India must shake down Swiss banks to dig out black money

New York - India has been wishy-washy in its pursuit of black money stashed in tax havens abroad, but with Swissbanking secrecy tottering under relentless US attack, it’s time New Delhi put pressure on Swiss banks to give up Indian tax evaders with undeclared funds.

Newspapers reported on Sunday that US deputy attorney general James Cole has written to Switzerland to set an ultimatum to hand over information on its citizens using Swiss accounts or see Credit Suisse and nine other Swiss banks face charges. The US is pushing Switzerland to hand over bank client names as it did last year when UBS revealed details about 4,450 US clients to avoid criminal charges. In 2009, the Swiss government had stepped in to make the deal with the US to shield Switzerland’s banking secrecy laws and protect UBS from further legal fallout.

America is stepping up the ante because the US Internal Revenue Service feels betrayed as many UBS clients quickly shifted their assets to smaller Swiss banks. Washington is now seeking details of all US clients with accounts worth $50,000 between 2002 and last year at banks including Credit Suisse, private banks Julius Baer and Wegelin as well as the Zurich and Basel cantonal banks.

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Since the 2008 financial Armageddon, Switzerland has been under pressure to water down its banking secrecy laws as governments crack down on tax evaders with undeclared funds in Swiss banks. Switzerland has so far responded by signing new tax deals with Britain and Germany, which besides the US have been among the most noisy critics of Switzerland’s banking secrecy laws.

[caption id=“attachment_77113” align=“alignleft” width=“380” caption=“The logo of Swiss bank Credit Suisse is seen at an office building near the company’s headquarters at the Paradeplatz square in Zurich. Arnd Wiegmann/Reuters”]  [/caption]

On 2 August, finance minister Pranab Mukherjee told the Rajya Sabha he had received “some information” regarding Indian deposits in Swiss banks. Since Swiss authorities have stonewalled India, Mukherjee could only be referring to WikiLeaks which released a list of names of Indians who had stashed black money in Swiss accounts. The WikiLeaks lead spurred income tax raids last month on big diamond merchants in Mumbai like B Arun Kumar and Co. and Mahendra Brothers Exports.

WikiLeaks founder Julian Assange told reporters that India “should be much more aggressive” in dealing with Swiss banks as it was losing more tax revenue per capita than Germany. Switzerland in late August agreed to charge previously undeclared British deposits in Swiss account with a levy of up to 39%. The agreement follows a similar deal with Germany which was also struck in August.

“In the US, UK, German cases holding bank accounts abroad is not illegal, but what is illegal is evading taxes on those accounts or the interest income. In our case, it is simply illegal for individuals to actually hold accounts so there is another dimension. Since such accounts are not even allowed, money will actually have to be repatriated. They will have to move the accounts back to India under the current law,” said Arvind Panagariya, professor of economics at Columbia University and author of India: the Emerging Giant.

“India ought to do much more because in our case it is also a case of unaccounted income.”

Amid pressure to bring back unaccounted money, India signed a protocol with Switzerland in August last year to revise the Double Taxation Avoidance Agreement (DTAA). The revised treaty gives India access to Swiss bank account details of its citizens from 1 January 2011.

Tax experts have blasted the Indian government for negotiating the DTAA treaty with Switzerland without fighting to get a chunk of tax revenues on illicit funds stashed away in Swiss banks since the 1970s. Experts also say India has little political will to curb black money as it has double taxation treaties with 79 countries, but 74 of these treaties need to be tweaked to include exchange of banking information between the countries.

“The Philippines slogged for 18 years but recovered the $624 million bribe money of its former president Ferdinand Marcos held in Swiss banks. Why can’t India recover assets stashed abroad by our corrupt leaders, businessmen, bureaucrats, smugglers and criminals? Unless there is political will to dig out black money, nothing will happen,” said a senior banker in ICICI Bank Ltd, who did not want to be identified.

Kroll, founder of the US corporate detective agency that bears his name, built his reputation in the 1980s by helping the Philippines track down the millions that Marcos and wife Imelda stole from their country and hid around the world, including in Manhattan real estate and Swiss bank accounts.

Much of Switzerland’s traditional attraction has been the option to stash funds tax-free and experts say a tradition of bank secrecy has helped Switzerland build up a $2 trillion offshore financial industry.