India's "black money" trail

Why won't the government go after billions of dollars in stolen taxes?

By Jason Overdorf
(GlobalPost - January 28, 2011)

NEW DELHI, India — If it's true that Indians have stashed more than $450 billion abroad, why doesn't the government appear to care?

The stakes are high. According to international money-laundering watchdog Global Financial Integrity, the unreported overseas funds, or so-called "black money," amounts to a whopping 35 percent of the country's total gross domestic product.

And yet, the Indian government appears to be protecting these tax evaders, despite the fact that the money may be linked to terrorism, the arms trade and drug trafficking. The government has refused to divulge the names of 26 tax evaders with secret accounts abroad — possibly due to links to prominent politicians.

On Thursday, India's Supreme Court blasted the government for withholding the information.

"What steps have you taken? Have you set the law in motion?" the court demanded of solicitor general Gopal Subramanium, who has done everything in his power to avoid releasing the names of the tax evaders.

Though billions of dollars in lost tax income means India has that much less to spend on vital programs designed to uplift its poverty stricken people, there's more to the picture than tax evasion.

With a new corruption scandal surfacing seemingly every week, India's image with global investors has already been tarnished. And by dragging its feet on chasing black money, Manmohan Singh's United Progressive Alliance (UPA) government risks compounding the damage done by the alleged $500 million rice export scam [2], $1.5 billion Commonwealth Games scam [3] and the $40 billion 2G spectrum scam [4] — among many other scandals.

But most importantly, failure to stop the crony capitalism at the root of the black money trail could derail the economic rise of India — where the UPA is preaching "inclusive growth" but the country's 10 richest tycoons account for one-tenth of the entire economy.

This current controversy began in 2009, when former law minister Ram Jethmalani (an opposition legislator), former secretary general of the parliament Subhash Kashyap and several other prominent citizens filed a petition, alleging that the government hasn't taken effective steps to recover illegal funds secreted abroad.

The petitioners' case was strengthened in May 2010, when the government was virtually forced to accept a list of Indians with secret bank accounts in LGT Bank of Liechtenstein — part of a much longer list that Germany that had obtained from a former bank employee in the so-called "Liechtenstein Affair."

In fact, and ridiculously enough, when Germany first offered India the names of the Indian Liechtenstein tax evaders in 2008, the government did its best to avoid accepting them. Then, when it finally accepted the list, the government routed it through the prime minister's office and the directorate of enforcement so that citizens could not demand that the names be divulged through the country's powerful Right to Information Act.

"It's rubbish," said Supreme Court lawyer Kamini Jaiswal. People have a right to know, and this information must be divulged."

While Germany and the United States have already used the information about secret accounts in Liechtenstein to recover millions of dollars and prosecute tax evaders, India has made little progress on either score.

"Either they are protecting their own party members or the corporates who have bribed them," said Supreme Court lawyer Prashant Bhushan.

If India were to ratify the United Nations Convention Against Corruption — which India signed in 2005 but is still "studying" — the government could not only divulge the 26 names that Germany revealed but also the names of countless others, he argues. "If they were serious about investigating this illegal money they could easily do so," Bhushan said.

The Indian government has been roundly criticized by the Supreme Court and opposition parties for failing to publicize the names of the individuals involved or launch proceedings against them.

"You know the names and where the money is," the Supreme Court admonished on Thursday. "What action have you taken when you came to know that they have stashed money in foreign banks?"

For its part, the government claims that it cannot follow the money trail because of confidentiality clauses in its double-taxation avoidance agreement with Germany. But critics suggest that argument, as well as claims that the names cannot be divulged without compromising the investigation into the offenders, are just stalling tactics to protect unknown powerful people on the list.

"That [argument] is utterly dishonest," said Bhushan. "Germany openly offered this information to all the countries. It was not even information pertaining to German entities. It was pertaining to account holders to a bank in Liechtenstein, so there was no condition that it would not be revealed."

One of the reasons for the government's prevarication, says Bhushan, is that the illegal funds may also comprise billions of dollars in bribes paid to political parties and public officials.

The signs are pretty grim. Even as prime minister Manmohan Singh has been fighting the impression that his government has allowed corruption to thrive, his solicitor general has been battling tooth and nail to stall the investigation into ill-gotten gains.

Meanwhile, though the Supreme Court has taken an aggressive stance in this case, the judiciary is itself under fire for alleged corruption — after battling to prevent its judges from being forced to reveal their financial assets. As it turns out, the head of the central vigilance commission responsible for investigating all this alleged chicanery was appointed even while he himself faced corruption charges in his home state.

"The watchdog for corruption cases is touted to be corrupt, the judiciary that's looking into the matter is apparently corrupt, and the government is now defending people involved in black money and money laundering," said a lawyer close to the proceedings. "It's quite incredible."

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