Monday, January 3, 2011

'Swiss black money can take India to the top'

by Vicky Nanjappa

March 31, 2009
Indian money stashed in the Swiss Bank has become a focal point of debate, especially after the Leader of Opposition and the Bharatiya Janata Party's [Images] prime ministerial candidate L K Advani [Images] raised the issue on Sunday. If elected, the BJP has vowed to bring the black money back home. Though the Congress dismissed the idea, the Swiss bank issue is slowly becoming a hot election issue.
In fact the BJP also plans to carry out a mock election across the country on April 6 where people will have to cast their vote indicating whether Indian money in Swiss banks should be brought back to India or not.
During his address, Advani said the BJP will form a task force comprising experts to prepare a strategic document for India to recommend ways to get back the national wealth stashed away illegally by corrupt politicians, businessmen and criminal overlords.
One of the names he mentioned in the task force is Professor R Vaidyanathan, Professor of Finance at the Indian Institute of Management, Bengaluru [Images].
In this exclusive interview to rediff.com's Vicky Nanjappa, Vaidyanathan explains in detail the importance of bringing back the ill-gotten wealth and how the money got there in the first place.
Firstly how much Indian money do you think is stashed away in the Swiss Banks?
In 2006, the most recent Global Financial Integrity study, developing countries lost an estimated $858.6 billion (about Rs 43 lakh crore) to $1.06 trillion (abot Rs 51 lakh crore) in illicit financial outflows. Even at the lower end of the range of estimates, the volume of illicit financial flows coming out of developing countries increased at a compound rate of 18.2 percent over the five-year period analysed for the study. On average, for the five-year period of this study, Asia accounts for approximately 50 percent of overall illicit financial flows from all developing countries.
This report shows that the average amount stashed away from India annually during 2002-06 is $27.3 billion (about 136,466 crore). It means that during the five-year period the amount stashed away is 27.3x5=136.5 billion (about 692,328 crore). It is not that all these amounts went to Swiss banks. It has gone to different tax and secret shelters. The share of Swiss banks in dirty money being a third of the global aggregate, some $45 billion out of the 136.5 billion stashed away from India would have been hoarded in these years in Swiss banks.
The important point is that this is only for five years. More amounts were stashed away during the Nehruvian regime. So the loot for 55 years will be several times higher. In fact, in those days the rupee commanded a better value per dollar. So fewer rupee could get more dollars. So the estimation that the Indian money stashed away may be of the order of $1.4 trillion (about Rs 71 lakh crore).
On what basis have you come to this conclusion?
There is a lot of literature available as to how to estimate the illicit financial flow from developing countries. We find out what the nature of the flow is. I have also relied upon the study Illicit Financial Flows from Developing Countries: 2002-2006 Global Finanacial Intergrity authored by Dev Kar and Devon-Cartwright Smith, a project of the Ford [Images] Foundation. Financial flows in the context of this report includes the proceeds from both illicit activities such as corruption (bribery and embezzlement of national wealth), criminal activity, and the proceeds of ilicit business that become illicit when transported across borders in contravention of applicable laws and regulatory frameworks (most commonly in order to evade taxes).
Which are the various tax havens, where the ill-gotten wealth of Indian businessmen and politicians are stashed?
There are presumably more than 70 tax havens in the world. Indian wealth could be more in Switzerland [Images] and various British /US islands. At least 40 countries market themselves aggressively as tax havens [Source: Internal Revenue Service USA on Abusive Off-shore Tax Avoidance schemes �Talking Points Jan 2008]. The well-known tax havens are Switzerland/ Liechtenstein/Luxemburg/ Channel Islands etc.
Could you elaborate and tell us how the money got there in the first place?
There are several methods/reasons. Under invoicing/over invoicing of exports and imports and getting the balance stored abroad. Kickbacks from major defense/civilian contracts. Not bringing the earnings abroad. In the old days smuggling of gold and illegal money. Transactions done abroad and not reported here. Hawala funds. Funds earned by artists/ entertainment industry /sports people and stashed abroad. When you want to indulge in adharma, hundreds of ways are open!
We would like to know the terror connection. Do you think even terrorists are stashing away cash and using the tax haven route to send across money all over the world, to finance their activities?

M K Narayanan, our National Security Advisor, has spoken about it in Berlin recently.

Advani says that it is important to bring this money back. How can the government go about it and what are the various ways in which India can get its money back?

Put it on the Global Agenda. Put it in G-20. Put it in the International Monetary Fund. Put it in Egmont Group. Also take a lead among all developing countries. Support US /German/French efforts.

If India decides to take the initiative, will the Swiss authorities cooperate?

It is not due to our pressure but that of US which will make them co-operate. When a family is in deep financial crisis then it tries to look at the small amount saved under the sugar jar by grandma. Same way developed economies are desperate for every dollar. Even if we do not act due to their efforts the list of crooks may be out, then we will be in a dangerous social situation since the who's who of India will be there. Instead we should get it and get the funds and decide on the steps to sterilise it. Otherwise, the world will laugh at us.

Politicians sure must be having a lot of money in Swiss Banks. Do you think this factor will deter the government from acting?

Public pressure will make them do it. Plus, the evolving global situation against tax havens. The money belongs to the poor farmers and unorganised workers of India. Also, Indian businessmen have a lot of their ill-gotten gains in these banks. The world situation is such that Indian businessman will want to bring it back now given the attractive returns in India.

Do you think that the Indian government should demand all the Indian black money in Swiss banks?

Of course. India should and must act. We are not a banana republic.

You wrote in your column that the German foreign intelligence agency BND got names of 1,400 clients of the Liechtenstein-based LTG bank who were supposed to be suspected tax evaders. Of the 1,400, 600 were supposed to be Germans. Do you think of the remaining there will be Indians as well? Has the Indian government approached the German government for the list?

Indian names will be there. Our tax evaders and crooks are like the omnipresent Maha Vishnu [Images] -- present in all continents and all tax havens. But our government has been lukewarm in this issue. It should have despatched immediately senior officials to get the names.

Isn't it important to tackle the issue of domestic black money?

It is definitely important. At least the domestic black money is used in our economy and to that extent it is productive. But the money kept in Swiss banks is neither useful to India nor does it benefit Indians.

What role should the media play?

The media has a very important role to play. At the moment it seems like most part of the media is more interested in the diet of an actress. Pressure by the media needs to be built up on this issue and remember that a lot of Indians don't just go to Switzerland to ski.

What about the names of these persons?

India must try and get the names. But more importantly should get the money back. It should be top on the agenda and India ought to take a moral lead in this issue.

Will the Indian economy improve if the money is brought back?

It will do phenomenally. India will be in the top five league if all the ill-gotten money is brought back. It will change the Indian scenario and I have been saying this since 1993.

Do you think that these people will now try and pull out the money since this issue has become a hot topic?

I don't think so. If they do then India should create an instrument and regulate frameworks to bring the money back.

What kind of punishment do you suggest for these persons?

Punishment is not the issue now. There is a need to create fear in them and follow what the international community does on this issue.

Lastly do you think this is becoming just another election issue?

The US and Germany [Images] took the lead and there is no election there. We should not treat this as an election issue. We have to take up this matter and if we don't then we will become a laughing stock of the entire world.


  1. Black Money In Swiss Bank ~ Swiss Banking Association report 2006
    by Naman Sood on Apr 15, 2008
    Deposits in Banks located in the territory of Switzerland by nationals of following countries

    Top 5

    India $1456 billion

    Russia- $470 billion

    UK $390 billion

    Ukraine $100 billion

    China- $96 billion

    Now do the math India with $1456 billion or $1.4 trillion has more money in Swiss banks than rest of the world COMBINED.Public loot since 1947: Let us bring back our money

  2. It is one of the biggest loots witnessed by mankind -- the loot of the aam aadmi (common man) since 1947 by his brethren occupying public office.
    It has been orchestrated by politicians, bureaucrats and some businessmen. The list is almost all-encompassing. No wonder, everyone in India loots with impunity and without any fear.
    What is even more depressing in that this ill-gotten wealth of the country has been stashed away abroad into secret bank accounts located in some of the world's best known tax heavens. And to that extent the Indian economy has been stripped of its wealth
    Ordinary Indians may not be exactly aware of how such secret accounts operate and what are the rules and regulations that go on to govern such tax heavens. However, one may well be aware of 'Swiss bank accounts,' the shorthand for murky dealings, secrecy and of course pilferage from developing countries into rich developed ones.
    In fact, some finance experts and economists believe tax havens to be a conspiracy of the western world against the poor countries.

    By allowing the proliferation of tax heavens in the twentieth century, the western world explicitly encourages the movement of scarce capital from the developing countries to the rich.
    In March 2005, the Tax Justice Network (TJN) published a research finding demonstrating that $11.5 trillion of personal wealth was held
    offshore by rich individuals across the globe. The findings estimated that a large proportion of this wealth was managed from some 70 tax
    Further, augmenting these studies of TJN, Raymond Baker -- in his widely celebrated book titled Capitalism's Achilles Heel: Dirty Money
    and How to Renew the Free Market System -- estimates that at least $5 trillion have been shifted out of poorer countries to the West since the mid-1970s. It is further estimated by experts that one per cent of the world's population holds more than 57 per cent of total global wealth, routing it invariably through these tax havens. How much of this is from India is anybody's guess.

    What is to be noted here is that most of the wealth of Indians parked in these tax heavens is illegitimate money acquired through corrupt
    means. Naturally the secrecy associated with the bank accounts in such places is central to the issue, not their low tax rates as the term 'tax heavens' suggests. Remember Bofors and how India could not trace the ultimate beneficiary of those transactions because of the secrecy associated with these bank accounts?

    M R Venkatesh | April 15, 2008 |