Black money: pinning the shadow down

The steps taken so far, and this includes the Black Money Bill, to bring back an estimated $1.5 trillion stashed abroad are completely ineffective. There are better and stronger solutions available

June 08, 2015 01:06 am | Updated May 23, 2016 07:10 pm IST

Illustration: Satwik Gade

Illustration: Satwik Gade

Recently, on the suggestion of the eminent lawyer, Ram Jethmalani, the Chief Justice of the Supreme Court allowed me to lead arguments on the effective steps to be taken to bring back black money, or undisclosed illegally held funds, estimated at Rs.120 lakh crore, stashed secretly abroad by Indians in numbered bank accounts. This amount is about 60 times the annual revenue from income tax in the Union Budget.

The media had reported during the 2014 Lok Sabha election, possibly with the usual dose of interpolation and dramatisation, that Prime Minister Narendra Modi had pledged in election speeches to bring back to the country all this black money. According to these reports, Mr. Modi had said the money belonged to the nation, and every citizen would receive Rs.15 lakh in his or her bank account when the money came in.

When or where Mr. Modi said this is not clear, but the nation, convinced after his speech that this would be done, now holds the government led by the Bharatiya Janata Party (BJP) responsible for having failed to keep this promise.

It is a fact that despite the Modi government setting up, soon after coming to office, a Special Investigation Team under two former Supreme Court judges, there is no sign yet of black money having being brought back.

Does this mean that the BJP had underestimated the reality and complexity of the issue and that there are no quick fixes for retrieving the black money back? To understand this, it is important to recognise why eliminating black money is crucial to the nation’s strategy for high growth.

The black money issue should not be misunderstood as one of merely avoiding taxes. It is, in fact, a major systemic crime of denying the nation’s financial system the proceeds of wealth. Such denial should actually be declared as treason, where opportunities to share the wealth for the benefit of the poor are wilfully denied.

The spreading cancer

Black money is a cancer in our economic system, not yet terminal or life-threatening. But we do not have much time left, possibly only a decade, before the economic system starts to unravel and contort.

There are three dimensions to this cancer. First, there is a distortion of investment priorities because acquiring luxuries with black money favours high-level investment in the luxury goods industries — there is a higher rate of return on investment. This is similar to the cellular disorder in the body of a cancer patient.

Second, forward trading in agricultural commodities by cash-rich speculators causes fluctuations in prices due to hoarding of agricultural products.

Third, generating black money with impunity means that the quality is sub-optimised in public sector infrastructural projects by tender manipulation, under- and over-invoicing in trade, and so on. The so-called Black Money Bill of 2015, passed recently by Parliament, is inadequate to secure the return of an estimated $1.5 trillion deposited illegally abroad by Indian citizens in about 90 countries.

The statute is structured in a way that will ensure punishment for black money hoarders once the money is detected or admitted for amnesty, but has no provisions on how to bring back the money itself.

Taking the right steps

There are four ways by which the names and accounts that are illegally held abroad can be ascertained, and the money stashed away brought back.

First, the Central Bureau of Investigation/Enforcement Directorate can register a First Information Report on the receipt of information of illegal accounts through Intelligence sources, and then obtain a Letter of Request u/s 166A of the Criminal Procedure Code (1973) from a designated court. Then, the agency can use Switzerland’s Law On International Judicial Assistance in Criminal Matters and seek Swiss cooperation to confiscate the account.

The second way is the German or French method of obtaining records of a particular bank. Monetary inducements are used in these two countries to will senior bank officials, as was done with the Bank of Liechtenstein and HSBC in Geneva.

The third way, the U.S. method, was used in the Washington D.C.-based branch offices of the Union Bank of Switzerland and Credit Suisse. Senior bank officers based in the Washington D.C. branch were arrested on charges of espionage to pressurise Swiss authorities into giving over 5,000 names of U.S. citizens who had illegally opened bank accounts in these two banks that had claimed secrecy as a business principle. India also has Swiss bank branch offices in Mumbai.

The fourth is the method suggested by eminent jurist and senior advocate Fali S. Nariman in his Rajya Sabha speeches and opinion pieces in newspapers, namely, invoking the Resolution of the UN Convention against Corruption, adopted by the UN General Assembly in 2005 and ratified by India in 2011.

This requires Parliament to pass a law. Or, as a first step, it requires the President to issue an Ordinance to nationalise all the bank accounts of Indian citizens in the 90-odd nations where black money is stashed. Thereafter, bilateral discussions with each of these countries can take place to get hold of the accounts.

Moreover, SIT must seek a report from the Financial Intelligence Unit (FIU) of the Indian government on what it has done about suspicious transactions reported by banks. This will ensure that the banks report, on a real time basis, all suspicious transactions. SIT should demand both an investigation into at least 100 of the major suspicious transactions that have been reported in the past three years, and action to be taken against them within 10 days. There must also be a follow up on all other cases, as and when reports surface.

Issue of ownership

There is also no precise definition of politically empowered persons. It is defined as per the UN Convention against Corruption 2005, which India ratified and became a signatory to in 2011. Further, in line with the provisions of Section 12 of the Prevention of Money Laundering Act, all institutions must declare to the government their beneficial ownership — this will include ICICI Bank, Axis Bank, HDFC Bank, Jet Airways, and so on. Unless this is done, the ownership of several large corporations will remain unknown.

Mr. Nariman’s suggestion, the first of its kind, should become a crucial instrument of black money restitution, mandated by the Supreme Court.

These are the effective ways of obtaining the estimated $1.50 trillion stashed abroad. The measures being taken presently by the government are completely ineffective in tackling this cancer and are, therefore, only of diversionary value.

(Subramanian Swamy is a former Union Cabinet Minister of Commerce, Law and Justice, andChairman of the Action Committee Against Corruption in India.)

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