Shoddy investigations into high-profile economic crimes is spawning a class of money bags that are fuelling the stock market, bending state policies and distorting politicsSanjay Kapoor DELHIFor more than a month now, a Delhi-based newspaper has been reporting on the raids conducted at the office of a distiller with businesses in Uttar Pradesh (UP) and other parts of the country. The newspaper detailed that the income tax raids yielded a diary in which some accountant had carefully noted down the names of the recipients who had been paid off in the last few months. The pay-offs, the reports indicated, were made to politicians and bureaucrats to allow huge excise duty evasion. The newspaper hinted that Rs 10 crore was paid to a UP-based politician every month. Typical of such articles, there were neither any names in it (obviously fearing defamation charges) nor any denials from revenue service officials. It seems obvious that enforcement agency officials, who found that they could not take the case to its logical conclusion, filed the report on the basis of the briefing. Till the time of writing, no action has been taken against the beneficiaries of the huge pay-offs. This is not the first time that such diaries have surfaced detailing kickbacks to politicians and bureaucrats for all kinds of deals, but the wheels of justice have moved so imperceptibly that the guilty have got away scot-free. People who pay bribes have a tendency to keep a record. In 1991, a hawala dealer was arrested for spreading money around to businessmen and politician. The Central Bureau of Investigation (CBI) that was trying to figure out how the Kashmiri militancy was being funded found to its shock that the same hawala banking channels were being used to fund terrorism in Kashmir as well as politicians and bureaucrats in India. A raid at the farmhouse of a businessman who had been receiving hawala money yielded a diary, which contained initials of former presidents, prime ministers, finance ministers and scores of bureaucrats and members of parliament. The matter was hushed up after the diary was discovered. The person who pursued the case was thrown out of the organisation on charges of corruption and the diary was consigned to the storehouse (maalkhana) of the CBI. In those days, Chandrasekhar was the prime minister and those who figured in the infamous diary were his ministers and bureaucrats. Instructions were clear from the very top: let the case rest in peace. This author, who was then working in a Mumbai-based weekly, Blitz, reported on the diary and how its contents were being covered up, but there was not a word from the agency. It was only after some public-spirited individuals, backed by the famous socialist leader, Madhu Limaye, chose to move the Supreme Court that the CBI was forced to investigate the case. And did the CBI really do a good job? The galaxy of powerful people that the CBI was probing included the entire phalanx of India’s non-communist leadership. Leaders like LK Advani, Yashwant Sinha, Devi Lal, the late Rajesh Pilot all figured in the rogues list. Many top bureaucrats, who later held top positions in the government, were also giving them company in the infamous diary. The hawala scandal was never really raised in Parliament as the leaders of most of the parties figured in the diary. Rs 64 crore, the amount that was allegedly disbursed amongst India’s ruling elite, according to the diary, was enough to buy the silence of Parliament. Did the CBI investigate without fear or favour? As the courts proceedings revealed, CBI did not do a professional job. As has been their wont, they did not put the evidence on record, even when some of the recipients of the kickbacks like the late Devi Lal and Rajesh Pilot owned up to the petitioner of the public interest litigation (PIL), Vineet Narain, that they indeed got the money from the businessmen. The High Court threw out the case because a diary, in the reckoning of the judge, was not a “book of account”. Also, the CBI failed to show up with corroborative evidence. The courts threw out similar cases one after the other. The first attempt to bring about a catharsis in public life had come a cropper.Another bitter truth had played out once again: the people who manage to slip out of the dragnet of the CBI and other enforcement agencies by corrupting their tormentors emerge financially stronger and become more brazen.Many of these criminals launder their dirty image to the extent that they are routinely invited by the government these days to either invest in certain areas or advice them on policy issues. The desperation to attract private funding for public projects in order to lend meaning to the economic reforms programme is giving legitimacy to all kinds of monies. Bad money has been honourably rehabilitated. It is not that the politicians and bureaucrats were not bribed before the government initiated the economic reforms programme. In fact, the licence-permit Raj afforded greater possibilities for the public servants to make money, but as industrial activity was limited and the country had all kinds of laws to stifle enterprise, like the Foreign Exchange Regulation Act (FERA), only favoured business houses prospered. Tatas and Birlas exercised inordinate influence over politics. Elections were funded by them for many years till new business houses emerged on the Indian scene. Reliance Industries, headed by Dhirubhai Ambani, changed the rules of the game and emerged as the favourite of the Indian political class, which bent rules and tailored economic policies to help them. Many industry watchers rationalised Ambani’s actions as a manifestation of his attempt to escape the claustrophobic laws of the country. Reliance became an example to emulate for all those who hated the government and were impatient with the country’s laws. In 1991 when economic reforms were initiated by PV Narasimha Rao’s government, there was a paradigm shift in the way crime was perceived. Greed was celebrated and no one really bothered about how money was made. Money from drugs, commissions from mega deals and export frauds fuelled stock markets and lifestyles. People who made easy money spent it more easily on cars and other consumer products. Black money chased white goods. Their progeny threw caution to winds and led a glitzy lifestyle, partying and snorting coke. This kind of amorality prospered as enforcement went through an existential problem. Should they allow them to create wealth when they were seemingly so important for the economy or bust them for their amoral money-making ways? The Big Bull, Harshad Mehta, used public funds to drive the stock market. At that time, the political leadership refused to lose its sleep over the happenings in the bourses. The stock market, which was used as an instrument by the government to raise capital for India’s development, became a playground for all kinds of bandicoots. The market collapse chastened the government. The matter was handed over to parliamentary committees and later to the CBI. Their mandate was to find out where the Rs 3,500 crore of scam money had disappeared. The government appointed a multi-disciplinary committee to find out its end use. The needle of suspicion was directed at some business houses, which had improved their balance sheets without increasing their production. Drug enforcement agencies also saw a trail of opium money being laundered through Dubai. The action taken report (ATR) that was presented by the government failed to show any results. Quite clearly these business houses had bent the resolve of those who wanted to show their complicity. Huge tomes resulted from scam investigations, but the truth remained elusive.Similar heists have been pulled off in the stock markets since then. Hucksters have used the IT and dotcom revolution to rig the stock market. The high valuations of many so-called blue chip companies were found to be extremely shaky. Even the software export that leavened their valuation was found to be spurious. When income-tax authorities busted a Delhi-based software company that was doing business with a blue chip IT company, they found to their horror that there were no computers in the office premises. The ones that were there were still packed. The son of the software company owner told one investigator, “My father does not even know what a mouse of a computer is, let alone the meaning of software.” Shell-shocked investigators realised that this Delhi-based company had already transacted business worth Rs 500 crore with the blue chip company. It was only later that they discovered no business had been transacted; only money had been rolled over to improve valuation. When the income tax officials took up the matter with finance ministry officials, they were told to keep quiet as it could hurt India’s image as an IT destination. It is disturbing to realise that many of the IT gurus whose success is being celebrated have dark secrets. These companies have been parking bays for all kinds of illegitimate monies from politicians and peddlers.The outcome of this financial jugglery by some of India’s IT companies is that they have no great desire to attain excellence by creating new products when they can earn substantial amount of money by playing the stock market. Surely, these practices would end as more and more foreign companies compete with them and force them to perform. Why blame the IT companies alone, there are many business houses that routinely create spurious companies for reasons of rolling money to avoid taxation or to just hide dubious funds.During the latest stock market boom, which has seen the Sensex climb to dizzy heights, the Governor of the Reserve Bank of India, YV Reddy, was troubled by the nature of the funds that were driving the market higher and higher. Sixty per cent of the funds that are invested in the stock market, according to the official sources, came through participatory notes (PNs), which are Indian funds emerging through foreign institutional investors (FIIs). Reddy wanted to know the identity of the holders of PNs, but was refused by the ministry as it would undermine the stability of the stock market. He believed that the money was hot and would get out when the going gets tough. If indeed there is truth that it is actually Indian money that is coming back then the question is: how was it earned? Should the stock market be allowed to give it legitimacy? Should no questions be asked about the origin of funds even if they are being invested in the stock market? This is a tricky issue that no one wants to broach as it could lead to the collapse of the market. This refusal to ask tough questions from those bringing in money to start special economic zones or buy land is creating a mindset that is undermining the power and authority of the state. There is little respect for government and its agencies, which have provided ample evidence that they cannot enforce the rule of law when it comes to the rich and the powerful. So diaries containing pay-offs to politicians will be ignored whereas petty bank officials will be hauled over coals by the CBI for small felonies. The bigger thief will always go away. In every form of crime, white collar or otherwise, the same principles prevail. It is time that the government is forced to make the entire business of investigation more transparent and democratic so that there is no grievance among the masses that the law is only against the poor.