Illusions and Realities of Chasing Black Money in Swiss Accounts

Switzerland’s State Minister for International Finance Jacques de Watteville was in Delhi on June 15 for discussions with Indian officials on the vexatious issue of black money, specifically how to speed up automatic exchange of information. This is said to be a result of Prime Minister Narendra Modi’s recent visit to that country.Modi had made an electoral promise in 2014 that he was determined to ferret out all the money stashed abroad by Indians to avoid paying taxes. He has been pursuing this relentlessly since coming to office. Switzerland is one nation that figures prominently in his scheme of things. Why Swiss Cooperation is Important? Gabriel Zucman of the London School of Economics, who last year wrote an authoritative volume, ‘Hidden Wealth of Nations’, is of the view that the foreign wealth in Switzerland has reached $2.3 trillion, and since 2009, when G20 nations pledged to put an end to banking secrecy, deposits in Swiss banks had gone up by 18 percent. This confirms the vast dimensions of the problem, and also explains why Modi is focusing on that country in the fight against black money.One must remember that most of the money stashed away in tax havens like Cayman Islands, Bermuda and Panama, is one that had been initially deposited in Swiss banks, and which latter found its way to these islands for being invested in shell companies. The recent Panama Papers bared it all, with a number of Indians appearing as investors in companies that we had never heard of. It is, therefore, prudent to believe that the screws would be tightened in Switzerland rather than elsewhere.Can’t Point Fingers at Probing Agencies Unfortunately, the whole issue has acquired political overtones and become a slanging match between the NDA government and the opposition. Despite this, thanks to the Supreme Court’s intervention in the form of an SIT, and the government’s own seriousness, some progress has been made in the direction of getting the money back to our country. To castigate the government for not doing enough won’t be appropriate.Low-key building activity in most parts of India is now attributed to the money fleeing India and, unlike in the past, not flowing back due to the fear of enforcement authorities, who could ask embarrassing questions to real estate businessmen about the origin of their funds. This is an index of some quality work done by our enforcement agencies. One cannot, however, exaggerate the results achieved, nor can we rest on our oars. There is actually a case for stepping up enforcement through imaginative probing of all likely sources.Enforcement can be blind and misdirected without accurate information. I am not sure whether our data banks meet the challenge. This is where international cooperation is of paramount importance. Retrieving Black MoneySigning a bilateral treaty with Switzerland important since that’s the centre-point from where black money has been channelled to other tax havens.The Agreement for Automatic Exchange of Information (AEOI) between India and Switzerland is likely to be signed by the end of 2016.NDA govt’s resolve to combat tax fraud evident by the slump in real estate sector, sparked by strict enforcement on black money.Creating a central depository which acts as a database of such individuals who have flouted tax legislation will be helpful for the probe agencies.Creating Central DepositoryThomas Piketty’s ‘Capital in the Twenty-First Century’ that received rave reviews in 2013 endorses Zucman’s plan of action which primarily suggests the creation of an International Register of Financial Wealth that would chronicle all substantial investments in stocks and bonds. This would be a kind of a central depository, which already exists in most countries. Hence, Zucman’s proposal is not superficial but one that is down-to-earth. The international register is a compendium of several national registers. We do not know what kind of a database India has. That is the meaningful starting point for any negotiation with the Swiss authorities. From all reports, Switzerland is far more transparent than before and has displayed a certain positive approach to sharing information. For this to be carried to its logical conclusion we need to do our own homework, without which we would not make any substantial progress in locating individuals and the wealth hidden by them in Switzerland and shell companies. This is where the Panama Papers assume importance.Once we give the names of certain suspects, Swiss banks can tell us about the transactions that followed after their initial deposits, especially whether any money had moved out from Switzerland to the recognised tax havens. It is not enough to know that some money has been deposited in Swiss banks. What we need to be told is whether such deposits remain in Switzerland or had flown elsewhere. We need to be wise about the whole chain. Whether Switzerland will cooperate to this extent is a moot question.Viewed from this perspective the PM’s visit to Switzerland and de Watteville’s visit seems to have yielded dividends. The signing of a bilateral treaty for mutual cooperation and its approval by the Swiss parliament are mandatory.The battle that follows is equally important. The need to prove that money stashed by individuals in Switzerland and elsewhere is non-taxable money and it attracts our black money legislation is a prerequisite to the wealth stashed abroad being brought back. There is no magic wand with which we can speed up the process. The Income Declaration Scheme 2016 will help only partially, as our past VDS (Voluntary Disclosure Scheme) experience would indicate. Meanwhile, the slanging match will continue bringing odium to India’s image abroad.(The writer is a former CBI Director)Also read:Unravelling Panamagate Will be a Challenge For Indian Agencies Mallya Laundering Case: Shenanigans of a Marauder from Karnataka

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Illusions and Realities of Chasing Black Money in Swiss Accounts

As India seeks Swiss cooperation over black money, it will be prudent to maintain a database of regular defaulters.

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Topics: black money Panama Papers Leak