SIT: Modi Govt’s First Move to Unearth Black Money

Cover Story: SIT: Modi Govt’s First Move to Unearth Black Money 

Intro :'Modi Government's move to set up a high level Special Investigation Team (SIT) to bring back the black money deposited abroad would prove to be a historic step for ploughing back country's wealth'

The first ever cabinet decision of the newly elected government to set up a high level Special Investigation Team (SIT) to bring back the black money deposited abroad would prove to be a historic step for ploughing back the country's wealth illicitly stashed abroad for the welfare of people and rapid development of the country.
The black money stashed abroad and the monies being brought back as export income or foreign investment either through round tripping or by money laundering as white, if retrieved, may touch Rs. 100 lakhs crores. The figure is subject to variance as various estimates give differing figures of black money stashed in various tax heavens ranging between $ 350 billion (Rs. 21 lakhs crores) to $ 1.45 trillion (Rs. 87 lakhs crores). The most baffling figure is the oft quoted figure of $ 1.456 trillion quoted from a “Swiss Banking Association Report of 2006”, which was later denied by the association. Indeed after the issue of black money was raked, a large part of it has either been brought back by round tripping as export income or foreign investment in white, or, has been moved to other tax heavens. According to subsequent estimates of the 'Global Financial Integrity'(a non-profit organization), the estimated value of illicit financial flows held abroad by Indians – individuals and companies – is around $ 500 billion (Rs. 30 lakh crores).

Konrad Hummler, Chairman of the Swiss Private Bankers Association revealed in the year 2011 that, 1 trillion out of 2.8 trillion Swiss Francs is black money; and, Wikileaks founder Jullian Assange alleged that the major chunk belonged to Indians. If we go by the said then around $ 500 billion is owned by Indians. Getting back the precious wealth of the country would definitely be a boon for the 1.2 billion people of Bharat. It would be used to enhance welfare spending; to build world class infrastructure; modernize our defence forces; renovate nation’s technology ; and, help improve agriculture which is the life line of half of India’s population.
It should also be borne in mind that, the amount of black money stashed in Swiss Banks is fast declining as, the Indian account holders have been withdrawing their illicit money either to deposit in other tax heavens like Bahamas and Liechtenstein to evade action or make it white through round tripping the black money as export earning or as foreign investment
Hence, the first decision of the new government was about the SIT. The 21 member SIT on black money held its first meeting on Monday, June 2, 2014 under the chairmanship of Justice M B Shah, a former judge of the Supreme Court to chart out the roadmap to bring back wealth, illicitly held abroad .The SIT members decided the road map and detailed modalities of proceeding further in accordance with the Supreme Court mandate, according to an official release.
According to the terms of reference for SIT, Justice M B Shah, will investigate all matters with respect to unaccounted money being stashed in foreign banks by Indians or other entities operating in India, and would prepare a comprehensive plan, including creation of the institutional structure that will enable the country to fight the battle against unaccounted money. The team will have jurisdiction in cases where investigations have begun, are pending or waiting to be initiated and, those that have been completed.
Baseless and unfounded apprehensions are also doing the rounds in certain quarters about SIT's success in bringing the black money stashed in the foreign. But the honest political conviction, reflected in the constituting the team itself is a positive signal for the team to succeed.
(i) The team is headed by the former Supreme Court Judge MB Shah know for his swiftness in the cases of illegal mining; and, is co-headed by another former Supreme Court Judge Arijit Pasayat- both are known for their objectivity, boldness and transparency.
(ii) The team has the most elite team of top officers of ten different investigative and enforcement agencies to ensure that no loopholes may perpetuate. The members include Secretary of the Department of Revenue, RBI Deputy Governor, Intelligence Bureau Director, Director of Enforcement Directorate, Director CBI and Central Board of Direct Taxes (CBDT), and Chairman and Director General of the Narcotics Control Bureau. Besides them, the Directorate of Revenue intelligence, Director of Financial Intelligence Unit, Secretary, Research and Analysis Wing (RAW); and a Joint Secretary (Foreign tax and tax Research) are also the members of the team.
(iii) The constitution of SIT was pending from the year 2011 as the UPA was explicitly opposing it. Since it has been set in the first ever cabinet meeting of the Modi-led government, it is a clear signal that the new government is committed to do whatever it can to bring back country's money and book the culprits.
(iv) Switzerland while buckling under international pressure, has also signed the OECD's Multilateral Convention on Mutual Administrative Assistance in Tax Matters. The convention, which has now been signed by 58 countries, including India, provides for sharing of information and mutual cooperation among all its signatories. It would help India to get information on black money. Besides, in October 2010, Switzerland’s Federal Act on the Restitution of Assets of Politically Exposed Persons (PEPs), obtained by Unlawful Means (commonly referred to as the Return of Illicit Assets Act or “RIAA”) was also passed by both houses of the Swiss Parliament. It had also become effective with effect from February 1, 2011
(v) Switzerland had already returned over $1.6 billion lying in various Swiss Bank Accounts – money which was illegally obtained and stashed by politically 'Exposed Persons'. India can also provide the Swiss Federal Criminal agencies clues for scrutiny with due diligence, necessary to establish the link of the money to the depositor and its origin, and can get the money stashed by corrupt politicians under this law.
(vi) Moreover, the global milieu has also turned resolutely against the opaque banking secrecy norms of tax heavens. The new money laundering laws in US that require sharing of information between financial institutions and enforcement agencies can be framed by India also for tracking terror funding and black money. At the G20 meet in Seoul last year, the use of initiatives and statistics on subsequent significant increases in revenues from tax evaders across the globe was also pushed to enhance the process of exchange of information.
(vii) India and Switzerland have also signed a pact amending the existing double taxation avoidance agreement that will make it easier for New Delhi to gain access to information on suspect bank accounts, possibly paving the way to recovering billions of dollars in undeclared wealth. In cases of non co-operation by the Swiss authorities or any other tax heaven India may even declare that nation a Non-Cooperative Jurisdiction, which would result in suspending tax benefits available under the bilateral tax treaty.
(viii) A tax heaven cannot deny sharing the information on the pretext of notifying a person or seeking his consent. The information has to be shared under Article 26 of the treaty signed with Switzerland, which overrides Swiss domestic laws.
(ix) India can also put pressure on Switzerland through G20 to yield information about the illicit money. Besides, we have the option of invoking Section 94(A) of the Income-Tax Act and declare Switzerland a Non-Cooperative Jurisdiction. Under bilateral tax agreements, countries have a legal obligation to exchange such information as is necessary, in particular for the prevention of fraud or evasion of taxes. So India can use this clause
Ever since the issue of black money hotted up India's export are booming despite an unprecedented stagnation in the world economy. These exports of non-conventional products to non-conventional destinations, since 2010-11, are even beating China hollow. Official data for 2010-11 show a huge increase of $ 30 billion in engineering goods, while engineering companies falling in the BSE 500 list (The Top 500 companies of the Bombay Stock Exchange) show an export increase of only $ 1.38 billion. Who accounted for the balance of over $28 billion? Minor companies or Ghost companies? Or, Large private companies owned by big businessmen that are not listed on the stock exchanges?
Likewise, export of metals and metals products increased from $ 13 billion to $ 29 billion. But, the export growth for these items by the companies BSE 500 is less than a billion dollar. Export of copper articles more than quadrupled to Rs. 36700 crore. The importing countries are also non-conventional importers of brass and copper wares and engineering goods. One such new destination for brassware handicrafts is China, which is not a normal buyer of such products.
One among the major exporters of brassware is Robert Vadra. Anomalies have been pointed out by the researchers of Kotak Securities in inflows of from Foreign Institutional Investors (FIIs). Official inflows in 2010-11 were shown at $ 22 billion. But, the data of EPFR Global (an International authority providing fund flows and asset allocation data to financial institutions around the world) show inflows of only $ 4.5 billion, leaving a gap of $ 17.5 billion against official data, open to apprehend round tripping of illicit flow of black money.
So, the export boom remains a puzzle. We need an urgent, detailed investigation of Kotak Securities’ research findings by the tax authorities, RBI and the commerce ministry. Even if they come up with a perfectly innocent explanation – which sounds a stretch – we need the details to improve our understanding of what’s driving exports.

-Dr Bhagwati Prakash Sharma