Dirty money: Can India act tough?

There are suggestions that a component of India's private sector investment has been leavened by dirty money. So, the government has to act against it in recession times at its own peril
Sanjay Kapoor Hardnews Delhi

Finance Minister Pranab Mukherjee is normally not given to hyperbole or raising hopes. He belongs to that breed of politicians who do not mind calling spade a spade. In spite of his long years in fobbing off pressure from media and political parties, he agreed to get more focused in retrieving Indian dirty money squirreled away in Swiss banks and other tax havens. Mukherjee's promise to do the impossible was prompted by the manner in which the Swiss government and the UBS bank were forced by United States government to go against their own bank confidentiality laws and cough up the names of thousands of US and French nationals holding numbered accounts.

However, expectations of getting our copious funds from Switzerland or other tax havens are misplaced due to a host of reasons.

Firstly, Indians do not have the same kind of clout as the Americans or the French, who in recent months have campaigned hard to shutter down tax havens.

Secondly, Indian revenue enforcement authorities have shown little desire to chase many of the mysterious accounts. Take the case of Pune stud farm owner, Hasan Ali Khan. Income tax authorities had claimed a bizarre amount of $ 8.6 billion dollars in a Swiss-based UBS account. Indian enforcement authorities had claimed that these were linked to some transactions done with Saudi arms dealer, Adnan Khashoggi. When a PIL was filed in the Supreme Court to get billions of dollars of our funds from tax havens, the then Indian finance ministry had mentioned the case of Khan and his Kolkata-based partner Kashinath Taporia and how it was working hard to get it back. Hardnews magazine followed up on Indian government's claim and travelled to Switzerland where it learnt to its horror that Indian government had allegedly submitted "forged papers" in the Khan case. Swiss authorities had expressed helplessness to probe the case further in the absence of authentic papers.

Although, Swiss Banks have a reputation to stall probe on some pretext or the other, Indian government was also guilty of not backing up its efforts with quality probe and booking Khan under money laundering. Revelations by Hardnews had created a furore in political circles and the opposition parties had put the government on the mat. Indian government had denied submitting "forged papers", but there is little clarity whether they have made amends to compel the Swiss act on this case.

There are other reasons why the Indian authorities would fail to force the Swiss to give details of Indian dirty money amounting to approximately $ 1.4 trillion. The main reason as learnt by Hardnews is the pressure the Swiss banks bring upon countries like India in consort with other banks and companies like Nestle, Novartis, Roche etc. There is a tacit threat built on this lobbying that any punitive action from New Delhi could impact foreign investment. This view was corroborated by Swiss author, Viktor Parma. He claimed that this lobbying was meant for ensuring liberal banking regime plus free flow of capital.

Holding companies, too, and low tax rates in the cantons of Switzerland are also reasons for tax evasions. Many big Indian companies like Tatas and Birlas have offices of their holding companies in the canton of Zug. Parma was of the view that $ 160 billion worth of tax was evaded every year.