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Indias Illegal Wealth Abroad is Not Just a Tax Issue

R. Vaidyanathan* The average amount stashed away from India annually during 2002-06 was $27.3 billion. It means during the five-year period, the amount parked in different tax havens, including Switzerland, was $136.5 billion. The share of Swiss banks in the dirty money from India is at least one-third, due to historical and geographical reasons. These illegal funds lying in tax havens are not just related to the issue of tax evasion. It is capital flight from India and part of a corrupt nexus between businessmen, bureaucrats and politicians. Substantial sums have been accumulated abroad due to underinvoicing/over-invoicing and also commission from defence and other major contracts.

he President, in her address to the joint session of the 15th Lok Sabha on June 4, 2009, has clearly enunciated:
My government is fully seized of the issue of illegal money of Indian citizens outside the country in secret bank accounts. It will vigorously pursue all necessary steps in coordination with the countries concerned.

Even though the isssue is not part of the agenda for the first 100 days of the new government, it is refreshingly different from the election rhetoric of the ruling party which initially denied the existence of such illegal wealth stashed abroad. Later, it questioned the estimates and timing of the revelations etc. Fortunately, after the elections, the issue has not been brushed under the carpet. Recent Developments I earlier wrote in April 2009 issue of Eternal India regarding the need to get back the illegal deposits kept by Indians in various tax havens, on the basis of which a public interest litigation was filed by Mr. Ram Jethmalani and others in the

*R. Vaidyanathan is Professor of Finance and Control, Indian Institute of Management, Bangalore. The views are personal and do not reflect those of his organisation.
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The Government of Indias Ministry of Finance has indicated that it is taking steps to recover money stashed in tax havens and also mentioned that the German government has given a list of names of persons who have kept money in the LGT bank of Liechtenstein.
Supreme Court. The Government of Indias Ministry of Finance has indicated that it is taking steps to recover such amounts and also mentioned that the German government has given a list of names of persons who have kept money in the LGT bank of Liechtenstein. The response also avers that steps have been taken in the case of Hasan Ali Khans (a Pune based horse breeder) illegal transactions through UBS bank of Switzerland. Interestingly, the response of the Union government in the Supreme Court indicates that tax demands of Rs 71,848 crore have been raised against the said person, his wife and other associates. If this were the tax demand, then the income on which this would have been raised may be more than 1.5 lakh crore, taking into account compounding, penalty etc. These are mind-boggling figures pertaining to one case since our national income for the current year is of the order of Rs 50 lakh

crore. But something more interesting has been reported:

Swiss authorities have told an Indian news magazine that Indian authorities submitted in the case of Pune-based stud farm owner Hassan Ali Khan, who has a Swiss bank account, a request in January 2007 for legal assistance to the Federal Office of Justice. Swiss authorities, upon domestic inquiry, found that the banking information provided with the request for legal assistance contained forged documents. Last week, the Centre, in an affidavit to the Supreme Court, had detailed the action it had taken against Hassan Ali Khan, his wife Rheema and Kolkata-based businessman Kashi Nath Tapuria, who allegedly were holding about $ 8 billion in an UBS account in Switzerland. In a communication from Folco Galli, Information Chief of the Swiss Department of Justice and Police, Berne, the magazine Hardnews was informed that the Indian authorities had submitted forged documents to seek assistance in the Hassan Ali Khan case. In its May issue, the magazine said the Swiss sought more information. Swiss authorities want to provide further assistance in that case if the Indian authorities could satisfy the Swiss governments demand to establish dual criminality what is crime in India is a crime in Switzerland. The Swiss also wanted to know whether the offence was an object of Indian money laundering. Since April 2007, the Indian government has not responded.1

The whole issue is becoming more and more curious.

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As for the list provided by the German authorities, the government maintain that it cannot reveal the names since it has been obtained under the double taxation treaty. But the government says that it is proceeding against the account holders under tax laws. A report in Economic Times (June 4, 2009) suggests that out of 50 names in the LGT list, 25 belong to Mumbai. It also says that none of the 25 account holders are big industrialists or well-known individuals. As if big industrialists and politicians are going to hold it under their names! It will be held under benami names. At last, the government says there are names from Liechtenstein. ..Why did the GoI ask for information under the Double Taxation Treaty with Germany when the issue

As for the list provided by the German authorities, the government maintain it cannot reveal the names since it has been obtained under the double taxation treaty. The government says it is proceeding against the account holders under tax laws. A report in Economic Times suggests that out of 50 names in the LGT list, 25 belong to Mumbai.

Liechtenstein Bank stolen data by Germany does not have any link to that? ..Did the government think that Germany would not respond if it was asked under the Double Taxation Treaty? ..Where is the issue of confidentiality vis-a-vis criminals? Germany has released their own list and how can they ask India not to release it? The MoF says it has names but will not reveal them. The affidavit suggests that the petitioners should seek the RTI route may be to be rejected under the RTI. We have a story in Tamil the beggar is refused food by the daughterin-law and thrown out of the house. The mother-in-law sees him on the road and on hearing what happened gets furious and brings him back home and then tells him no food for you and I am the one eligible to say that and not her. Similarly, the government argues for the RTI route and then gets the application thrown out. These are not domestic tax evaders etc. for showing confidentiality. These are international crooks that have deprived our land of huge financial resources through capital flight. It is an unpatriotic act which can be equated to financial terrorism. As reported in Economic Times dated June 4, 2009, of the 50 Indians who have stashed funds in LGT bank in

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Liechtenstein, 25 belong to Mumbai. Tax authorities have re-opened assessment of these 25 tax evaders under Section 148 of the IT Act. This implies that the government is treating it as tax evasion and not capital flight and corruption with associated implications. Not only that. The Organisation of Economic Cooperation and Development considers four dominant features of a tax haven. These are: 1. No or nominal effective tax rates 2. Lack of transparency 3..Lack of effective exchange of information 4..Absence of a requirement of substantial activities. Tax havens are jurisdictions which make themselves available for avoidance of tax which would otherwise be paid in the parent countries with moderate or high level of taxes. If an American company earns capital gains in India, it is liable to be charged tax as per the laws prevailing in these countries; if this company set up subsidiaries in tax havens like Mauritius, they are neither taxed in India nor in such tax havens on their capital gains. Sailing under false colours becomes most inviting for the tax dodgers as they wrongfully gain advantages of a bilateral treaty of which they are neither the concerned parties nor the intended beneficiaries.

Tax havens are against transparency. It is commonly shared concern that a lot of money is generated by most unscrupulous methods bribery, kickbacks, drugtrafficking, insider trading, embezzlement, computer fraud, under invoicing and other tainted activities.
Tax havens are against transparency. It is commonly shared concern that a lot of money is being generated by most unscrupulous methods bribery, kickbacks, drug-trafficking, insider trading, embezzlement, computer fraud, under invoicing and other tainted activities spawning scams with lethal consequences for the welfare of common man. Through companies floated in tax havens, ill-gotten money can be effectively laundered and brought into normal economic channels. Many tax havens spread a red carpet to welcome them. They ensure legal systems under which such pursuits are carried on without any risk of scrutiny. If a terrorist organisation decides to transfer resources to India from Monaco or Luxemburg, or some of the islands in the Caribbean Sea, or the English Channel or some dot-like country in Micronesia or Polynesia, it can adopt a

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simple strategy. Its investment manager can structure some device for transferring resources into the target country. By way of illustration, a subsidiary company or a conduit company might be floated in Mauritius for transacting on the Indian stock exchange. It is worth noting that capital gains are neither taxable in India nor in Mauritius. India has become over the years an obvious and immediate target. Such companies obtain certificate of residence from foreign tax authorities so as to pass for real residents. Let us quote from the web page of Shiv Kant Jha, former Chief Commissioner of Income Tax:
There was some measure of check when income tax authorities used to investigate cases of non-residents in order to see the profile of the real operators and the beneficial owners to exclude the persons of the third States from taking advantage of the bilateral treaties. The courts of law have held such actions of the income tax authorities in total conformity with law. In exercise of this jurisdiction, the Income Tax Department could know the whereabouts of the real operators and the real beneficiaries. On knowing that some crime had been committed or some crime had been planned, the authorities of the Income Tax Department were duty bound to inform other agencies of the government to take appropriate actions. This would be in exercise of general duty

of the type contemplated in the Government Instructions issued in terms of Section 138 of the Income Tax Act, 1961. Various frauds and crimes, especially in the post-September 11 phase, should drum into the ears even of the banking regulators the world over, to identify account holders and the beneficiaries of funds flow from and to bank accounts.

But a controversial Circular was issued with devastating impact, says Mr. Jha:
The effect of Circular no. 789 issued by the Central Board of Direct Taxes is to subvert the check, which had its wholesome effect before the Circular under reference had been issued. The effect of the Circular is to make the Certificate of Residence granted by a tax haven government conclusive for two things: (i) as to the authenticity of the

I have been closely following the debate, or the lack of it, on the important issue of our illegal money stashed away in Switzerland and other tax havens. Most of the mainstream media has kept quiet. No editorials or analysis. TV channels, particularly the business ones, are silent. The CII and FICCI, the lobbies for big business interests, are observing eloquent silence.

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In the last few months, global newspapers, particularly the business ones like Financial Times, Wall Street Journal, The Economist etc. are full of articles and analysis about tax havens and the determination of the USA and other OECD countries to prise open the veil of secrecy about these tax havens, particularly Switzerland.
fact of residency, and (ii) as to the beneficial ownership of income. On account of the mandatory directions, the income tax authorities would not be able to know the real operators and the real income earners. Terrorism can flourish under such circumstances. I am sure that those who issued this Circular would not have thought that they were unwittingly facilitating terrorism and anti-national activities. Countries, which believe in the rule of law and want to ensure that public resources are not plundered through fraudulent devices, readily reject any Certificate of Residence granted by a foreign authority when the rogues take unfair advantage. The United States Courts of Appeal crisply said in an important case, Be this as it may, we are not bound by the determination of the Swiss tax authorities. To say the obvious, the statutory jurisdiction to investigate can neither be clogged nor curtailed under the executive instructions. It is a
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fundamental principle of tax law that only the real earner of income is taxed. Legality of the government circular is for the court to decide, but its evident sinister potentialities which the terrorists would grab must not be lost sight of.2

The Way We Deal With Such Serious Crimes This brings us to an important point pertaining to the way the government of India is handling a serious issue like tax havens. I have been closely following the debate, or the lack of it, on the important issue of our illegal money stashed away in Switzerland and other tax havens. Most of the mainstream media has kept quiet. No editorials or analysis. TV channels, particularly the business ones, are silent. The CII and FICCI, the lobbies for big business interests, are observing eloquent silence. In the last few months, global newspapers, particularly the business ones like Financial Times, Wall Street Journal, The Economist etc. are full of articles and analysis about tax havens and the determination of the USA and other OECD countries to prise open the veil of secrecy about these tax havens, particularly Switzerland, since it is presumed to be one of the oldest and the largest. I have been following the developments for the last 15 years at

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Our political reactions were bordering on absurd. Congress spokesperson Abhishek Manu Singhvi says that India could not discuss this issue at the G-20 meet held on April 2, 2009 since it would be out of line when the major item on the agenda was dealing with tax havens. That is how politics works in our country!
least. I have been arguing against tax havens and suggesting that we make plans to get our money back. I have also included this as a module in my finance course for many years. Now, we find that the CPI (M), in its manifesto, has included the issue of our illegal funds lying in foreign tax havens and so also the CPI, Janata Dal (United) and the Samajwadi Party. The BJP has also included it in its manifesto and Mr. L.K. Advani also held a press conference on the issue. Hence, it was expected that a major informed discussion would take place in our country on this vital matter. But it has taken peculiar turns in our politically twisted atmosphere. First, the political reactions. The Congress spokesperson castigated Advani for raking up the issue now instead of when he was in power. Perhaps the spokesperson is not aware

of the fact that the global atmosphere regarding tax havens has dramatically changed in the last few months. This was particularly true after the LGT bank of Liechtenstein was forced by Germany to get a long list of tax evaders, including that of the head of German Post. Also, the severe action initiated by the US government against the largest Swiss bank, namely UBS, and its readiness to part with details of tax evaders and paying a fine. The OECD has published a list of these tax havens and categorised them according to level of non-cooperation. The Obama administration is working on a legislation to deal a severe blow to these tax havens. Our political reactions were bordering on absurd. Congress spokesperson Abhishek Manu Singhvi says that India could not discuss this issue at the G-20 meet held on April 2, 2009 since it would be out of line when the major item on the agenda was dealing with tax havens. That is how politics works in our country! Then there were some articles in newspapers. One was by Ashok H. Desai, calling the money as mythical trillions (The Telegraph dated April 7, 2009). Given his political orientation and bias towards big businesses, this was not unexpected. But what was shocking was his attempts at

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We are debating not about the NRIs but about the Resident Non-Indians (RNIs) who have accumulated wealth in Swiss banks. Desai seems to be oblivious to the underor over-invoicing of exports/ imports; commission in large projects/defence deals etc. despite being an astute and expert observer of the Indian scene for long.
obfuscating issues by bringing in the role of NRIs and their money. The discussions on Indian illegal money in Switzerland do not involve NRIs and their deposits. He makes absurd suggestions like 20 million NRIs making USD 25,000 per annum and a portion of it in Switzerland etc. If the NRI is in the USA or Norway, he will then have his bank accounts in those countries. Why on earth in Switzerland? Anyhow, we are debating not about the NRIs but about the Resident NonIndians (RNIs) who have accumulated wealth in Swiss banks. Desai seems to be oblivious to the under- or overinvoicing of exports/imports; commission in large projects/defence deals etc. despite being an astute and expert observer of the Indian scene for long. The following two items may

illuminate him:
Addressing a press conference to commemorate 60 years of Indo-Swiss Friendship Treaty, (the Swiss Ambassador to India) Dreyer said, Switzerland was accused of giving shelter to black money and there has been a lot of inflow of such wealth from India and other countries of the world. The Ambassador said, I would not say it would be stopped 100 per cent (under a new law). But through this measure, it would be controlled up to a certain limit.3

And more recently, after the actions initiated by the Western powers against Swiss banks etc., Business Standard reported on April 9, 2009:
Swiss private bankers are likely to reduce their exposure to wealthy Indian clients as they cut down their discreet banking services in countries like Germany, France and the United States, analysts say. As the worldwide crackdown on tax evasion gathered momentum following the recent G-20 meeting in London, several Swiss banks, including UBS, which is the worlds largest manager of private wealth assets, have issued travel directives to their client-facing staff not to visit foreign countries for carrying out what are called offshore wealth-management banking services. UBS, for instance, has asked its wealth management staff not to travel abroad to meet clients. This will also apply to India, said Serge Steiner, a UBS executive. However, UBS India will continue to service wealth management for Indian clients, he added. In effect, it would be

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a complete onshore (domestic) activity unlike the UBS wealth management staff descending from Singapore to service rich Indian clients. At present, Swiss banks manage around $2 trillion offshore assets of clients from various countries. UBS, which is now mired in a major legal dispute with the US tax authorities, has passed information of over 300 accounts of wealthy American clients to the US Internal Revenue Service. But the IRS is not satisfied with the UBS and it wants the Swiss bank to provide information on some 52,000 American clients. Besides, two UBS bankers were arrested in the US on the plea that they were involved in tax fraud, analysts said. Consequently, the UBS and other Swiss private banks are preparing ground to reduce their exposure to offshore banking services in a move to avoid

further difficulties for the bank. Other Swiss private bankers too have been discreetly cautioned not to undertake visits in the wake of growing pressure from the G-20 leaders, especially Germany and France, who seem determined to pry open the secret tax havens. But a representative of the Swiss bankers association said there was no general directive to private bankers in Switzerland, suggesting that it is up to each individual bank to decide their foreign travel.

The average amount stashed away from India annually during 2002-06 was $27.3 billion. It means during the five-year period, the amount taken away was $136.5 billion (Ford Foundation Report). It is not that all of this amount had gone to Switzerland. It has gone to different tax shelters. The share of Swiss banks in dirty money from India is at least one-third, due to historical and geographical reasons.

More surprising was the reaction of Bibek Debroy in the Indian Express dated April 3, 2009. The erudite and scholarly Debroy, of course, talks about pricing the loot and suggests the difficulties involved in the same. He uses the Global Financial Integrity report and unfortunately looks only at the summary version. On website http://www.gfip.org/storage/gfip/execut ive%20-%20final%20version%201-509.pdf a detailed report is available (Illicit Financial Flows from Developing Countries: 2002-2006 authors DEV Kar and DevonCartwright Smith A project of Ford Foundation). Page 30 of the report gives a clearer picture for India. Financial flows in the context of this report includes proceeds from both illicit activities such as corruption (bribery and embezzlement of national wealth), criminal activity and proceeds of licit business that become illicit
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when transported across borders in contravention of applicable laws and regulatory frameworks (most commonly to evade payment of taxes). This report shows that the average amount stashed away from India annually during 2002-06 was $27.3 billion. It means that during the fiveyear period, the amount stashed away was $136.5 billion (page 30 of the Ford Foundation Report). It is not that all of this amount had gone to Switzerland. It has gone to different tax shelters. The share of Swiss banks in dirty money from India is at least one-third, due to historical and geographical reasons. Some $ 45 billion out of the total 136.5 billion dollars stashed away from India would have been hoarded in these five years in Swiss banks.5 The important point is that the money under focus is only for five years. More money was stashed away during the Nehruvian socialist regime. So the loot for 55 years would be several times the above-mentioned money. In fact, in those days, the Indian rupee commanded a better value per dollar. So fewer rupees could get more dollars. So the estimation that the Indian money stashed away may be of the order of $500 billion to $1.5 trillion.5 The International Narcotics Control Strategy Report Money Laundering

and Financial Crimes (March 2009) by the US State Department suggests that 30-40 per cent of the inflows may be through hawala channels which are not accounted. During 2007-2008, according to the report, formal inflows into India were USD 42.6 billion. So 40 per cent of this amount, USD 1.8 billion, could be considered illegal flows not captured by law. This sum could be paid for in rupees domestically but stored in tax havens abroad. This implies that at least USD 2 billion was salted away through hawala route only. One can imagine the total amount involved if we were to include under- and over-invoicing of exports and imports, kickbacks from major defence/civilian contracts, non reparation of earnings abroad and funds earned by artists/ entertainment industry/sports persons but stashed abroad.

Some $ 45 billion out of the total 136.5 billion stashed away from India would have been hoarded in these five years in Swiss banks. More money was stashed away during the Nehruvian socialist regime. So the loot for 55 years would be several times the above-mentioned amount.

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West Acts to End Tax Havens It will be interesting to note that the OECD estimated that the money parked in tax havens is in the range of 1.7 to 11.5 trillion dollars on a conservative scale. The US suggests it is losing at least 100 billion dollars per year due to these tax havens. Why Switzerland is specifically mentioned among tax havens is the fact that it is considered the largest, the oldest and also most uncooperative. For instance, a report dated April 10, 2009, by AFP mentions that the head of the Organization for Economic Cooperation and Development, Angel Gurria, referred in a letter to Swiss President Hans-Rudolf Merz to the inaccuracy of charges of unfair treatment made by Swiss officials. Switzerland has expressed its disapproval of being targeted as a tax haven by refusing to authorise a budget contribution to the OECD. There are no black lists and the OECD did not include or threaten to include Switzerland on any black list, Gurria wrote, according to a statement made available by the OECD. We only shared the criteria that have been approved by our committees and the jurisdictions that were adopting or not the OECD standard, he said. As you know very well, Switzerland does not yet have a single agreement on the

It will be interesting to note that the OECD estimated that the money parked in tax havens is in the range of 1.7 to 11.5 trillion dollars on a conservative scale. The US suggests it is losing at least 100 billion dollars per year due to these tax havens.
exchange of tax information that conforms to the OECD standard. That is the reason why all eyes are on Switzerland. Another interesting development is the results of the crackdown in Germany. An April 8 report by Reuters says that a crackdown on tax havens that prompted Switzerland to loosen its banking secrecy is encouraging more and more Germans to come clean about foreign accounts they use to evade taxes. Berlin has waged a very public campaign to stamp out tax evasion since Klaus Zumwinkel, the then chief executive of Deutsche Post and one of Germanys top businessmen, was arrested in a major tax probe last February. Zumwinkel kicked off a bit of an avalanche, said Andreas Boehm, a lawyer based in central Berlin. Afterwards, the number of people coming clean with us ... rose by about 400 to 500 per cent. And that level has

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France, for the first time, is allowing people to make voluntary disclosures so that those who have stashed untaxed money in secret foreign accounts can quietly come clean. The special unit handling this issue is getting at least 25 phone calls per day and though the move is small it is a significant step in the campaign to end banking secrecy and tax havens.
been maintained. This is a positive outcome of the LGT affair where India has been reluctant to grab the names of Indians in the list with the Germans. In the case of France, for the first time it is allowing people to make voluntary disclosures so that those who have stashed untaxed money in secret foreign accounts can quietly come clean. The special unit handling this issue is getting at least 25 phone calls per day and though the move is small it is a significant step in the campaign to end banking secrecy and tax havens.6 The US has already initiated measures to bring the UBS under its scanner and has also piloted a bill to tackle US companies using tax havens to avoid US taxes. A White House Press release on May 4 mentions the following interesting information and plan of

action: In 2004, the most recent year for which data is available, US multinational corporations paid about $16 billion of US tax on approximately $700 billion of foreign active earnings an effective U.S. tax rate of about 2.3 per cent. A January 2009 GAO report found that of the 100 largest U.S. corporations, 83 have subsidiaries in tax havens. In the Cayman Islands, one address alone houses 18,857 corporations, very few of which have a physical presence in the islands. Leveling the Playing Field: Curbing Tax Havens and Removing Tax Incentives for Shifting Jobs Overseas 1) Replacing Tax Advantages for Creating Jobs Overseas With Incentives to Create Them at Home ..Reforming Deferral Rules to Curb A Tax Advantage for Investing and Reinvesting Overseas ..Closing Foreign Tax Credit Loopholes ..Using Savings To Make Permanent The Tax Credit for Investing in Research and Experimentation at Home 2).Getting Tough on Overseas Tax Havens ..Eliminating Loopholes for Dis-

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appearing Offshore Subsidiaries ..Cracking Down on the Abuse of Tax Havens by Individuals ..Devoting New Resources for IRS Enforcement to Help Close the International Tax Gap (leveling-theplaying-field-curbing-tax-havensand-removing-tax-incentives-forshifting-jobs-overseas).7 The G-20, after its meeting on April 2, 2009, indicated in its declaration that the proposed Financial stability Board (FSB) with a strengthened mandate as a successor to the Financial Stability Forum (which will include all G-20 members, FSF members, Spain and European Commission) will take action against un-cooperative jurisdictions, including tax havens. It declares that the era of banking secrecy is over.8 Jeffry Owens who is the Director of Tax Planning and Administration at the

The G-20, after its meeting on April 2, 2009, indicated in its declaration that the proposed Financial stability Board with a strengthened mandate as a successor to the Financial Stability Forum will take action against uncooperative jurisdictions, including tax havens. It declares that the era of banking secrecy is over.

OECD Centre for Tax Policy, which is responsible for framing tax principles and ensuring that the tax havens fall in line on disclosure norms and share information, feels that the days of tax havens are over.9 It has been successfully demonstrated by countries which had attempted to recover the assets stashed abroad by their corrupt leaders and businessmen that it can be accomplished, like as under: ..Philippines slogged for 18 years but finally successfully got repatriated the bribe money of its former President Ferdinand Marcos ($ 624 million) held in Swiss Bank accounts. ..Between 2001-2004, Peru recovered $180 millions stashed away in tax havens by Vladimiro Montesinos. .Between 2005-2006, Nigeria recovered USD 505 million of the Sani Abacha money frozen and forfeited by Swiss authorities. India Should Also Act The illegal funds stashed away in tax havens are not just issues of tax evasion. It is capital flight from India and part of a corrupt nexus between businessmen, bureaucrats and politicians. Substantial sums have been accumulated abroad due to under-invoicing/over-invoicing and also commission from defence and

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other major contracts. Corruption in our country has a historical perspective of its own. As pointed out by the Supreme Court (State of MP vs. Ram Singh 2000 (5) SCC 88):
Corruption is termed as a plague which is not only contagious but if not controlled, spreads like a fire in a jungle. Its virus is compared with HIV leading to AIDS, being incurable. It has also been termed as royal thievery. The sociopolitical system exposed to such a dreaded communicable disease is likely to crumble under its own weight. Corruption is opposed to democracy and social order, being not only anti-people, but aimed and targeted against them. It affects the economy and destroys the cultural heritage. Unless nipped in the bud at the earliest, it is likely to cause turbulence shaking the socioeconomic-political system in an otherwise healthy, wealthy, and effective and vibrating society.10

There is a need to look at the larger issues of not only corruption but also the impact on our foreign exchange, inflation and interest rates due to these illegal funds stashed abroad. Had these funds been available to India, its foreign exchange situation would have been totally different and the exchange rates would also be very favourable to India.
inflation numbers would have been different. We are not talking about one or two years but decades of lost opportunities and continued loot from the country. Hence the Indian government should look at it as criminal act against the interest of the State since some portion of this also is suspected to be funding terror related activities. The following steps should be considered. There are various categories of culprits. Some are traditional business leaders who have been accumulating money since the 50s; some are new rich entrepreneurs and politicians and bureaucrats who influence decision making for large global purchases. The third category is the money launderers for nefarious purposes including financing of terrorism. The business

There is a need to look at the larger issues of not only corruption but also the impact on our foreign exchange, inflation and interest rates due to these illegal funds stashed abroad. Had these funds been available to India, its foreign exchange situation would have been totally different and the exchange rates would also be very favourable to India. Our borrowings from IMF/World bank and other global institutions would have been lower. The domestic interest rates would have been lower due to substantial availability of funds and
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groups would be more than willing to bring it back already they are suspected of doing this through the Participatory Note process in the stock market. The returns in India are very attractive and India is one of the few countries which are growing at more than 6 per cent even in the midst of a global meltdown. Plus, the severe actions contemplated against the tax havens by the OECD countries etc. will also be a cause of concern for the Indian holders of illegal funds. Hence the government should think of providing a window of opportunity for the businessmen/bureaucrats/politicians to bring the money back with suitable grace period and penalty on the quantum of funds and also specifying the instruments (like infrastructure bonds) where the funds should be invested. Beyond the moratorium period of, say six months, the government can decide to completely nationalise any funds kept abroad, i.e., those funds will be frozen into

The Indian government should look at the issue as a criminal act against the interest of the State since some portion of the stashed away money is suspected to be also funding terror related activities.

government account as and when the facts of their existence comes to the knowledge of the authorities. As far as illegal funds kept for nefarious purposes are concerned, it is imperative that the government raises the issue in multilateral forums like G20 and even the UNSC and get a common legislation enacted to get these funds from tax havens. Bilateral treaties have their limitations since many of these jurisdictions are non-transparent and, to start with, created with a purpose of holding illegal wealth. The Government of India can also create a Truth and Reconciliation Commission which would facilitate distinguishing between the funds and the holders. It will also help in voluntary confessions with penalty for those who have accumulated funds abroad to evade taxes. It can distinguish between different shades of criminals and recommend to the government for acting accordingly. Also, the persons who have accumulated funds abroad should be barred from holding any public office and getting loans from banks etc. as a form of punishment. If all fund holders are treated only as tax evaders, as is currently done in the case of LGT bank list, then they will continue to have every privilege like access to bank funds etc. and hence the criminal nature

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of their actions will never be known. Our clean political leaders have to muster courage to act and act now. There was a report in India Today (February 18, 2008) regarding foreign travels of Central ministers. It stated that a large numbers of them visited Switzerland, including on personal trips, certainly not for skiing in the Alps. Thus there are three issues. The total illegal money stashed abroad, the amount of illegal money kept by Indians in various tax havens and the amount kept in Switzerland. On the first issue, developed economies are taking appropriate actions. On the second and third issues, we are debating about the need to provide exact pin code address and PAN numbers of culprits before even we debate! Going back to the earlier issue of the deafening silence of our business media, both print and electronic, we can surmise that hedge References
1.http://www.thehindu.com/2009/05/08/sto ries/2009050861061300.htm. 2.http://www.shivakantjha.org/openfile. php?filename=articles/funding_ terrorism.htm. 3. NDTV Profit, March 15, 2008. 4. See Eternal India- Vol. 1, No. 7, April 2009. 5. See Eternal India - Vol. 1, No. 7, April 2009. 6. Reuters India - May 15, 2009.

funds etc. have invested in many of these TV companies and it could be through or from these tax havens. That might explain the eloquent silence. But as a Tamil proverb says: can a pumpkin be completely hidden in a bowl of curd rice? The Swiss vaults will be opened up with or without Indias role. If it happens as a collateral benefit to India, then it will make us a banana republic that is worse than Sani Abachas Nigeria. The money kept abroad can be fruitfully employed in developing our infrastructure. To that extent, it is a beneficial inflow for India if the money is brought back. The choice is ours. Either we play our required role in the global forums and get back our money through domestic actions or act as facilitators or become a laughing stock when the Whos Who of India list is published in some American or European news portals.
7.http://www.whitehouse.gov/the_press _office/. 8.http://www.g20.org/Documents/g20 _communique_020409.pdf. 9. Business Standard, June 13, 2009 http://www.business-standard.com/india/ news/the-daystax-havensover/360122/. 10. 179th report of the Law Commission of India on 'The public interest disclosure and protection of informers' - December 2001, by Justice B.P. Jeevan Reddy.

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