Swiss Money: Corruption Scandal of Highest Order!

Black money in Swiss accounts: this is a phrase which I remember hearing from my childhood. People believe that Indian politicians, civil servants (bureaucrats or babus), rich people have their Swiss accounts and they deposit black money there! Current estimates are that approximately 71 lakh crore rupees are deposited in such banks (by Indians) over last 6 decades (after 1947). Before that, Indian money was anyway being diverted to Britain and that was purely 'legal' as we were being ruled by a Queen from a distance of almost 7000 miles: poor India!

Why has this issue, all of a sudden, become a hot topic of discussion? Is it because opposition party Prime Ministerial candidate – L K Advani- raised it? Partly yes (when his BJP govt was in power, this issue was not tackled!). More than that, in today's global economic recession, the powerful countries like USA are making efforts to recover their lost money. That makes sense! Consider a situation: when in a home, we are out of money, what we do: we look around if some money is lying around (in piggy banks, in form of deposits). Same concept lies behind the desperation that the developed countries are showing: they have  fixed their eyes on black money that their countrymen had stashed out of country!

Rising above our own political preferences, there is no denying that a lot, a lot of money is stashed by Indian elite in Swiss banks: and I am of the firm opinion that these political leaders –if exposed- will be belonging to all major and many regional parties. It may be a safe guess if you believe that each and every famous leader might have some money stocked there! Thus it is amply clear that if this money is recovered and used in India: India can overnight become a major country! After all, estimated 71 lakh crore rupees are a staggering figure.

Here I reproduce an interview (published on Rediff portal) with Professor R Vaidyanathan who is a professor at the IIM, Bengaluru. It may be noted that LK Advani has advocated constitution of a task force comprising experts to prepare a strategic document for India to recommend ways to get back the national wealth stashed away illegally by corrupt politicians, businessmen and criminal overlords. Prof Vaidyanathan is one of such names he has taken. Thus before we make our partisan views, I shall recommend reading these excerpts as the interview gives a good insight of the economy of this money and does not talk of politics.

Salient points:

# Almost 71 Lakh crore rupees stashed in foreign banks as illicit money

# This much money can change India's development picture: India could be  among top 5 league.

# All central governments have been sleeping over this issue since last 6 decades.

# Will Swiss banks and other such institutes cooperate? They will because powerful countries like USA are now demanding to recover their hidden money. India can use this opportunity.

Firstly how much Indian money do you think is stashed away in the Swiss Banks?

In 2006, the most recent Global Financial Integrity
study, developing countries lost an estimated $858.6 billion
(about Rs 43 lakh crore) to $1.06 trillion (abot Rs 51 lakh crore) in illicit financial outflows.

So the estimation that the Indian money stashed away may be of the order of $1.4 trillion (about Rs 71 lakh crore).

This report shows that the average amount stashed away from India annually during 2002-06 is $27.3 billion (about 136,466 crore). It means that during the five-year period the amount stashed away is 27.3x5=136.5 billion (about 692,328 crore). It is not that all these amounts went to Swiss banks. It has gone to different tax and secret shelters. The share of Swiss banks in dirty money being a third of the global aggregate, some $45 billion out of the 136.5 billion stashed away from India would have been hoarded in these years in Swiss banks.

The important point is that this is only for five years. More amounts were stashed away during the Nehruvian regime. So the loot for 55 years will be several times higher. In fact, in those days the rupee commanded a better value per dollar. So fewer rupee could get more dollars. So the estimation that the Indian money stashed away may be of the order of $1.4 trillion (about Rs 71 lakh crore).

On what basis have you come to this conclusion?

There is a lot of literature available as to how to estimate the illicit financial flow from developing countries. We find out what the nature of the flow is. I have also relied upon the study Illicit Financial Flows from Developing Countries: 2002-2006 Global Finanacial Intergrity authored by Dev Kar and Devon-Cartwright Smith, a project of the Ford Foundation. Financial flows in the context of this report includes the proceeds from both illicit activities such as corruption (bribery and embezzlement of national wealth), criminal activity, and the proceeds of ilicit business that become illicit when transported across borders in contravention of applicable laws and regulatory frameworks (most commonly in order to evade taxes).

Which are the various tax havens, where the ill-gotten wealth of Indian businessmen and politicians are stashed?

There are presumably more than 70 tax havens in the world. Indian wealth could be more in Switzerland and various British /US islands. At least 40 countries market themselves aggressively as tax havens [Source: Internal Revenue Service USA on Abusive Off-shore Tax Avoidance schemes Talking Points Jan 2008]. The well-known tax havens are Switzerland/ Liechtenstein/Luxemburg/ Channel Islands etc.

Could you elaborate and tell us how the money got there in the first place?

There are several methods/reasons. Under invoicing/over invoicing of exports and imports and getting the balance stored abroad. Kickbacks from major defense/civilian contracts. Not bringing the earnings abroad. In the old days smuggling of gold and illegal money. Transactions done abroad and not reported here. Hawala funds. Funds earned by artists/ entertainment industry /sports people and stashed abroad.

We would like to know the terror connection. Do you think even terrorists are stashing away cash and using the tax haven route to send across money all over the world, to finance their activities?

M K Narayanan, our National Security Advisor, has spoken about it in Berlin recently.

It is important to bring this money back. How can the government go about it and what are the various ways in which India can get its money back?

Put it on the Global Agenda. Put it in G-20. Put it in the International Monetary Fund. Put it in Egmont Group. Also take a lead among all developing countries. Support US /German/French efforts.

If India decides to take the initiative, will the Swiss authorities cooperate?

It is not due to our pressure but that of US which will make them co-operate. When a family is in deep financial crisis then it tries to look at the small amount saved under the sugar jar by grandma. Same way developed economies are desperate for every dollar. Even if we do not act due to their efforts the list of crooks may be out, then we will be in a dangerous social situation since the who's who of India will be there. Instead we should get it and get the funds and decide on the steps to sterilise it. Otherwise, the world will laugh at us.

Politicians sure must be having a lot of money in Swiss Banks. Do you think this factor will deter the government from acting?

Public pressure will make them do it. Plus, the evolving global situation against tax havens. The money belongs to the poor farmers and unorganised workers of India. Also, Indian businessmen have a lot of their ill-gotten gains in these banks. The world situation is such that Indian businessman will want to bring it back now given the attractive returns in India.

Do you think that the Indian government should demand all the Indian black money in Swiss banks?

Of course. India should and must act. We are not a banana republic.

You wrote in your column that the German foreign intelligence agency BND got names of 1,400 clients of the Liechtenstein-based LTG bank who were supposed to be suspected tax evaders. Of the 1,400, 600 were supposed to be Germans. Do you think of the remaining there will be Indians as well? Has the Indian government approached the German government for the list?

Indian names will be there. Our tax evaders and crooks are like the omnipresent Maha Vishnu -- present in all continents and all tax havens. But our government has been lukewarm in this issue. It should have dispatched immediately senior officials to get the names.

Isn't it important to tackle the issue of domestic black money?

It is definitely important. At least the domestic black money is used in our economy and to that extent it is productive. But the money kept in Swiss banks is neither useful to India nor does it benefit Indians.

What role should the media play?

The media has a very important role to play. At the moment it seems like most part of the media is more interested in the diet of an actress. Pressure by the media needs to be built up on this issue and remember that a lot of Indians don't just go to Switzerland to ski.

What about the names of these persons?

India must try and get the names. But more importantly should get the money back. It should be top on the agenda and India ought to take a moral lead in this issue.

Will the Indian economy improve if the money is brought back?

It will do phenomenally. India will be in the top five league if all the ill-gotten money is brought back. It will change the Indian scenario and I have been saying this since 1993.

Do you think that these people will now try and pull out the money since this issue has become a hot topic?

I don't think so. If they do then India should create an instrument and regulate frameworks to bring the money back.

What kind of punishment do you suggest for these persons?

Punishment is not the issue now. There is a need to create fear in them and follow what the international community does on this issue.

Lastly do you think this is becoming just another election issue?

The US and Germany took the lead and there is no election there. We should not treat this as an election issue. We have to take up this matter and if we don't then we will become a laughing stock of the entire world.