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Posted on 06 January 2012 |
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Dirty money is beyond Lokpal
Buroshiva Dasgupta examines the scale of black money across India and the Globe
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Illustration: Tim Tim Rose |
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INDIA RANKS pretty low on the Global Corruption Perception Index. Yet, the Lokpal Bill, aimed at tackling corruption in the country, has gone into cold storage after so much noise. A recent report reveals that about Rs 50,000 crore is siphoned out of India every year. The report identifies that there is a peculiar circular flow of funds – round tripping – in India, as in China, where the funds illegally flow out and then illegally flow back into the country to bolster its illegal economy. The process not only leads to huge tax losses, but pushes the country further into corruption. The international watchdog, Global Financial Integrity, cites the illegal financial flow from two sources. One is from the foreign exchange generated from external borrowings and foreign direct investments. The second source is the mispricing in trade – the undervaluing or overvaluing of the goods for export and import.
Coming back to the Lokpal Bill, it has now become a political issue. Initially, the parties differed on whether the prime minister would be included in its ambit. Once he was included, the logjam happened on whether the states should have independent Lokayuktas. The real issue of corruption has again been sidestepped. Another bill, which had more direct involvement in dealing with corruption – the Prevention of Money Laundering (Amendment) Bill, 2011 – and which was supposed to be passed by Lok Sabha got stuck in the melee. Since money laundering is not bound by geographical boundaries, this amendment would have linked Indian laws with those of other countries. The new amendment could have allowed the banks and financial institutions to examine all the transaction record. The bill also proposed to get the reporting entities and their designated directors on board and make employees responsible for acts of commission and omission. In other words, the new amendment is an admission that the earlier Act was not strong enough to hold them responsible. This bill, alas, was also not passed.
So, are Indian politicians really serious about curbing corruption in the country? It is obvious that none would like to create a noose around their necks, whether in the ruling party or the opposition. The Trinamool Congress has consecutively stalled the passage of reform bills in parliament on land, retail, pension and finally on corruption. Being a partner in the UPA government, in most cases this opposition from within was an embarrassment. But was the last one was a strange case, where the Trinamool supported the bill in the Lok Sabha and then made a turnaround and stalled it in the Rajya Sabha to save the Congress, which at heart, did not want such a historic bill against corruption being accepted in the house. And the role of the opposition, including the BJP and the CPI(M), was equally ambiguous when they constantly opposed the bill demanding the prime minister be included in the Lokpal and when it was granted, they continued to oppose it on the plea that the bill was weak.
Sporadically, we hear of Indians stashing away illegal funds in Swiss banks. However, Swiss banks are only one of the seventy-odd tax havens in the world. At least 40 countries openly market themselves as tax havens and even offer protection to criminals who invest enough funds in those countries. They allow for companies to be founded without proof of identity. These countries include Antigua, Australia, Bahrain, Barbados, British Virginia Islands, Cyprus, Canada, Cayman Islands, Greece, Ireland, Liechtenstein, Mauritius, Switzerland and Thailand. All these tax havens have a legal system based on British common law and would not disclose financial information to other governments and law enforcing agencies. But with the recent global economic meltdown and the countries like the US becoming stricter with laws to unearth illegal funds funding terrorism, the tax havens are under pressure. The Swiss banks, who for example manage $2 trillion offshore assets of the world, have been under pressure from US tax authorities to disclose the identities of US clients. In a legal battle, UBS, a major Swiss bank, had to pass on information of about 300 wealthy US clients to the US Internal Revenue Service. Two UBS bankers have been arrested for being involved in tax fraud and the American IRS has increased pressure on the Swiss bank to disclose information on 50,000 more US clients. In a way, Switzerland had to be terrorised to crack down on illegal funds.
THE G20 countries, especially Germany and France, have been forcefully arguing at their meetings for blacklisting the countries described as tax havens. China, till recently, was against the disclosure of such lists because of its fear that Hong Kong and Macao would be included. India was also not too willing to participate in the debate, perhaps worried that the names of the beneficiaries would be revealed. But you cannot catch a thief by openly disclosing the details of the trap. What is really needed is a detailed legal and policing procedure applicable transnationally. Strict steps should be worked out for the countries that refuse to comply.
Some of the financial laws relaxed in India to attract more investments should be closely monitored. The participatory notes (PN) used by the FIIs to invest in the Indian stock market has no disclosure clause. Many describe the PN as a weapon of mass destruction. We know well how the Indian stock market is still dependent on FII investment. Withdrawal of FII investment has led to market crashes on several occasions. The investment through PN was 20 per cent of all FII investment in the stock market in 2004. In 2007, more than half the FII investment was through the anonymous PN, while the investment had grown to 51.6 per cent.
Sure, India should not become another tax haven in its eagerness to attract investment. But it is important that India takes firm but cautious steps to bring back the money that has flowed out of the country. Anna Hazare’s Lokpal movement had certainly made the government sit up and act, which they didn’t dare to do in the past 40 years – by their own admission in parliament. But the dithering is alarming. India is now a member of the Financial Action Task Force and it heads the Asia Pacific group. India has to put corruption on the global agenda and take part in discussions in the G20, the World Bank, and the IMF on corruption. It should also discuss it at the Egmont Group since the Financial Intelligence Unit-India has recently become a member of the group at the plenary session at Hamilton, Bermuda.
Buroshiva Dasgupta is a senior journalist based in Kolkata.
buroshiva@gmail.com
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