a tax demand of Rs.71,848.59 crore was made against Hassan Ali Khan and his wife; that he was accused of unauthorised dealings to the extent of $8 billion; that in view of the fact that no criminal case was pending against Mr. Ali Khan, recourse could not be taken to the Mutual Legal Assistance Treaty in criminal matters (between the Indian and Swiss governments) and thus no headway could be made at that time; that he was accused of having fraudulently obtained multiple Indian passports; that a criminal case was registered on January 8, 2007 against him and his wife for money laundering, in respect of which the letters rogatory issued in July 2009 to several countries stated that “the documents procured during investigation point towards amassing of huge funds suspected to be proceeds of crime, which have been invested in various immovable and movable assets including deposits in various banks in a number of countries around the world by resorting to the illegal process of money laundering. It further transpired that they had close relation with Adnan Khashoggi and funds deposited in the account are the proceeds from weapon sales.”

Petitioners' response

In a series of written submissions, the petitioners posed several questions. Why was the source of money of such large amounts, for which an Income Tax notice raising a demand of Rs. 71,848 crore was made, not being investigated? Why was Hassan Ali Khan not custodially interrogated after arrest? Why were investigations not undertaken to ascertain whether Hassan Ali Khan is a benamidar for powerful individuals? Why was nobody apprehended or interrogated in the last five years in relation to money laundering and slush funds parked abroad? Why was the Mutual Legal Assistance Treaty in criminal matters with Switzerland not invoked after a criminal investigation started? It was argued that a new protocol of 2010 with Switzerland for exchange of information would apply only to prospective information and not to past information regarding transactions and accounts in Swiss banks. This amounted to shielding wrongdoers.

Crucial hearings

After Chief Justice K.G. Balakrishnan's retirement in May 2010, the matter gathered speed. On January 19, 2011, after perusing the confidential report/affidavit given by the respondents, the court described the money stashed abroad in foreign banks as “pure and simple theft” — “plunder of the nation” ( The Hindu, January 20, 2011). On March 3, 2011, the court after reading the status report and the letters rogatory, remarked: “What the hell is going on in this country?” ( The Hindu, March 4, 2011). The court was “deeply disturbed by the ongoing investigation,” and remarked that Khan's questioning was done at his convenience with investigating officials putting off meetings at his behest. The court observed: “It is like a friendly chat. Why the custodial interrogation is not there?” ( The Times of India, March 4, 2011). Only thereafter, Hassan Ali Khan and his wife were arrested on March 6/7, 2011 and custodially interrogated.

On March 8, 2011, the Solicitor General acknowledged that the concern expressed by the court was fully justified. This was widely reported ( The Hindu, March 9, 2011). On April 25, 2011, the government produced a notification dated April 22, 2011 constituting a high-level committee of 10 officials and argued that there was now no need to set up a Special Investigating Team.

The petitioners responded in writing that this was merely a ruse and a façade to keep total and exclusive control over all investigations by bureaucrats and officials who are subservient to the political executive and cannot take action against them. The ‘nodal agency' was never consulted, though four of its members were included in the high-level committee. The petitioners pressed for an independent monitoring group/team to act as the court's ‘eyes and ears' as it was not possible for the court to monitor the case on a day-to-day basis.

What the judgment directs

The judgment retains the officials in the high-level committee as part of the Special Investigating Team, but adds two distinguished former judges of the Supreme Court, Justice B.P. Jeevan Reddy and Justice M.B. Shah, as chairman and vice-chairman respectively. The Director of Research and Analysis Wing (RAW) has been added as a member. The court also directs disclosure of names of Indians holding accounts in LGT Bank Liechtenstein, with safeguards.

The following is a summation. First, Hassan Ali Khan and his wife were not custodially interrogated for about four years and the Swiss authorities were not approached under the Mutual Assistance Treaty in criminal matters with Switzerland. Secondly, the nodal agency, that was “functional” since 1998, was not consulted. Thirdly, not a single person was brought to book in respect of foreign money stashed abroad, involving issues of arms-dealing, corruption and national security. Fourthly, the government had refused to disclose the names of the Liechtenstein account holders citing the DTAA with Germany, which had no application to Liechtenstein.

The attitude and inaction of the government are for every Indian to judge.

Noting the involvement of Hassan Ali and Baba Ramdev in the black money controversy, a friend asked: “You have Ali Baba. When are you catching the forty thieves?”

(Anil Divan is a Senior Advocate, and the president of the Bar Association of India. e-mail: abdsad@airtelmail.in)

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