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Black Money Menace:UNEARTH SWISS ACCOUNT HOLDERS, by Dr. P. K. Vasudeva, 29 April 2009 Print E-mail

Open Forum

New Delhi, 29 April 2009

Black Money Menace


By Dr. P. K. Vasudeva

In order to overcome the economic meltdown, the US President Barack Obama has launched a campaign to unearth American black money stashed in Swiss banks. His administration is "committed to taking aggressive action on offshore tax abuse," testifies Internal Revenue Service (IRS) Commissioner, Douglas Shulman.

In addition, the Union Bank of Switzerland has confirmed the figure of 47,000 such accounts as of 30 September 2008 during a Senate hearing, which explored the fight over secrecy and alleged tax evasion. UBS has accepted the responsibility of helping Americans hide assets from their government and turned over the names of about 300 clients. But it is not giving the IRS names of all the US citizens who have maintained secret accounts.

Well, if the US is pursuing the unearthing of unauthorised accounts in Swiss banks, why is India hesitant to follow suit? Why does it not seek details of its citizens’ personal account deposits amounting to about $1500 billion? The amount is 13 times bigger than the country’s foreign debt, and of this about 45 crore poor people could get Rs 1,00,000 each!

If this mind-boggling amount of black money comes back to India, not only the entire foreign debt can be repaid immediately, but the country will have a surplus of almost 12 times the existing debt. And if this surplus total is judiciously invested in earning interest, the amount will be more than the annual budget of the Central Government. Besides, if all taxes are then abolished the Union Government will still be in a comfortable position.

According to an estimate, about 80,000 people from India travel to Switzerland every year. Of these about 25,000 travel very frequently and it is suspected that they all cannot be tourists. Unfortunately, India tops the list of five countries, which have unaccounted money illegally stashed in the Swiss banks amounting to $1456 billion.  Russia with $470 billion, the UK with $390 billion, Ukraine with $100 billion and China with $96 billion follow suit. A common guess would be that those who use the Swiss banks would include some of our industrialists, politicians/bureaucrats, cricketers, film actors, illegal sex traders and protected wild life operators to name just a few.

Way back in March 2005, the Tax Justice Network (TJN) published a research finding which demonstrated that $11.5 trillion of personal wealth was held offshore by rich individuals across the globe. It was estimated that a large proportion of wealth was managed from some 70-tax heavens. Augmenting these studies, Raymond Baker in his widely celebrated book titled Capitalism’s Achilles Heel: Dirty Money and How to Renew the Free market System estimates that at least $ 5 trillion have been shifted out of poorer countries to the West since mid-70s.

Back home, the BJP’s new-found crusade against money laundering is both relevant and naïve. Whatever the outcome of the elections, the party shall be remembered as the first to discover an issue to galvanise opinion not just across caste and community lines but also globally. Its prime ministerial candidate Advani’s call for greater action against money stashed in Swiss banks and other tax havens, theoretically at least, raises the bar of the poll campaign and sets it in tune with global attempts to collar countries that allow unaccounted money into a common course of action.

It was at the London G-20 meeting that both developed and developing countries voiced a collective concern over tax havens. On its heels came the OECD’s detailed report that ranked 45 such countries in its response to international pressures for greater transparency. Ironically, India, along with other developing countries, had raised the loudest voice at London about joint action against tax havens but has done pretty little on the front so far.

The idea that a nation’s wealth can be hoarded at undisclosed places, unfettered by tax laws and used without accountability seems anathema to most nations. Yet, tax havens such as Swiss banks have been around for centuries. While some governments have sporadically and individually chased such money, it is only the current economic crisis that has focussed attention on the harm that such funds and unaccountable locations of wealth have inflicted on the world’s financial system.  

Unaccounted money has been a source of worry for India for as long one remembers. Swiss banks, though unfairly connote, in middle-class folklore, a store of ill-gotten wealth. So far, almost every government regardless of its hue has fought the money laundering industry, huge and myriad, half-heartedly. And so long as the world prospered, Indian policymakers who tried to curb unaccounted money were derided for fearing deregulation.

India after all, has suffered from its pernicious effects in the past and will have to guard against its potential dangers as it opens up even more. Yet, it is naïve to call it the “dirty outcome of modern capitalism” alone. India has been a safe and hugely profitable haven for unaccounted money given the high-value professions and occupations that still fall outside the taxman’s net. Maybe that’s the best place to start the battle.

New Delhi should become an active player in the global crusade against banking secrecy and tax havens, and pledge to bring back the country’s wealth from foreign shores and use it for developmental projects. The BJP’s interim report based on studies conducted abroad, estimates Indian wealth in Swiss bank accounts and other tax havens to be between $500 billion or about Rs 25 lakh crore to $1.4 trillion or Rs 70 lakh crore. It also suggests that the issue of black money is linked to security especially after the National Security Adviser referred to the stock market boom due to ‘terror funds’.

There are at least 70 tax havens all over the world. People are concerned with the economy and security, and this issue of hoarding illegal wealth combines both how the economy should be handled and how security can be managed. With President Obama planning anti-tax haven laws, the global climate has become more conducive to tackling such issues and New Delhi should seize the opportunity.

The German government must be asked to provide details of the Indian names from the LGT bank secret records it has accessed from Liechtenstein, a European tax haven. It should also appoint a special ambassador to work with the G-20 specifically to frame India-friendly rules to expose secret banking. The task force report also outlined a national strategy to deal with the issue, including becoming a full-fledged member of the Financial Action Task Force and using financial intelligence sharing for security purposes.  

Interestingly, unlike the past, the Swiss government is now willing to furnish details of accounts held by nationals of a country, provided that government explicitly asks for the details. While the US and some European governments have already made good the offer, the UPA government has not moved a finger so far.  It is high time it, or whichever new Government comes into power, to approach the Swiss banks to disclose names of account holders so as to bring our economy on a sound ground and importantly curb the disease of corruption afflicting the country.—INFA

 (Copyright, India News and Feature Alliance)

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