A consortium of international journalists has recently exposed a network of offshore entities, some of which are owned by Indians. This is yet another example of how funds are being siphoned out of the country
In the 1860s, while talking about corruption in his country, US President Abraham lincoln had said: “I see, in the near future, a crisis approaching that unnerves me and causes me to tremble, for the safety of my country. Corporations have been enthroned, an era of corruption in high places will follow, and the money-power of the country will endeavour to prolong its reign, by working upon the prejudices of the people, until the wealth is aggregated in a few hands and the Republic is destroyed”.
It was a prophetic warning, which India should also have heeded post-independence so as to control graft. Today, widespread corruption has not only caused immense harm to the country and its economy, but has also dealt a severe blow to good governance.
Recently, the biggest global exposé on offshore investments and secret financial transactions, has revealed details of more than 1.2 lakh offshore entities and trusts belonging to individuals and companies in more than 170 countries and territories, including India. Details of these transactions were found in 2.5 million secret files and two million emails exchanged over a period of 30 years. According to Indian media reports, there are 612 Indians on the list, which include two Members of Parliament and several industrialists.
The details were obtained by the International Consortium of Investigative Journalists. Based in Washington, DC, the ICIJ is an independent network of reporters who work together on cross-border investigations. The secret files provide facts and figures — cash transfers, incorporation dates, links between companies and individuals — that illustrate how financial secrecy has spread aggressively around the globe.
The exposé has also thrown light on the functioning of ‘nominee directors’ in offshore companies, several of whom have also been engaged by Indian patrons of offshore companies. For instance, a cluster of 28 ‘sham directors’ have been identified for having served as the on-paper representatives of more than 21,000 companies between them, with some individual directors representing as many as 4,000 companies each.
The exposé comes shortly after another list became public containing the details of 18 Indians who had bank accounts in lGT Bank in liechtenstein and around 700 others who had accounts in HSBC, Geneva. In a few cases, account holders were prosecuted and had to pay penalties to the Income Tax authorities for deposits they had made abroad without paying taxes in India.
This is a major development in the fight against money laundering — which is defined as disguising the source or ownership of illegally-gained funds to make them appear legitimate, or hiding money to avoid paying taxes or using legally-gained money in pursuit of unlawful activities.
The Government of India has officially received the data and the Union Ministry for Finance has said that inquiries have been put in motion. Investigating black money is a stupendous task before our Central Board of Direct Taxes. One reason for this is that the laws in this area are weak and, as always, it is the responsibility of the prosecuting agency to prove the guilt of the accused. Why, in certain cases such as tax evasion of say Rs10 crore or more, can’t the tables be turnedIJ
During his tenure as Union Commerce Minister, President Pranab Mukherjee had once made a memorable comment, in a meeting where I was also present, which is worth reproducing. He said: “I have seen companies become bankrupt or close down, but not the owner of such firms or companies”.
Keeping money in offshore accounts is not the only way that the rich in India are evading taxes. Big industrialists, whether they own airlines or manufacturing units, take the maximum amount of loans from Government-owned banks and then find ways not to repay them. Consequently, in the financial year ended 2012, India’s banks had more than Rs1,47,000 crore in bad loans or Gross Non-Performing Assets. That figure for just the first two quarters of the financial year ended 2013 was Rs1,42,000 crore. Private banks are doing better than public sector banks in this regard, as the former are rarely subjected to the pulls and pressures of giving loans and also occasionally writing them off.
The Reserve Bank of India is also worried that it is the big borrowers who are getting all the benefits of debt restructuring — like lower interest rates, moratorium on repayment and fresh loans. Obviously, nobody is bothered about good governance, which has already taken a hit in black money matters.
The Swiss Banking Association report of 2006 says that India has $1,456 billion in Swiss banks. It is a matter of shame that we are to be told by other countries about such facts. Instead of taking any action, the Government’s standard response in these situations is to set up an inquiry to discover why a particular incident happened, when its causes are well-known.
This is also applicable to the manner in which the authorities have dealt with mega-corruption scams such as the Commonwealth Games lootfest, the Adarsh Cooperative Housing scandal, the 2G Spectrum allocation scam and the coal block allocation scam.
In this season of swindles, enticements, kickbacks and scams, the US-based international watchdog, Global Financial Integrity, studied the illicit flight of money from this country, in what was perhaps the first ever attempt at shedding light on a subject steeped in secrecy. The study concluded that India has been drained of $462 billion (Rs20,556,848,000,000 or over Rs20 lakh crore) between 1948 and 2008. The Government must remember that it has to make an example of those who are looting the nation and not paying what is due to the state.