SIT on black money: If there is political will, it should go for gold and a big haul

More than six years ago, in February 2008, the German authorities had collected information about illegal money stashed away by citizens of various countries in a Liechtenstein bank. The German Finance Minister offered to share the names of these account-holders with any government interested in them. The UPA-1 government, unfortunately, did not act for many months and, after much prodding by the Opposition, asked for the list in late 2008.

A German intelligence agency appears to have paid an unnamed informer more than $6 million for this confidential and secret data about clients of the LGT group, a bank owned by the Liechtenstein Prince's family. The revelations have already led to the resignation of the head of Deutsche Post, which is currently the world's largest logistics company. Liechtenstein leaders were furious and have focused all their ire on the theft of the data rather than on the facts of the case.

The German list contained the names of 1,400 clients of the Liechtenstein bank, of whom 600 were Germans. A spokesman for the German finance ministry, Thorstein Albig, had said in March 2008 that information on the other accounts would be shared without charging any fees. Finland, Sweden, and Norway quickly obtained the data, but our government began pussyfooting around this issue. If it had genuinely wanted to act against black money, it should have immediately despatched senior officials/ministers to get the names. Pushed and prodded by the Opposition and the media, when the government finally moved, it got nearly 100 Indian names - but those names have been kept a secret.

This writer, who has been studying tax havens for more than a decade, wrote in April 2009 (in the journal Eternal India, published by India First Foundation) about the need to get back the illegal deposits kept by Indians in various tax havens, including Liechtenstein. A public interest litigation was then filed by Ram Jethmalani and others in the Supreme Court, to which the government responded that it was taking steps to recover such amounts. It had also mentioned that the German government had given a list of people who had kept money in the LGT Bank of Liechtenstein (May 2009). The government's response also said that steps were being taken in the case of Hasan Ali Khan, a Pune horse-breeder, who was alleged to have indulged in several illegal transactions through the UBS Bank of Switzerland.

In the meanwhile, the then Leader of the Opposition in the Lok Sabha, LK Advani, had constituted a committee consisting of S Gurumurthy, well-known Chartered Accountant, Ajit Doval, the current National Security Advisor, lawyer Mahesh Jethmalani, and this writer. The report of the committee was also used by Ram Jethmalani in his PIL filed with the Supreme Court.

The government maintained that it cannot reveal the names received from Germany since it had obtained the same under the double taxation avoidance treaty. The point is: why did the government ask for information under the double-tax treaty with Germany when the issue - stolen data from the Liechtenstein bank by Germany - was unconnected to the treaty? Where is the issue of confidentiality vis-a-vis criminals? Actually, it is wealth kept illegally in the bank in Liechtenstein, and the money does not even concern Germany.

The double-tax treaty generally prevents the use of information supplied under the treaty for any purpose other than the levy and recovery of tax. It is doubtful whether the income tax department can share the details it has secured under the treaty with the Enforcement Directorate or the National Investigation Agency which tracks terror cases, or the NSA. That is why the Supreme Court had refused to regard it purely an issue of tax evasion.

The finance ministry says it has the names but will not reveal them. But is this right? The accounts are those of international crooks who have deprived our land of huge financial resources through capital flight. It is an unpatriotic act which can be equated to financial terrorism. Domestic black money (that is untaxed income) is merely a no-confidence motion against the government's tax policies, but black money in tax havens abroad amounts to no-confidence against the country - which is akin to treason.

A report in The Economic Times dated 4 June 2009 said that of the 50 Indians who have stashed funds in LGT Bank, 25 belong to Mumbai. The tax authorities have reopened assessments of these 25 tax evaders under section 148 of the Income Tax Act. This implies that the government is treating it as tax evasion and not capital flight and a crime against the country. But on 19 January 2011 - after two years of waiting - the Supreme Court made a historic observation about this shameful phenomenon of Indian funds being kept illegally abroad and the obstructionist attitude of the central government in unravelling the truth.

A report in The Hindu quoted the court as saying that black money stashed abroad by Indians was "pure and simple theft of national money." The court "questioned the Centre's approach to tackling this menace and retrieving the huge amounts kept in foreign banks. When Solicitor-General Gopal Subramaniam furnished in a sealed cover a list of 26 names who had accounts with (the) Liechtenstein Bank, a bench of Justices B Sudershan Reddy and SS Nijjar was not convinced of the steps taken by the government for getting back black money. Justice Reddy, after perusing the list, told the SG: 'This is all the information you have or you have something more? We are talking about huge money. It is a plunder of the nation. It is pure and simple theft of national money. We are talking about mind-boggling crime. We are not on (the) niceties of various treaties."

The court then insisted on the formation of a special investigation team (SIT) with ex-Supreme Court judge Jeevan Reddy as Chairman, assisted by Justice MB Shah, and asked the government to share details about the Liechtenstein list. The UPA government dilly-dallied and used every ruse in the legal book to buy time. But the Supreme Court was very upset and told the government that it can be hauled up for contempt of court. The court, in its order of 1 May 2014, had given the government three weeks' time to issue a notification for setting up an SIT to be presided over by Justice MB Shah (since Justice Jeevan Reddy had declined to head it for personal reasons), with retired Justice Arijit Pasayat as vice-chairman, to guide and direct the investigation.

The three weeks ended on 22 May and extended to 27 May due to a change in the government. Hence, the first decision of the new government was about the SIT. It was a decision pushed down the throat of the government of India by the court due to the sustained efforts of Ram Jethmalani, represented by Anil Dhavan, and armed with reports of this writer. The SIT will consist of the Chief of the Financial Intelligence Unit, the Chief Commissioner of Income Tax, a Deputy Governor of the RBI, the IB Director, the Narcotics Bureau chief, and the head of the Enforcement Directorate. The group will also have access to the accounts of HSBC Bank, Geneva, details of which were given by the French government.

The SIT is essentially a group of bureaucrats with varying degrees of expertise about tax havens. This is mainly for illicit money kept abroad and not for domestic black money. Most of the double tax treaties which the UPA-2 entered into are prospective in nature and the task of looking into past illegal funds is complicated.

The group should distinguish between pure tax evasion (let us call it vegetarian black money) and funds connected to terror/arms smuggling/narcotics (say, non-veg black money). The former is easy to focus on and can be dealt with through penalties. A recent Supreme Court judgment, which says that "that Indian resident beneficiaries shall not be taxed on the income of an offshore discretionary trust as long as the trustees do not distribute income to the beneficiaries," may help many in the first category.

The best way to proceed is to have a joint sitting of Parliament and pass a resolution stating that "any funds abroad held by Indian nationals belong to the Republic of India" unless they have been kept abroad under legal rules and regulations. Armed with such a resolution and recent agreements entered into by Switzerland and Singapore with OECD countries, the SIT can go for gold! Actually, the SIT should be willing to use the concept of sama/dhana/bheda/dhanda in achieving its task - many secretive jurisdictions, including Switzerland, can and should be arm-twisted to part with information. After all they have huge investments in India

It is also necessary to consider the gold/diamonds/precious items kept by Indians in the lockers of banks in tax havens abroad. The road ahead for the recovery of illegal money stashed abroad is full of pot holes and craters, but we Indians have a way of navigating such impediments. What is needed is the political will for the same.

(The author is finance professor, IIM Bangalore. These views are personal)


Published Date: May 31, 2014 11:38 am | Updated Date: May 31, 2014 11:38 am


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