Indian Black Money Abroad
In Secret Banks and Tax Havens
The Task Force on the steps to be taken by India
Shri Gurumurthy, Chartered Accountant, Chennai
Shri Ajit Doval, former Director Intelligence Bureau, Delhi
Prof R.Vaidyanathan, Professor of Finance Indian Institute of Management, Bangalore
Shri Mahesh Jethmalani, Senior Advocate, Mumbai
BHARATIYA JANATA PARTY
I. Developments since the First Interim Report
The first Interim Report of the Task Force appointed by the Bharatiya Janata Party was released to the public on 17-04-2009. Afterward different world governments, particularly those in the West, have increasingly begun targeting tax havens and intensely began pursuing black money. The US, and France particularly began a huge campaign against the evil of black money. The estimates black money lodged in tax havens by global financial institutions like the International Monetary Fund reached as high as $18 trillion. The instability in the global financial order itself was traced to the evil money. So the issue has now acquired a totally different dimension. [Para I]
II. Now, it is a national commitment by all; and yet…
Thus almost the entire political spectrum without exception – from the ruling UPA to the opposition NDA and all other opposition parties – has committed to the people of India to bring back the black money illegally stashed away abroad by Indians. So it is no more an exclusive issue of one party or another. The media has begun highlighting and pursuing the issue of black money stashed by Indians abroad as never before. With the stench of 2G spectrum scam and Commonwealth Games scam dominating of the national scene, the wealth stashed abroad is being increasingly linked to bribery and kickbacks. Despite what appears to be a national commitment, there is as yet no action on the ground to tackle this evil of black money abroad. [Para II]
III. Recent and ongoing global developments
1. IMF estimates global black money excluding Switzerland, China, Taiwan and Oil Exporting economies at $18 trillion; that still an underestimate, says IMF!
2. The US Government as well its Congress are most concerned about these tax havens due to the severe economic crisis faced by the country and also due to pressure from sections of economists etc to “clean up” the global financial system. There are also concerns regarding the financing of terror groups by some of the tainted money from tax havens. While powerful countries like the USA have used their geo-political power to arm-twist the Swiss banks to part with the information and recover their lost wealth and even coerce them and extract penalties for abetting in the evasion of tax by their citizens, the less powerful ones have sought and aroused empathetic public opinion to force the Swiss banks to part with the information about the wealth illegitimately stashed away by their corrupt rulers and recover the same, as explained now. [Para III]
IV. Chasing black money – the success stories of other countries:
In the last few years many countries in Europe as well as USA have taken several steps that included geo-political coercion, financial penalties and bribes, to secure information and get back their illegal funds from abroad. The USA forced and got names of more than US 4000 clients of UBS bank from Switzerland by sheer geo-political force, after persuasion first, threat next and related legal actions later. Similar is the story of France and Germany. The latter even officially bribed the Lichtenstein Bank officials to get the secret names of Germans and others who had stashed away their black wealth in LGT bank of Lichtenstein. It has also been successfully demonstrated by countries, which are comparatively less powerful and less influential in geo-politics that monies illegally stashed abroad by their corrupt leaders and businessmen could be recovered. They had been able to accomplish it by exposing and prosecuting the corrupt leaders of their countries who had stashed and secreted away their national wealth in Swiss banks and making their judiciary to seek the cooperation of Swiss government and banks. They had also appealed to the conscience of the world generating the empathy of the world. Recently, private, but publicly motivated, citizens of Tunisia were able to freeze the ill-gotten wealth of its rulers and their fellow buccaneers in Swiss banks. [Para IV]
V. The Indian scene – a contrast
In the background of how the world nations are pursuing the black wealth belonging to their nationals stashed away abroad, the Indian scene presents a depressing contrast. The leaders of the Congress which leads the UPA first denied the existence of such huge amount of illicit Indian wealth abroad; then they reluctantly accepted that fact which was becoming undeniable; then they promised that they would take efforts to recover the Indian wealth illegally stashed abroad; the President of India’s address to Parliament which in substance means the commitment of the UPA government to the people, in specific terms mentioned this commitment; but when it came to actually doing something to implement this commitment, there has been no action on the ground. In fact what is seen is an effort to prevaricate, procrastinate, and even bury the issue. The well-known and well-publicized instances of the existence of illegal Indian monies abroad – like the Hasan Ali case, Quattrocchi issue, the Lichtenstein Bank disclosures and the alleged secret Swiss banks accounts in the name of the family of the President of the Congress and the Chairperson of the UPA and National Advisory Council of the UPA government as detailed later in the Report -- have not only not been pursued, the government of the day is keen to bury them and is shamefully burying them to the view of the entire nation. More about these instances latter in this Report. [Para V]
VI. Indian black wealth abroad $500 billions, says Global Financial Integrity
The Global financial Integrity – a Non-profit research organization – working in the area of Tax Havens has estimated for India that the present value of illegal financial flows held abroad is $500 Billions. This means that almost three-quarters of the illicit assets comprising India's underground economy—which has been estimated to account for 50 percent of India's GDP (approximately $640 billion at the end of 2008)—ends up outside of the country. This seems to have settled the issue about the volume of the Indian black wealth abroad. [Para VI]
VII. “Bribes, corruption, kickbacks, criminal activities and tax evasion”
And what is the kind of money, which the GFI says has been hoarded abroad by Indians? This is what the GFI says about the character of the loot. “From 1948 through 2008, India lost a total of US $213 billion in illicit financial flows (or illegal capital flight)” through “tax evasion, corruption, bribery and kickbacks, and criminal activities”. Tax evasion is only one aspect of the illicit monies Indian nationals and corporates have hoarded abroad. There appears to be more intimate link between monies stashed away abroad and bribes, corruption, kickbacks and criminal activities. Still the government of India seems to be keen to treat the issue as a tax evasion issue only. [Para VII]
VIII. Not just tax evasion, but “theft” and “plunder” – says the Supreme Court
But on the 19th of January-2011 [Wednesday] the Supreme Court of India called the shameful phenomenon of Indian funds kept illegally abroad as “theft” and “plunder” and not treat it as merely tax avoidance. It also demanded an “action taken” report on all “faceless” Indians who had moved their ill-gotten money overseas. [Para VIII]
IX. Bribes as important source of Indian black monies stashed abroad
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. [Para IX]
X. The Indian government suppresses the basic facts about Indian black wealth abroad
First, the Indian government is keen to suppress the information relating to the issue of Illegal Indian monies abroad. The Enforcement Directorate is not inclined to reveal even the “total volume” of illegal Indian monies abroad to an applicant under the Right to Information Act. During the hearing at Chief Information Commissioner, Eneforcement Directorate stated that they could either confirm or deny media reports about the likely volume of black money stashed away in foreign banks illegally by Indian nationals. Regarding questions related to illegal investment by Indians in foreign countries and money stashed away in banks abroad, the RBI surprisingly said it had no information on the issue. [Para X]
XI. Presidential address – commitment to act against illegal monies – seems an empty promise
The commitment of the UPA II government in the address of the President of India to Parliament in June 2009 to vigorously pursue all necessary steps in coordination with the countries concerned has been observed only in breach. [Para XI]
XII. Shockingly India has not ratified the United Nations Convention against Corruption even now.
India and Switzerland are signatories to the United Nations Convention Against Corruption. Yet India has not ratified the UN Convention till today. This would have enabled India to seek the co-operation of world nations including Switzerland to tackle corruption at all levels. According to global anti-graft watchdog Transparency International, India should endorse the United Nations Convention Against Corruption for the recovery of India’s wealth, which has be hoarded in foreign banks.
The UN Convention helps the country, which seeks to recover the assets stashed away. This is the greatest achievement of the Convention. This single act shows that the Government of India is not keen on securing global co-operation to tackle corruption in India, which would mean tracking and bringing back corrupt funds stashed away abroad. [Para XII]
XIII. The Double Taxation Avoidance Treaty with Switzerland – an impotent instrument
The DTA Treaty is not an effective mechanism to tackle the problem of money laundering. The Swiss government for instance cannot ask the Swiss banks to disclose any name under the Swiss law. So the so-called Double Taxation Treaty with Switzerland is no more than a PR exercise. That will yield practically nothing. And India is only thinking of even the watered down treaty to “prospective” transactions, which means that the past frauds, crimes, kickbacks, bribes and corruption are to be glossed over! [XIII]
XIV. Terrorism and secret money
To recall, as early as 2007 the concern expressed by our own National Security Advisor -Mr. M.K Narayanan- regarding possibility of terror funds coming through financial markets [See his speech “Link between world of finance and terrorism”: at Munich Security Conference on 11.02.2007). [XIV]
XV. Why does India not act like other countries?
Why does India then not act like other countries? Why does it not partner the US, Germany, France and other countries, which are chasing their black wealth outside their territories? Why does it not follow the examples of such small countries like Philippines, Peru, Nigeria, and Tunisia, which have chased the corrupt wealth of their rulers? Why does it not use its increasing geo-political power to bring back the black monies stashed abroad by Indian nations? Why does the UPA government show obvious reluctance to handle this matter aggressively, contrary to its own commitment through the Presidential Speech to Parliament in June 2009? The answer is simple. The UPA government does not even pursue known cases of money laundering, like the Lichtenstein Bank case, Hasan Ali affair, Quattrocchi matter and the alleged Swiss bank accounts in the name of a former Prime Minister of India. [XV]
XVI. Lichtenstein Bank Affair
The Ministry of Finance [MoF] says it has names but will not reveal them. The reply affidavit by MoF suggests that the petitioners should seek the RTI route – may be to be rejected under the RTI. 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.
XVII. The $8 billion Hasan Ali Ali hawala – the smocking gun
The facts that have emerged in the Hasan Ali Ali case clearly lead to the disconcerting inferences that ruling party leaders were involved in Havala and stashing away national wealth illegally abroad; that there was undeniable nexus between politicians and criminal world; that the probe was derailed, stymied and rendered meaningless by delay and prevarication thanks to the involvement of the ruling party leaders; that the present government has no interest in recovering back the national wealth stashed abroad; that on the contrary, it is clearly interested in not exposing those who had stashed their wealth abroad.
a) Ali began to be involved in Havala business in billions in 1990s;
b) Ali was involved with Adnan Khassogi, the international arms dealer, who was found in the probe into the assassination of Rajiv Gandhi in 1991 to have supplied to arms to LTTE, in business and finance from 1982;
c) He was involved with politicians, particularly the ruling congress party leaders;
d) He had respectable local associates to front for him;
e) He, who had nothing twenty years back, had billions in his and his associates’ account by end 2006;
f) The probe into him was delayed and rendered directionless and almost purposeless, which indicated that the government was keen, even desperate, to bury the Ali case as detailed herein later;
g) The Solicitor General of India has in an extraordinary step written to the Government of India that the Ali case must be investigated from national security angle also, which he could not have done without some critical material that must have been brought to his attention;
h) Yet, the attitude of the government to Ali probe is a clear testimony to the fact that the government, far from pursuing and bringing out the national wealth stashed away abroad, is aiding and collaborating with the buccaneers who have criminally misappropriated the national wealth.
The shocking details of the Ali probe tumbled into the public domain through the media obviously because as the officials, who were investigating the case found that the political establishment was not keen to pursue the case, began to leak out the details. Whatever information the public has today is not through any detail given out by the government to Parliament or to the public. The media reports, sourced in the details leaked out to the media by the Enforcement Directorate and the Income Tax department are the only information available to the people. Yet the details which have appeared in the last four years, when seen collectively, shows a shocking fraud on the people of India by the ruling establishment which has clearly subverted the Ali money laundering probe involving over $8 billions.
a. Hasan Ali’s bank balances grew from $1.5 million in 1982 to $8 billion in 2006
b. A more disturbing aspect is Ali’s deep involvement with transactions in billions with Adnan Khassogi, the infamous international arms dealer whose name figured in the assassination case of Rajiv Gandhi in 1991 as an arms supplier to the LTTE, which masterminded the killing of Rajiv Gandhi.
c. Ali received $300 millions from Khassogi as “Funds from Weapons Sale”, which was frozen by the Swiss Government, but Ali managed the Swiss government later.
d. Ali associate had confessed to involvement of Congress leaders
e. ED regarded Ali’s illegimate funds as linked to terror, organized crime, gun-running and bribes; why anti-terror law was not invoked?The ED show cause notice has stated: “It is suspected that the accounts with such huge deposits of money originating from various international destinations are proceeds of heinous crimes such as terrorism, arms trade, gun-running, corruption and organized forgery, fraud and others”. These are grounds fit for action under the anti terror law of India in force then, the Unlawful Activities Prevention (Amendment) Act 2004 [which had replaced the Prevention Of Terrorism Act]. Under that law, the Ali funds could have been frozen as “proceeds of terrorism” and confiscated under section 24 of the law and pending the due legal process, by registering an FIR under the law, the Swiss government could have been requested to freeze the Ali accounts.
f. Investigate Ali from National Security angle, tells Additional Solicitor General to Finance Minister;
g. The way Ali case was handled showed that ruling party bigwigs were involved with him;
h. An inevitable question has arisen as to whether Ali fronting for a leading politician? The media has recently reported, “Investigators are also trying to ascertain the real beneficiary behind Hasan Ali's spectacular wealth. Investigators say funds might have been amassed from defence deals and Hasan Ali could be a front for a politician;
i. ED had proposed to arrest Ali in December 2008; no arrest till now
j. The government had made a Collusive request to the Swiss authorities for assistance, which has bounced back
k. The Hasan Ali’s case – the smoking gun
An irrefutable proof of a secret meeting of the Maharashtra Government and the Political Adviser to the President of the Congress Party Smt Sonia Gandhi with Hasan Ali has been revealed by one of the members of the Task Force, Shri Mahesh Jethmalani, on 25 January 2011 in the debate in the Times Now TV Channel moderated by Shri Arnab Goswami on Black Monies stashed overseas. In his sensational revelation Shri Mahesh Jethmalani said that that the Crime Branch of Mumbai Police in Mumbai has a video recording of the secret meeting between Hasan Ali, who was absconding in the Enforcement Case of $8 billion against him, the then Chief Minister of Maharashtra Vilasrao Deshmukh and the Political Advisor to the Congress Party President Shri Ahmed Patel, and Shri Ghafoor Ahmed Khan, who was later appointed as the Police Commissioner of Mumbai at Hotel Centaur [now known as Tulip] in Mumbai on 8.11.2008 Shri Mahesh Jethmalani has made available a copy of the CD of this audio-video with the transcript of the conversation among the four persons [in which the decision to appoint Shri Gaffoor as the Commissioner of Mumbai Police] to the Task Force. The transcript of the answers given by Hasan Ali to the Police, taken from the Video available with Shri Mahesh Jethmalani, one of the members of the Task Force:
In fact, this information and the video recording was first placed in the public domain by Shri Ram Jethmalani, the well-known senior lawyer [who has filed the Writ in the Supreme Court on the issue of black money abroad] on 15.4.2010 at a press conference addressed by him in Mumbai. While Ali tells the Police that he met Shri Ahmed Patel in Centaur Hotel, Shri Patel has however denied having been present at any meeting with Ali or ever met him; Vilasrao Deshmukh ordered an inquiry into the affair, but till now nothing contrary has been found out. The Home Minister Maharashtra has denied the meeting. But the video exists and is in the possession of Shri Mahesh Jethmalani one of the members of the Task Force. [Para XVII]
XVIII. Bofors pay off to Quattrocchi and his links with the family of the President of the Congress Party
Despite all the efforts to bury the Bofors pay off case, it refuses to die. The Income Tax Appellate Tribunal decision on Win Chaddha’s tax issues has brought the issue alive back to the public domain. Shockingly the Tribunal decision came the very day the CBI had moved the CBI court for closing the case against Ottavio Quattrocchi. Some recall of the Quattrocchi part of the Bofors pay off case is necessary to know how its continuation impacts on the attitude of the government of India to the illegal monies of Indians stashed away abroad. [Para XVIII]
XIX. The alleged secret Swiss accounts of the family of a former Prime minister of India
It is a matter of concern that there have been serious and persistent allegations in the media in and outside India about alleged secret Swiss accounts held by the family of a former Prime Minister of, which have not been even formally denied by any one from the family. Because of that, there is an increasing apprehension in the public mind that it is due to the involvement of leaders close to the UPA and its component ruling parties that the UPA government and therefore India remain the only exception to the global pursuit of illegal monies abroad. The apprehension is that the Indian government is not taking the aggressive measures in that direction unlike the other countries as explained here in this report. [Para XIX]
XX. The government suffers from utter lack of credibility
The UPA government suffers from serious loss of credibility because of the Lichtenstein Bank affair, the Hasan Ali and Quattrocchi cases and the serious allegations that billions of dollars are lying in secret Swiss bank accounts in the name of a former Prime Minister of India belonging to the Congress Party. [Para XX]
XXI. How can the UPA government reacquire its lost credibility?
The issue is how the UPA government can reacquire credibility? It is not trust deficit but defunct trust. If the government’s credibility is to be restored within and outside the country, the government must act on the four cases – namely the Lichtenstein Bank names, Quattrocchi pay offs Hasan Ali case and respond to the alleged secret bank accounts of the family of the former Prime Minister of India belonging to the Congress Party – in a credible manner. The government action so far is explicitly to suppress the truth and to bury the cases. Unless these steps are forthwith initiated, not only the UPA government’s credibility will be questioned, it will also lead to the inevitable inference that the UPA government is hand-in-glove with the buccaneers who have stashed away billions of dollars of Indian people’s money abroad. [XXI]
XXII. The need to restore credibility of the political parties and the political system as a condition precedent
The people of India view with suspicion and apprehension the entire political class, which is supposed to act to recover the Indian monies stashed away abroad. In fact the political class is suspect today in the eyes of the people. There has to be a morally and ethically sound response to restore the trust and confidence of the people of India. [XXII]
XXIII. Moral and ethical response needed from the political class
The Task Force therefore suggests that the political class must set an example. Leaders and office bearers of political parties, ministers and Members of Parliament must declare that they or their families have either no wealth abroad, or if they have they must explain how they had acquired it. In addition they must give letters to the government stating that they authorize the government to ask from any government or bank in the world the details of any money held by them or by their sons and daughters. [Para XXIII]
XXIV. Constitutional, legal, geo-political, moral and ethical measures needed to recover the Indian wealth illegally stashed away abroad
1. First, the Government of India can enact a law, recognizing reports of the IMF and GFI etc saying that huge Indian capital has been illegally stashed away from India, declaring that the government of India is the beneficiary of all monies, assets and bank accounts held abroad by or the benefit of Indian nationals without declaring the same to the Indian authorities.
2. Second, on the basis of the said law, the Government of India can ask the world governments and the different banks committed to secrecy like the Swiss Banks, to recognize Indian government as the beneficiary of the undeclared wealth, bank account and other assets of the Indian nationals till the owner of the wealth, bank accounts and other assets is able to prove that he had acquired it by fair means and from legally valid sources
3. Third, the National Investigative Agency [NIA] must register an FIR like the investigative agency did in the case of Punjab terrorism and Nagaland insurgency against unknown accused persons who had stashed away monies abroad under the money laundering and anti-terror laws and proceed to investigate by inquiry, interrogation and even arrest. This omnibus FIR will be facilitate a continuous investigation and continuous progress. This will, as the investigations proceeds, facilitate many, may be hundreds and thousands of specific FIRs and prosecutions, but still continue as the umbrella FIR which will facilitate the continuance of the campaign against black money.
4. India as a major emerging power should play an important role in enunciating New Global financial Architecture altering the architecture evolved in the twentieth century by Anglo-Saxon laws which facilitated development of these secretive jurisdictions. We need to evolve a new architecture suiting Asian value systems for the twenty first century based on transparency and integrity. Since the economic power is shifting to Asia we need new financial architecture for the coming decades. As indicated above we should stress on Geographical disclosure of sources and uses of Funds by Global banks and based on that “automatic information sharing” should be done by the recipient nations. In other words closing down of the secretive tax jurisdictions should be one of the objectives of India for a non-conflicting civilizational future. As a responsible member of G-20 and FATF, UNSC etc we should take the lead for all emerging markets.
The Task Force has suggested in details many other measures to combat the menace of black money abroad. [Para XXIV]
Our Republic is under siege. Our polity is in shambles. We are at cross roads. Wiki leaks mocks at us in terms of revealing the names of our current icons as men who plundered. It is possible that foreign spy agencies know the names. Our leadership may be under blackmail and our policy formulations may have been compromised. We are in an extraordinary time. This ancient nation rebuilt by Mahatma Gandhi; Sardar Patel; Pundit Nehru; Babasaheb Ambedkar; Netaji Bose; Rajaji and many other eminent men who towered over our mother land is in crisis because of these plunderers. As a nation, we owe it to the deprived and ordinary people of India and its future citizens to perform the sacred duty of unearthing these vast national resources hidden abroad which has the potential to transform the country into a developed nation much sooner than we can otherwise do. India is not only a country, but, also a great civilization, which has from time immemorial propagated non conflicting ideas and practiced non-conflicting methods. As a rising nation, we need to set proper standards for ourselves so that we become the alternative model for the world of conflict in search of peace and harmony. Being viewed as a corrupt and dishonest nation, and being seen as a nation of buccaneers who bolt away with hundreds and thousands of billions of Dollars when a vast section of the ordinary people of this country are in penury, will hardly give us the moral and ethical authority to be of example to the world. The time is propitious. The entire world opinion is converging against tax havens, secret banking and evil monies. The issue spills beyond economic stability; it has the potential to dynamite the economic system itself; it has potential to destroy the global security itself as the terrorists are funded by secret and not open financial system. The Task Force is of the view that the information and the ideas contained in this and in its earlier report must be taken to the people of India at various levels. The Task Force hopes that the BJP will dedicate itself to the cause and associate as many critical forces, in and outside politics, in the sacred agenda. [Para XXV]
Dated 31 January 2011
S. Gurumurthy Ajit Doval
R. Vaidyanathan Mahesh Jethmalani