india’s illegal wealth abroad is not just an issue of tax evasion
TRANSCRIPT
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7/30/2019 Indias illegal wealth abroad is not just an issue of tax evasion
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Indias illegal wealth abroad is not just an issue of tax
evasion
DNA Money, Tuesday, June 30, 2009
R Vaidyanathan
Though not a part of the UPA governments agenda for the first 100 days, the issue of illegalmoney in tax havens like Switzerland has fortunately not been brushed under the carpet post-elections.
The finance ministry has indicated it is taking steps to recover the amounts and also said thegovernment of Germany has given a list of names of those whose money is lying in the LGT
Bank of Liechtenstein. The response also shows steps have been taken in the case of Pune stud
farm owner Hasan Ali Khans illegal transactions through the UBS Bank of Switzerland.
Interestingly, the response of the Union government in the SC indicates that tax demands of Rs71,848 crore have been raised against the said person, his wife and other associates. If this werethe tax demand, the income on which it is raised may be more than Rs 1.5 lakh crore, taking into
account compounding, penalty etc. This is a mind-boggling figure, given that our national
income for this year is about Rs 50 lakh crore. But something more interesting has been reported.
Swiss authorities told an Indian news magazine that Indian authorities submitted in the case of
Hassan Ali Khan, who has a Swiss bank account, a request in January 2007 for legal assistanceto the Federal Office of Justice. Swiss authorities, upon domestic inquiry, found that the banking
information provided with the request for legal assistance contained forged documents.
Swiss authorities want to provide further assistance in that case if the Indian authorities could
satisfy the Swiss governments demand to establish dual criminality what is crime in India is
a crime in Switzerland. The Swiss also wanted to know whether the offence was an object ofIndian money-laundering. Since April 2007, the Indian government has not responded, it was
reported.
The Indian government says it cannot disclose the names provided by Germany as they havebeen obtained under the Double Taxation Treaty but it has initiated proceedings against the
accountholders under tax laws.
This begs the question why did the government of India ask information under the DoubleTaxation Treaty when the LGT Bank issue doesnt have any link to that? Besides, where is the
question of confidentiality when dealing with criminals? Germany has released its own list; how
then is it asking India not to release it?
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A report in a financial daily said out of 50 names in the LGT Bank list, 25 were from Mumbai,
none being big industrialists or well-known individuals. Not surprising big industrialists and
politicians will hardly hold these accounts under their names.
They will be under benami names. Tax authorities have reopened the assessment of all the 25 tax
evaders under section 148 of the Income Tax Act. This implies that the government is treatingthe case only as tax evasion and not as capital flight and corruption. These are international
crooks that have deprived India of huge resources by capital flight. This can be equated with
financial terrorism.
Tax havens are against transparency. There are concerns that a lot of money is being generatedthrough bribery, receipt of kickbacks, drug-backs, drug-trafficking, insider trading,embezzlement, computer fraud, under invoicing, and other scams, all of which have a major
impact on common people.
Ill-gotten money can be laundered through companies floated in tax havens. If a terror outfits
decides to transfer resources to India from Monaco or Luxemburg, or some of the islands in theCaribbean Sea, or some dot-like country in Micronesia or Polynesia, it can adopt a simple
strategy. Its investment manager can structure some device or product for transferring resources
into the target country, maybe through a subsidiary or a conduit company in a tax haven.
Some check was being done when income tax authorities investigated the cases of the non-residents to see the profile of the real operators and beneficiaries to prevent persons of the third
states from taking advantage of bilateral treaties. The effect of Circular No. 789, issued by theCentral Board of Direct Taxes in 2000, is to subvert this check. The circular made the Certificate
of Residence granted by a tax haven government conclusive for two things
(i) the authenticity of the fact of residency
(ii) the beneficial ownership of income
Due to the mandatory directive, income tax authorities wont be able to know the real operators
and income earners. Terrorism can flourish under such circumstances. Those who issued this
circular didnt seem to have thought they were unwittingly facilitating terrorism and anti-India
activities.
It was recently reported that Citibank was told to suspend retail sales over money-laundering inJapan. It was suspected that the bank has allowed anti-social bodies to open several hundred
accounts. Recently, the US media reported on Saudi money being used to finance terror outfits in
Bosnia and Pakistan possibly using tax havens as conduits. These should make us much more
alert as we are the worst-affected by terrorism.
India should move the UN Security Council and other multilateral bodies to close these taxjurisdictions. The sooner, the better.
The writer is a professor of finance and control at Indian Institute of Management-Bangalore and can be contacted at [email protected]. Views expressed here are personal and
dont reflect those of the organisation