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ECONOMY-INDIA: Tax Haven Loot Turns Election Issue*

Ranjit Devraj

NEW DELHI, Apr 25 2009 (IPS) - General elections currently being contested in India have brought an unusual issue to the fore – the repatriation of more than a trillion dollars believed to have been stashed away in Swiss and other tax havens.

Leading the charge is the ultra-nationalist, opposition Bharatiya Janata Party (BJP), which carried out mock election exercises to sensitise voters to its plank that the money, if returned, could be channelled into development activity.

Lal Krishna Advani, the BJP’s prime ministerial candidate, began demanding that the Indian government pursue the issue of ‘black money,’ well before the G20 summit in London earlier this month where pledges were made to devise a post-crisis economic plan to shore up the global financial system.

Following up on high-profile scandals involving Liechtenstein and Switzerland, the G20 nations demanded that tax havens dismantle the secretive structures that have allowed fake corporations, anonymous trusts, foundations and money laundering operations to flourish.

"We assure the nation that India will join the global effort to put an end to banking secrecy and intensify it by every means – diplomatic, political and economic – to get back the real sovereign wealth of our country," Advani has vowed.

The BJP leads the National Democratic Alliance (NDA) which is pitted against the ruling Congress party-led United Progressive Alliance (UPA). Also running in the general elections of the world’s largest democracy – being held in stages from Apr. 16 to May 13 – is the ‘Third Front,’ a loose conglomeration made up of communists and regional parties.

During its five-year stint in power, starting 1999, the BJP-led coalition privatised major public sector corporations and opened up the banking and insurance sectors to foreign investment. But such measures failed to provide jobs or improve living conditions for the vast majority of India’s billion plus people and the coalition sustained severe losses during the 2004 elections.

How serious is the BJP about bringing back the loot secreted away in tax havens overseas? Arun Kumar, economics professor at the prestigious Jawaharlal Nehru University (JNU) in New Delhi and among the country’s foremost experts on the phenomenon of ‘black money’ – money hidden from the taxation authorities – is sceptical.

In an interview with IPS, Kumar said the real difficulty was that "too many senior politicians maintain secret accounts in tax havens overseas and are likely to stick together in the same way that they have consistently done in the past."

Referring to the BJP’s solemn promises to bring the money back, Kumar said: "Let us not forget that election manifestos are hardly ever implemented."

While there are several estimates as to the size of the deposits parked by Indians in numbered accounts overseas, Kumar believes that the figure "going by various calculations, is not less than 1.45 trillion dollars in Swiss accounts alone… It is also good to remember that there are more than 50 tax havens in the world and that Indians have been stashing away their money for more than 60 years now."

In Kumar’s view, what can help get at least some of the money back to Indian shores – more than the BJP’s election promises – is the fact that the "Western economies, battered as they are by the recession, are no longer willing to look the other way and allow tax havens to flourish at their expense."

Kumar’s estimates are based on the latest comprehensive numbers available – the 2006 study by the Washington-based Global Financial Integrity (GFI) – which suggest that the average amount stashed away by Indians annually during 2002-06 period was 27.3 billion dollars – representing a third of the global aggregate for the five years.

However, Kumar said that most of the "flight of capital" from India took place in the years following India’s independence from British colonial rule in 1947. "The total loot over the last 60-70 years, taking into account the higher value of the rupee in the earlier decades and the interest earned during that period, will be well in excess of the 1.45 trillion dollars that the BJP claims is lying in Swiss vaults."

The real credit for linking ‘black money’ to development goes to Sudhakar Reddy, deputy general secretary of the Communist Party of India, who, in a stark presentation to Parliament last month, pointed out that the 1.45 trillion dollars in question was about double the country’s gross domestic product (GDP).

Quoting the Swiss Banking Association report of 2006-07, which placed India at the top of five countries – including Russia, Britain, Ukraine and China – Reddy said, "if equally distributed, each Indian will get 100,000 rupees [2,000 dollars]."

Reddy charged that while the United States and Germany have moved to obtain the banking details of its citizens who are clients of Switzerland’s UBS Bank, the Indian government has actually favoured UBS operations in India.

UBS has admitted to the tax fraud and agreed to pay up 780 million dollars to the U.S. authorities, but has refused to disclose the identities of 47,000 U.S. clients who are believed to own deposits with the bank totalling 14.8 billion dollars.

"UBS Bank are under a serious cloud and are admitted criminals, but its subsidiary UBS Security India has been asking for more facilities in India," says Ram Jethmalani, a former law minister. "The Reserve Bank of India had earlier stopped its expansion in India but I am told that the government has since reversed those decisions."

Jethmalani, joined by K.P.S. Gill, a retired senior police official, and Subhash Kashyap, a prominent constitutional expert, filed public interest litigation in the Supreme Court seeking its intervention in getting the government to take steps to get the money returned.

The petitioners have alleged that the failure to take action so far attests to the fact that "influential politicians in most of the political parties are involved in the offences in question." The case is set for a preliminary hearing Wednesday.

For Indian depositors the most popular tax haven is Switzerland. Some 80,000 people travel to that country from India each year. "Typically, money is moved through the ‘hawala’ system [informal banking channels] by deft accounting involving the under invoicing or over invoicing of exports and imports and stashing away the balance," said a ‘hawala’ operator who runs a legitimate currency exchange business in the capital, and spoke to IPS on condition of anonymity.

"Liechtenstein, the Bahamas and the Cayman Islands are also popular," he said. "A favourite method is to use dummy software companies which ship out CDs full of fake software that are shown to be earning millions of dollars," said the ‘hawala’ operator. "Similarly, large amounts of cash are shipped into the country through students or other travellers who work as couriers on a commission basis."

"What facilitates fraudulent transfers of money into and out of the country is the fact that India’s political parties regularly use the ‘hawala’ system to finance elections, since it is impossible to legally fund political parties," says Prof. K. N. Kabra, another noted expert on the ‘black economy’.

About ten years ago Advani and several other top politicians from all political parties were caught receiving money brought in from overseas through ‘hawala’ channels in what became known as the ‘Jain hawala case’.

The case, built around a diary of payments made by two Jain brothers, was seized by police on the trail of Islamist militants. But, although several of the beneficiaries owned up to being recipients, the case was hushed up.

Kumar said Indian depositors figuring in a German case involving hundreds of Liechtenstein clients and 7.9 million dollars are now attempting a similar hush up.

"The fact that the Indian government refused to take up an offer by the German government to share details of the Indian depositors shows how disinterested authorities here are in curbing activity that has been bleeding this country for decades," Kumar said.

While several tax havens are now committed under G20 proposals to sign tax information exchange agreements, it remains to be seen if they will work. "Tax havens may simply not have the information sought by India or other requesting countries," Kumar said.

*Not for publication in Italy

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