Kejriwal's bombshell: Govt, HSBC have much to answer for

On a day when the Congress was  contemplating its navel  at the Samvaad Baithak session at Surajkund, the indefatigable team of Arvind Kejriwal and Prashant Bhushan gave Congress leaders yet more incendiary material to ponder over. Which is why today's newspapers, which would have otherwise have expended themselves analysing the body language of Rahul Gandhi or the fashion sense of Sonia Gandhi, or some such inanity, are preoccupied instead with the rather more meaty allegations that Kejriwal and Bhushan  reheated and served at Friday's press conference.

UPA government spokepersons have airily dismissed Kejriwal's allegations centred around 'black money hoards' in offshore banks, but as happened with their earlier exposes, this story has legs. And although the cynical will point to the fact that all of the earlier cases that Kejriwal took up - from Sonia Gandhi's Robert Vadra's real estate transactions to the misappropriation of funds from a trust run by Salman Khurshid's  family, to the charges against Reliance Industries in the KG-D6 oilfield to Nitin Gadkari's embarassing business transactions -  have fallen off the front pages, the cumulative weight of the allegations has succeeded in laying bare the neural networks of a corrupt system.

HSBC has offered no satisfactory explanation following allegations of its egregious breach of banking regulations. Reuters

At the core of the allegations that Kejriwal and Bhushan levelled on Friday are the government's reluctance - or rather, unwillingness - to go after the big fish even when specific information relating to offshore bank deposits of Indians lands on its lap. As Firstpost has noted earlier (here), black money abroad is really the "Gangotri of corruption", and at a time when other countries were exerting their political influence with offshore bank entities to get them to disclose details of tax dodgers from their jurisdiction, the Indian government was dragging its feet even when foreign governments were offering to share details of these foreign bank account holdings.

To be fair, not every foreign bank account holding by an Indian or a person of Indian origin is a repository of black money. The RBI allows every Indian to legally transfer funds upto a limit overseas, subject to due process. Likewise, Indian companies that operate across geographies can legitimately hold accounts offshore. And non-resident Indians - even those who are subject to Indian tax jurisdiction on the incomes they earn within India - are legally permitted to hold money in foreign bank accounts.

But Kejriwal and Bhushan have  established that the government took no meaningful action even after it became known that HSBC played fast and loose with regulations in respect of the  700 accounts in HSBC, Geneva, details of which were made available to the Indian government by the French government. And although the Indian government claims it did realise Rs 181 crore in taxes from some of the account holders in HSBC, Geneva, it appears not to have initiated penal action against them.

Instead, what the UPA government did, during the time that Pranab Mukherjee was Finance Minister, was to work out hush-hush deals  with some of the account holders.

Firstpost had raised the red flag in November 2011 (details here), and wondered if the Indian government was sneakily running an undeclared voluntary disclosure scheme for India's Swiss bank account-holders without formally announcing one.

The government has all along been cagey about disclosing the identities of these account-holders, but other whistleblowers have in the past been somewhat more forthcoming. Rudolf Elmer, the Swiss bank whistleblower was was jailed for his efforts to blow the lid off Swiss secrecy laws that protect criminals, noted last year that among the Indian clients in Switzerland were Indian "politicians, cricket players, managers, and film stars"  (more details here). And in his estimation, the Swiss bank holdings of these celebrities and politicians weren't just in the form of money: it included jewellery, gold coins, paintings in Swiss safes. Estimates that these holdings were collectively worth about $1.3 trillion were not far off the mark, Elmer claimed.

Elmer also made the point that if the Indian government really exerted pressure on the Swiss government in the way that the US was doing, it would secure the information it wanted. “India is a very strong country, and is getting stronger every day, so you do have negotiating power. Indian society has to force the Indian government to pursue secret jurisdictions,” Elmer said.

Investment and taxation expert Anil Harish, who has represented some of these 700  account-holders with HSBC, Geneva, offered interesting insights into just how much the Indian government knew in respect of these accounts. "One of our NRI clients was asked to appear before the Income Tax Department, Harish noted (watch his video presentation at a MoneyLife event here). "The IT officer asked my client if he had an account outside India. He said, 'yes, I am an NRI and I have accounts in India  - including with HSBC in Geneva.' The officer wanted to know how much money was in the account. My client responded to say he had $2.5 million dollars, to which the officer said, 'No, you have $2.4 million.'"

Harish's point is that the government knows the fine details of the HSBC, Geneva, accounts that were the focus of Kejriwal's and Bhushan's press conference.

Just as surely, as the statements from three of the 700 account-holders (Parminder Singh Kalra, Vikram Dhirani and Praveen Sawhney) that Kejriwal and Bhushan furnished on Friday (details here) establish, HSBC has been egregious in flouting money laundering laws in India, and ought to have been called to account. HSBC has faced similar charges in other jurisdictions: indicatively, an investigation in the US established that HSBC's operations, and its weak provisions against money laundering, "exposed the US to money laundering, drug trafficking and terrorist financing risks" (more details here).

And, coincidentally on Friday, fresh reports surfaced that HSBC is at the centre of a major investigation in the UK after it opened offshore accounts for serious criminals living in the UK (more details of that here).

So Kejriwal's charge that HSBC's 'hawala' operations put India at risk even from a security perspective isn't so wildly batty as may have sounded at first glance. HSBC has, of course, issued a proforma denial of the charges against it, but  thus far it has not given a satisfactory explanation of its operations.

Both the government and HSBC have much to answer for, particularly after Kejriwal's reiteration of the charges in respect of the 700 account-holders in HSBC, Geneva.  Airy dismissals, of the sorts that the government,  HSBC and the various industrialists named as account-holders,  furnished on Friday are no longer an alibi for inaction or opacity.

Updated Date: Nov 10, 2012 07:22 AM

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