G20: India’s dirty money dilemma

<p>Sanjay Kapoor Delhi, Hardnews</p>
<p>The Indian delegation attending G-20 summit does not seem to be keen on supporting the French demand to make tax havens transparent and create a new global financial architecture that has more regulation, as it could hurt India's economy. The big question is: can we allow the country's development to be bankrolled by dubious funds.</p>
<p>Prime Minister Manmohan Singh's reaction to the growing chorus for getting back ill-gotten wealth, squirreled in tax havens, has been quite casual. This makes it quite clear that he would not back the demands of French President, Nicholas Sarkozy, and others to regulate and tame the global financial system ahead of any coordinated stimulus. Their contention is that they fight protectionism and would not want anything to impede the flow of capital to emerging countries. And, this attitude is worrisome.</p>
<p>Indians, Swiss bank sources claimed in 2006, have more than $ 1.4 trillion squirreled in their bank vaults. This figure could reach astronomical levels if the funds of Indians in other tax havens are added up. Experts estimate that the total quantum of money that has flown out to safe vaults abroad could go beyond $ 2-3 trillion dollars. So substantial is this amount that if it returns to India then it could make a serious difference in alleviating poverty and transforming its inadequate infrastructure. More importantly, it will also bring out in the open the identity of those who perpetrated this organised loot for so many years. Most of the illegal funds are sourced from defence deals, corruption and large scale siphoning off from development programmes. If the details of the Swiss bank account holders ever come out in the open, it will be a fascinating story of how India has been pauperised by its ruling elite.</p>
<p>From this standpoint it makes ample sense for, first the Communists, and more recently, Bharatiya Janata Party's prime ministerial candidate, LK Advani, to demand from Prime Minister Manmohan Singh, bound for G-20 summit, to lobby for the return of Indian money from tax havens. To establish his credentials, Singh claimed that he had written to former Finance Minister, P Chidambaram, to find out from the German authorities the identity of those Indians who had parked their funds in the LTG Bank in Liechtenstein. The German authorities, through a discreet operation, had managed to lay their hands on a list of depositors. Indian government had claimed that they were in touch with the Germans, but had received no details. Opposition claims that these leads were not pursued seriously.</p>
<p>For more than three years now, they have not been able to make much headway in tracing the $ 8 billion found in a mysterious Pune-based stud farm owner's account in UBS, Switzerland. The money trail led to Virgin Island and to Saudi arms leader, Adnan Khashoggi, but the enforcement agencies have drawn no conclusions as one of the partners of the stud farm owner is a close relative of a big business family with close ties with the ruling party. This old business family, besides other interests, also serves as agents of some arms manufacturers. The belief is that pressure from this powerful group has prevented government to take its probe with the UBS to its logical conclusion.</p>
<p>However, after UBS wilted under US pressure to release the details of their nationals that evaded tax and parked their funds with them, there has been a flicker of hope in other countries too, that such details may finally see the light of the day. Indians have not shown much urgency in following up on US government's enterprise- due a host of reasons. First, this is election time in India and a wrong time to follow bad money. Indian elections are funded through black money and a lot of cash sitting in foreign bank accounts returns through the hawala route.</p>
<p><em>Hardnews</em> magazine was told by an investigator that about $ 2 billion has come through the hawala route for the elections. Indian elections are getting expensive and the understanding is that the total spend would be in the vicinity of $ 8-10 billion. Investigation into the funding of the elections could imperil the smooth conduct of world's most chaotic and corrupt democracy. It is this bad money that sustains bad politics in this country. This author's book, <em>Bad Money Bad Politics</em>, has revealed how dubious funds from abroad compromised and corrupted the political class and weakened its resolve to perform their legitimate jobs.</p>
<p>It is the same dubious funds parked in tax havens that were used to buoy India's stock market in the last few years. Billions of dollars were round tripped to Indian bourses creating an illusion that the funds were responding to strong fundamentals of the economy. Subramanium Swamy, an economist and politician, claimed that most of Indian businesses were bankrolled by these funds.</p>
<p>This was, in the reckoning of many, the biggest money laundering operation in the country. If Prime Minister, Manmohan Singh, a top economist, did not lose his sleep over the kind of money that was sustaining his country and economy then it has to do with his weakness to own up that his policies were flawed as they only helped crooks, bandicoots and all kinds of market buccaneers. So when the Indian government gives an impression that they would be backing the UK Prime Minister, Gordon Brown, and not Sarkozy then the reasons are obvious. India will melt faster than any country if the tax havens are closed down.</p>
<p>On the face of it, India should be richer with the return of these funds - if at all that happens - but poor quality of governance, corrupt politicians and bureaucracy and politics and a criminalised police force does not give any comfort to the rich.</p>
<p>Global slowdown provides an opportunity to create a new architecture of a global financial system that is regulated, transparent and is not sustained by tax havens comforting dubious money created from drug trade, arms deals and kickbacks from arms deals. In this absence of this paradigm shift, all the global stimulus would disappear in tax havens. The big infusions, that have taken place in the US, the UK and in other countries after the meltdown hit the world, has disappeared into the black hole of dubious accounts.</p>
<p>Unwinding of tax havens, many of them under the control of the UK government, would ensure that the development funds marked for the poor in Africa, Latin America and Asia do not find their way to the safes of banks in foreign countries. After all, many of the multinational banks have been recipient of drug money and kickbacks. History would bear testimony that some of the money in these banks have origin in opium. The world would be a different place when arms dealers, mercenaries and war-mongers, drug dealers have no place to hide their cash. Surely, this would impact terror funding, covert wars and so much of misery that this unaccounted wealth heaps on the poor of the world.</p>
<p>The author is the editor of <em>Hardnews </em>magazine and author of <em>Bad Money Bad Politics</em></p>
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