Search for Indian Money in Switzerland Begins at Home
Posted on 06. Sep, 2011 by admin in Economy, India, Observations
By Ajay Goyal
( This article was first published in Marathi magazine Vivek in July 2011 )
If we want a process to repatriate Indian monies from global tax havens, we should first stop citing unreliable statistics. Astronomical numbers like 300 lakh crore or 500 billion US Dollars of Indian wealth is claimed to be stashed overseas. These statistics are good to stoke public passions. On a positive note they can lead to opinion building and eventually force the hand of government to act – but they will do nothing to bring the monies back. The prospect of repatriation of Indian black money from overseas tax havens remains a chimera.
For starters it is absurd to rely on and repeat figures of Indian black money abroad stated by some obscure western researchers. We must have solid research, scientific financial analysis and impeccable data while addressing the issue.
India’s corrupt money is not only overseas. A whole parallel and corrupt economy runs in India which is probably more than half of India’s gross annual national product. Almost all property, land and agri-commodities business is conducted in cash money. Less than 10 percent of residential real estate value is declared in India. The public exchequer loses 90 percent on estate stamp duty taxes. Most small businesses pay no taxes at all. Hundreds of crores of transactions are coducted in cash without any tax payments. India cannot bring money from far havens back if it cannot control black economy at home. Monetary and fiscal policy reform including withdrawal of high value currency notes proposed by Swami Ramdev must be high on governments agenda.
That there is enormous Indian money overseas has never been in doubt. Where to look for it? London, New York and other financial centers of developed countries only started to restrict and limit accounts for money laundering merely fifteen years ago. Major New York banks laundered billions of Russian money in early 1990s. Only a handful were ever convicted and rules only started to change after 9/11 terror attacks. Switzerland was for the rare and mega-corrupt. Most corrupt bureaucrats and politicians took their monies to the UK, US, Honk Kong and Dubai – and they continue to. They never needed secrecy of Swiss banks to stash their ill-gotten wealth overseas. Only a small fraction of Indian corrupt money is likely to be in Switzerland.
Before the mass migration of Indian technocrats to united States and the UK, bank branches at world’s leading academic institutions were conduits for laundering Indian black money. Children of Indian elites held personal accounts at bank branches of well known banks that were used with impunity to launder money for decades. Only a handful of nearly 5 million Indians who obtained education in the western countries from 1960s till 1980s had any merit scholarships. They mostly came from wealthy families or were kin of India’s civil servants. Their bank accounts were in world’s best known high-street banks and they used their brilliant minds and elite status to launder the dirty money of corrupt leaders of India.
There have been three Tsunami waves to wash India’s wealth overseas.
First, the royal families of India that stuffed immense treasures of India into steel trunks, onto ships and took wealth of a whole civilization abroad. British colonial rulers or “Nabobs” as they were called were but mere petty thieves compared with what many Indian royals siphoned off from India. I have witnessed the regal lifestyles of three former royal families of India in Europe in the last two decades. They have enough to last a thousand years while their tiny former estates in India are among the poorest and most deprived places on earth. The discovery of a treasure stashed by royal family of Travancore is a hint of what kind of wealth had been in the hands of these royals who actively collaborated with the British colonial masters. Both actively helped each other loot India. It will be sensible to establish a truth commission of economic and financial historians to establish the facts of this loot. India must learn what its royals took abroad.
The second Tsunami wave started soon after Bretton Woods accord that established the World Bank. In 1957 World Bank started its New Delhi office and soon India became the largest borrower from the bank. Perhaps only Prime Minister manmohan Singh knows how much money India has borrowed from the World Bank. The information is hard to come by – but what is obvious is that while India borrowed the money, it never actually made it to intended projects. Indian and international controls on bribes and money laundering were weak through 1960s till 1990s when major drug and terrorism related money laundering conventions came in force. Those were years of idealism and naivete in Indian politics. Just beneath the surface of white khadi wrapped Gandhian rhetoric, corruption was rampant. There was no protective mechanism to stop money from being stolen before it ever made to the intended projects of development. India had a drought of development. Billions of dollars borrowed from World Bank and other international bodies made their way into Swiss accounts. While the ordinary Indians still bear the burden of this ever rising debt – the money itself only occasionally landed in India or was rarely put to purpose it was meant for. India must demand lists of all Indian accounts in Swiss banks for this period of 1960s till 1990s. This is when the grand larceny of Indian exchequer occurred. It is an undeniable assertion that kickbacks and bribes paid into overseas accounts of politicians and civil servants formed an integral part of many import contracts of Indian government for over forty years. Hawala and direct overseas payments linked with import contracts were as common as rain in Mumbai Monsoon. With time, the electronic money transfers and globally-linked banking and financial systems have made laundering money easier and quicker.
This brings us to the third wave of wealth transfer. The business environment in India during the license-raj years was oppressive. Thousands of “export houses” had no choice but to maintain “illegal” international bank accounts – usually in London, Hong Kong and the United States where they accumulated some working capital and savings. These 1970s – 1980s era exporters should be looked upon with understanding and compassion as they needed foreign accounts to stay competitive and active in trade. No one could have done any international trade under oppressive and idiotic foreign exchange rules of India that Prime Minister Manmohan Singh started to demolish in his first stint as finance minister. With the liberalization, however, came the biggest wave of asset transfers overseas.
All Indian money transferred abroad uptil 1990s is but a drop compared with what has happened under Indian liberalization. And it is done with finesse — under the supervision of and often with collaboration of world’s smartest accountants, auditors and consultants. If the methods used for much of 20th century to take money overseas from India were crude and unsophisticated – and thus easier to detect – great minds are deployed by corporations and banks to launder enormous sums of money without a trace in the 21st century. Let me elaborate. Let us imagine a hypothesis that an Indian (public sector) company decides to acquire an oil company in Russia. It does not matter that the oil of this company can never be brought to India and is unsuitable for Indian refineries – the bankers, consultants, advisers and executives make compelling presentations with clever charts and weighty words to convince the government that they should be given precious foreign exchange to make the billion dollar acquisition. With all the trickery and talent of top business schools at their disposal, they manage to convince the government to spend a billion US Dollars on this acquisition. But then they add a caveat that the seller does not want the money in Russia at all – that it should be paid through a shell company in an offshore location, say Gibralter. And, that for some obscure reasons, the money should NOT be paid directly to seller but routed through a series of offshore companies registered in British Virgin Island, Cyprus, Jersey, Isle of Man and Mauritius — specially created by the Indian public sector company. It is a brazen yet brilliant money laundering scheme and theft. 45 billion Rs ( One billion Dollars) are sent to offshore companis that pay a further series of offshore vehicles and bank accounts and the Russian company is acquired – at least on paper. The money runs through a dozen offshore companies and bank accounts which then shut down and disappear just as fast as they appeared and all traces of money are lost. Just what part of 45 billion Rupees actually make their way to the Russian sellers is any body’s guess. I have heard hypothesis that the true value of Russian company may be less than 30 billion Rs. in such a transaction. Rest 15 billion is stolen and washed overseas in one master stroke. The whole management and staff of the Russian company – the rumor has it – has also disappeared with all data of what oil the company has in the ground. For 45 billion Rupees in foreign exchange the country has neither the oil nor the company value but there certainly are a whole lot of fat accounts in offshore banks.
Much attention has been paid to how illegally stashed Indian money might be behind bubbles in stock and real estate markets in India. What no one is paying attention to is that in the name of liberalization, overseas acquisitions, mega-global projects and uncontrolled speculation on casino-stock-market it is easier than ever before to send wealth of India overseas. The ever gullible Indian people are kept pleased with catchy slogans that “India Inc” is capturing the world and making India and economic super power of the planet. The truth is darker and much talk of India’s economic power hides devious schemes of wealth transfer.
It has become common practice in India to blame Swiss banks for keeping Indian treasures hidden. I would suggest it is for Indian government and civil activists to establish the facts first. In repeating unfounded allegations and citing gossip, the activists distract the attention from true problem and real culprits. Driving our whole population into a frenzy or ask the Supreme court to pass orders to bring money back will do nothing. A number of “truth and facts commissions” comprising of accountants, economic historians, honest civil servants and international representatives of civil society should be formed to conduct audits of all major international transactions of Indian central and state governments in the last few decades. It is not impossible to list the bureaucrats and politicians at the helm of these transactions and then demand from world financial authorities accountability on their accounts. India can and must demand names of all PEPs or Politically Exposed Persons that have accounts in Switzerland and other offshore havens like Hong Kong, Singapore and forty other jurisdictions. It is the era of computers, super computers and micro-second processing of giant databases. It is possible to process databases of huge complexity and detail within months. Once facts are established and lists are made, a campaign of collaboration with global law enforcement agencies must start. Each discovery and indictment of exposed accounts must go through Indian judicial process. Special prosecutors with education in international banking and finance and fast-track courts must be set for this purpose. India cannot resolve or come to peace with this issue without finding the truth. The country has indeed been robbed with impunity for over three hundred years – it is time we learn the truth at least about our independent era. Eventually even if we do not recover the money, this truth should be in text books to warn future generations so they may protect themselves from this ongoing robbery.
As to Switzerland, I believe Swiss will collaborate whole heartedly if they see a due legal and judicial process inside India. Switzerland and its people will not want India to boycott its chocolates, watches, tourism or indeed for India to pull out of every international body with offices in Switzerland. No nation in the world wants to go to economic-cold-war with India. Swiss economy will be paralysed if Indian calls for sanctions against Switzerland at international bodies for unfriendly acts toward Indian people. We might be surprised by how willing and co-operative Swiss might be in unearthing shadowy accounts. But before we go to them, our demands must have stamp of credibility from Indian courts. And to take it to courts and indictments – we need political will. It now appears imminent that the grass roots movement led by Swami Ramdev might force the hands of politicians to come to these actions rather than pay lip service to bring back black money, blame the Swiss banks and do nothing at home.
Vivek Mag
++
