Does black money encourage corruption?

Justify the statement.

Masters in Financial Management – MFM - Semester I | Business Law Presentation

Contributing Members: Rahul Monga, Prathap Shetty, Rahul Goraksha, Akshar Sarnekar, Soni Rai, Anil Dubey, Pooja Gupta, Durgesh Yadav & Satish Mishra

Index1. Black Money & Corruption –

Definition, Cause & Effect (Rahul Monga)

2. How is Black Money circulating in the economy? (Prathap Shetty)

3. Impact of Black Money (Rahul Goraksha)

4. Prevention of black money? (Akshar Sarnekar)

Index6. What is money laundering? (Soni

Rai)7. How to bring home the black money

stashed abroad? (Anil Dubey) 8. Ways to prevent corruption?

(Pooja Gupta)9. Scams & Black Money

(Durgesh Yadav)10.Current events & happenings

(Satish Mishra)

Over to Rahul

Black Money & Corruption

By Rahul Monga

CorruptionWebster defines ‘Corruption’ as, impairment (damage or loss) of integrity, virtue, or moral principle. It is an inducement to wrong by improper or unlawful means (such as bribery) . Corruption, while being tied particularly to the act of bribery, is a general term covering misuse of authority as a result of considerations of personal gain.

Black MoneyBlack money is the income that accrues to persons in violation of law. This can be due to evasion of taxes or other forms of illegal activities like receiving bribes and kickbacks, arms or drug dealing or financing of terrorism.

Black Money & Corruption

Corruption and black money are no longer the cause and effect in our society. If corruption is the cause and the black money is the effect, a studied perusal of these phenomenon may reveal that quite often black money is the cause which corrupts the chieftains of the system.

Tax Avoidance & Evasion

In 1956, Prof. Nicholas Kaldor, a well known British economist guided our government on the structure of Indian Taxation. In his report, he observed that the wealthy elite (read capitalists) were active in blocking tax reforms by putting pressure upon the government. Tax avoided and evaded was giving rise to a volume of black money which was as big as to run a parallel economy.

Capitalism & Greed

Karl Marx, German political philosopher, economist and social theorist in his book titled ‘Das Kapital’, Capital: Critique of Political Economy (1867), gives a critical analysis of capitalism as political economy.

He says ‘The real source of corruption lies in the relentless greed for making more and more profits, which prevails under capitalism. It is this urge to maximize profits at all costs which creates an environment conducive for corruption’.

Moreover, Marx had argued, the development of capitalism leads to the concentration of wealth and assets in the hands of few big monopolies. These monopoly capitalists – the big corporates and financial magnates – seek to trample all laws and regulations in order to make more profits and grow bigger.

Over to Pratap

Circulation of Black Money

By Pratap Shetty

1. Black money transacted during election campaigns:

The election process of our country is also a big generator of black money. Election campaigns run by the candidates for parliamentary or assembly elections or for any local bodies generated crores and crores of black money during the period of election.

2. Black money laundering financial companies and chit funds

Instances have come to notice that several financial companies had been running and might still be running without paying income tax for their transactions. There are several lakhs of unauthorized chit funds which are running by individuals, the money is collected and circulated among small time individual earners.

3. Hawala business is a great source of black money transactions

Transactions through hawala route are thought to be the south Asia's biggest money transactions system. The hawala transactions are common across our national and international borders where money changes hands through non-banking channels and thus goes unrecorded and becomes black money.

4. Investments in property, jewellery, luxury cars, rare pieces of art etc

It was reported and revealed that the chartered accountants had advised their clients to hide their black money in rare art collections. It was found that a businessman had in invested $4,50,000 in a painting. India is one of the largest consumers of gold. Stock market is another channel to invest black money.

5. Donations to educational institutions transacted in black money

Many of these private institutions are run by the bureaucrats, politicians and industrial houses. Black money transactions take place in the setting and leaking of questions papers and help to get certain students pass through unfair means or to get some of them the top ranks in the examination.

6. Issue of licenses, contracts to Indian and foreign companies

Large industrial houses, big contractors, bureaucrats and politicians all collude with each other in heavy transactions and underhand dealings, when issuing licenses and signing contracts even with the foreign firms. The agents or brokers are involved in the transactions on heavy fees and are not routed through normal banking channels.

Over to Rahul Goraksha

Impact of Black Money

By Rahul Goraksha

1. Loss of revenue to the government and running of parallel economy in country

A part of the black money which circulates in the economy could have gone into the hands of the government in the form of taxes. Hence, has resulted in a decrease in government revenues. Parallel economy is said to be running in the country with the black money alone.

2. Black money and corruption form a vicious circle

Since most of the transactions done in black money are illegal, it adds to already existing high levels of corruption. All bribes goes unaccounted, increasing more black money in the society. Some serious steps need to be taken by the government to curb this evil practice.

3. Black money effects real capita income and national income of country

Since the black money circulating in the country is not recorded in the government's books of accounts, the real per capita income of the people and the national income of the country are shown as low. In the reverse case, there will a substantial rise in the real incomes of the people and the national income of the country

4. Black money causes decrease in quality of public goods and services

When bribes which are paid as black money to the producers of goods and provider of services, they will provide the quality of goods and services only to the people who pay bribes whereas others have to suffer as the same quality and service is not provided to everyone.

5. Black money results in higher taxation and inflation

The government taxes the people to earn revenue for its expenses in order to balance the budget. If the black money circulating in the economy is brought back to the government's treasury, the government will have more and thereby the tax burden on the people can be reduced.

5. Black money causes difficulty in the formation of monetary and fiscal policy

Since the government cannot take into account the black money in circulation in the economy, It is difficult to form these monetary and fiscal policies in the absence of the exact calculation of the black money and without bringing it in the accounting procedures of the government.

7. Black money results in increased criminal activities

The ill-gotten money in the market results in all sorts of criminal activities. The black money is used to support terrorist activities. It is used to get illegal weapons in the hands of the groups of unsocial elements. The illegal money is squandered on all types of illegal activities including drug trafficking. Even murders are got done for political revenges where black money changes hands

Over to Akshar

Prevention of Black Money

By Akshar Sarnekar

Over to Akshar Sarnekar

The Govt. of India proposes the following to curb generation of black money:1. Impose a proper legislation to curb

the creation of black money2. Develop a system to implement the

legislation3. Provide proper training to the people

involved to ensure effectiveness

4. Set up committees to deal with illicit funds

5. Negotiate Double Taxation Avoidance Agreements (DTAA) with several countries; and

6. Tax Information Exchange Agreements (TIEA) with tax havens

Other measures

1. Ensure that we have a transparent, efficient and highly vigilant Income Tax department manned by non-corrupt officers.

2. Do away with complicated tax forms, rules and regulations and make these easy to understand for the common man.

3. Implement a mechanism whereby the laws governing banking do not hinder finding black money & dealing with money launderers.

4. Accounts of prominent politicians & those in authority be audited by qualified chartered accountants, appointed by a panel that is experienced & knowledgeable on taxation & banking issues.

5. Start highly visible vigorous public campaigns to make people aware of the dangers to the economy if taxes are avoided.

6. Implement some useful & strategic benefits for tax payees to encourage them to pay taxes.

7. Install a panel to whom any citizen can report knowledge of a person having black money - much along the lines suggested by the supporters of the Jan Lokpal Bill.

8. Make people aware of the Prevention of Money Laundering Act (PMLA).

9. Create awareness of existence of the Financial Intelligence Unit – India (FIU-IND), a Central Government National Agency responsible for receiving, processing, analysing and disseminating information relating to suspicious financial transactions.

Over to Soni

What is money laundering?

By Soni Rai

Money laundering is the process by which large amounts of illegally obtained money (from drug trafficking, terrorist activity or other serious crimes) is given the appearance of having originated from a legitimate source.

Estimates of the size of the money laundering problem ranges between $590 billion - $1.5 trillion annually. This is a staggering amount and detrimental by any calculation to the financial systems involved.

Steps involved in Money Laundering

Money laundering is a process that is accomplished in three basic steps. These steps can be taken at the same time in the course of a single transaction, but they can also appear in separable forms one by one. The steps are:-1. Placement; 2. Layering; and 3. Integration.

Different methods Placement Cash paid into bank

(sometimes with staff complicity or mixed with proceeds of legitimate business

Cash used to buy high value goods, property or business assets.

Layering Wire transfers abroad (often using shell companies or funds disguised as proceeds of legitimate business

Cash deposited in overseas banking system

Integration False loan repayments or forged invoices used as cover for laundered money

Income from property or legitimate business assets appears "clean".

Over to Anil

Bring back money stashed abroad

By Anil Dubey

Numerous steps are been taken towards combating the black-money menace and bring back funds stashed abroad. The finance ministry will be receiving banking and tax-related information from Switzerland following revision of a tax treaty.

The Swiss Parliament passed a new law in February 2011, termed as the Restitution of Illicit Assets Act (RIAA), this law has the potency to make and mar the reputation of several PEPs across continents. The law according to some experts allows the Swiss cabinet to freeze contentious assets of PEPs even if a country has not formally asked Switzerland to do so.

India has signed the United Nations Convention against Corruption (UNCAC). Ratification of UNCAC by India would help Indian authorities to seek confiscation of black money in foreign banks pending trial which would help India retrieve black money without leakages.

Over to Pooja

Ways to prevent corruption?

By Pooja Gupta

Teach morality in homes and schools. That's morality in the larger sense, the concept of right and wrong. Unfortunately there are many, especially those who gravitate toward politics, who do not understand the word. Power corrupts, ultimate power corrupts ultimately.

Minimize the power of government. We should insist on politicians who vow to decrease government size. . We must do away with the programs which are impossible to verify. Government sponsored "entitlement" type programs are a bottomless pit that sucks money.

Term Limits for politicians would eliminate the entrenchment and corruption of anyone who would want to make politics a profession. After being in office for an extended period, all politicians start looking for supplements to their income.

Inspectors, administrators and other government employees should not be allowed to make decisions without the agreement of a second person. Departments should offer rewards or bonuses for finding mistakes or evidence of graft. These are just some quick ideas that didn't require much thought.

A government should strengthen the laws related to corruption. Those who are involved must be punished and if in any case any politician is found involved in any scam like 2G spectrum, Adarsh society scam etc. then he should be banned from entering into politics, but this should be based on the recommendation of a advisory committee.

Moreover parents and teachers are responsible for their child's future and they can teach moral behavior right from childhood. We can start by always being honest ourselves and always paying our taxes, returning stuff we borrow, asking and paying a fair price.

Over to Durgesh

Scams & Black money

By Durgesh Yadav

Some of the most prominent scams India has witnessed are as follows:1. 2010: 2G Spectrum Allocation Fraud,

1.76 lakh crores (40 billion dollars). Classic example of collusion between politicians, industrialists and media with high powered brokers.

2. 2010: Commonwealth games (CWG) fraud 60,000 crores, 13 billion dollars.

CWG cost comparisons2002 (UK): Rs 2,100 crores2006 (Australia): Rs 5,000 crores2010 (India): Rs 60,000 crores2014 (UK, estimated): Rs 2,200

crores

3. Hassan Ali Khan Hawala scam (evading taxes up to 100,000 crores)Hassan Ali Khan a stud farmer from Pune who started as small time conman, bank fraud to Hawala transactions. He has a Swiss account of $8 billion dollars and more. The money belongs to politicians and industrialists and Khan was conduit.

4. Biggest scandal of the time, in 1980’s where major cut was believed to be taken by Rajiv Gandhi and his party, with Quattrochi, close Italian family friend of Sonia Gandhi brokering the deal. Quattrochi negotiated many Indian Government deals on behalf of his parent company Snam Progetti.

5. YSR / Jagan scam of 78,000 crores in 4.5 years during his tenure as Andhra CM (2004-2009)

6. Ex-Jharkhand Chief Minister, 1 billion dollars, (in more than 1800 bank accounts worldwide, from mineral rich state) 2006-2009

7. Mayawathi, UP CM, Taj Corridor scam up to 44 million dollars, 2002.

Over to Satish

Current Events & Happenings

By Satish Mishra

January: CWG Scam

February: 2G Scam

March: Hasan Ali remanded In Judicial Custody

March: 2. Cash for votes scam

April: Anna Hazare’s fast against corruption

May: Baba Ramdev’s fast

June: Reliance’s involvement in scam

Anna Hazare’s fast against corruption

Who is Anna?

Anna calls for Indefinite hunger strike

Strike gained momentum- support from all sections of society.

Tussle between Critics & Supporters

Criticisers

Method was outright blackmail

Laws are made by the Parliament, not on the streets.

Supporters

Form of pressure can be seen as blackmail

Laws cannot be made in vacuum

Impact on the Society Awakened the youngsters and a

politically uninterested section of the society

Reconsider the ‘chalta hai’ attitude Highlighted the The Lokpal bill

seriousness

What has India gained?

The Movement Has Given a much needed feeling of ‘Indianness’ to every citizen, a feeling that would last long!!

Thank You!