Who will bell the cat?

Published: May 5, 2009 - 12:44 Updated: July 1, 2015 - 15:28

Hardnews investigations reveal that most foreign bank accounts are of Indian companies and politicians. Will Advani have the courage to do an Obama on these banks?
Sanjay Kapoor Berne (Switzerland) / Delhi
It remains a touch intriguing why PM-in-Waiting LK Advani decided to hype the issue of bringing back Indian money stashed in tax havens. Advani had managed to wriggle out of an embarrassing hawala scandal in 1991 as the Delhi High Court refused to take cognisance of the details of the pay-offs made to him in a diary. Now, he claims that a mind-boggling Rs 25,00,000 crore is sitting in mysterious tax havens in different parts of the world and that he is determined to bring this money back to fund the country's development plans if his party is voted to power. Grand design - but will it work?

While the intentions of Advani and his band of chartered accountants and retired sleuths in tracing this dirty money are laudable, they would have to first come out in the open and state categorically that they are not using dubious funds to bankroll their campaign. Surely, you cannot criticise dirty money and thrive on it at the same time.

The communist parties who want the money back from tax havens, definitely have better credentials. Congress and other smaller parties have less hypocrisy on this issue. Even Prime Minister Manmohan Singh, who took part in the G20 summit in London on April 2, did not really go endorsing French President Sarkozy or German Chancellor Angela Merkel's stand on regulating tax havens (read Hardnews - India's dirty money dilemma - http://www.hardnewsmedia.com/2009/04/2804)

In Bangalore, Hardnews was told by BJP insiders that "money was flowing like water" in this campaign. It does not require much imagination from where this money is coming from. Surely, it is not accounted money being withdrawn through cheques! As prime ministerial candidate of the BJP, Advani knows from where this money is coming from. If he has been denied this information, then he has to talk to either his consigliere, S Gurumurthy, or those who are managing the campaign in Karnataka or in other parts of the country.

In assembly elections last year, wanton display of wealth shocked everyone. Cars loaded with cash were criss-crossing the state. A few of them were intercepted, but many got away. Stories of the fortunes of Bellary miners/politicos and how they funded the BJP elections have now become part of our electoral folk lore. A former police officer who was involved in these interceptions revealed that mobilising these funds was such a sophisticated operation that banks stepped in to show that the seized funds were in reality inter-bank transfer of cash.

Similar display of dirty money in running election campaigns and buying votes is being reported from different parts of the country. The moot point is whether dirty money would pave the way for a government controlled by this kind of money?

As reported elsewhere in the magazine (see Largest Democracy! Cash for Votes), as a quid pro quo for the funds made available by miners and realtors of Karnataka, freedom was given by the state government to them to have bureaucrats of their choice. Premium government contracts were also handed over to them. Interestingly, these money-based relations are party neutral.

The interim recommendations given by the BJP's task force on the steps to be taken by the Indian government to bring back Indian funds illegally stashed away in secret Swiss bank accounts and other tax havens around the world does not take into cognisance how dirty money is used in elections. In all of its 20 pages of the report, it is silent about how money is brought back from the tax havens to fund elections. Why blame the BJP alone, nearly all the political parties get their money through hawala from tax havens.

In 1991, when the country was in the midst of elections, CBI tipped off the then prime minister, late Chandrashekhar, that money had been seized from a hawala dealer. He wanted to know from his officials whether it was election funds. There was an attempt to release the funds, but it proved to be too late.

Since 1991, the flow of funds has increased many times over. And, so has the flight of capital from India. The BJP document quotes from a report prepared by Global Financial Integrity (GFI) that states that $27.3 billion left the shores of the country every year from 2002-2006. About Rs 6.88 lakh crore of money has been smuggled out of India. It blames the Nehruvian socialist model for the flight of capital without mentioning that between 2002-2006, BJP was in power for two years. Even when Congress formed the government in 2004, it only paid lip-service to Nehru and his ideals.

The report fails to mention that the flight of capital is also symptomatic of advanced economies such as USA, Germany and France. In fact, it is US pressure on UBS bank to reveal tax evaders that is forcing tax havens to clean up their act. The BJP document also relies heavily on Raymond Baker's seminal work - Capitalism's Achilles heel - that rightly brings to the fore how dirty money is pauperising the Third World.

Hardnews journeyed from Berne, Switzerland, and other cities of Europe to understand whose funds are stashed abroad and how they are used to fund elections. Our investigations revealed that most of the foreign bank accounts are of Indian companies and politicians. Many of these companies serve as parking places for political funds, which are brought back to India during elections or otherwise. These companies also use foreign exchange reserves to fund their acquisitions abroad.

During the days of Rajiv Gandhi, the ministry of company affairs was asked to find out the operations of major industrial houses. One of the findings of this enquiry was that companies like Tatas and Birlas had holding companies registered in a canton called Zug in Switzerland that managed their operations in different parts of the world. This was meant to save taxes and also provide foreign currency for their international operations.

Another key finding was that these companies were given permission to set up holding companies at the time of independence so that they do not suffer from foreign exchange regulations. Since those days, foreign exchange liberalisation has helped in multiplying depositors and their fortunes. Lax foreign exchange and money laundering laws have also allowed money bags to move money at will.

Hardnews also learnt that the money round-trips to India on the instructions of account holders. The currency managers of those banks that provide private banking facilities organise local currency through Dubai, Singapore or even through domestic mobilisation. An intelligence source told Hardnews that the reason why the Indian rupee was trading at Rs 51-odd vis-à-vis the dollar was due to the increased flow of funds into India. Dollars were being cashed out in its favour. After the election gets over, according to him, the rupee would stabilise at a much lower rate to a dollar.

Hardnews also learnt that managers from Swiss banks visit countries like India and offer their services to park their funds. Although Swiss banks insist that they do not allow drug or criminal funds into their accounts, there are other tax havens through where such funds are washed. Raymond Baker, in his book, identifies 60 tax havens, a million dummy corporations to move the money, which moves faster than a click of the computer mouse.

Baker claims that globally $17 trillion are lodged in private banks and assets of about $11 trillion are parked off-shore. In the British principality of Cayman Island, about $1 trillion are parked. He claims that "drug dealers, racketeers, thugs, kleptocrats, terrorists and corporate CEOs are using precisely the same structures".

France, Germany and, now, USA and UK are now on board in bringing transparency to tax havens. The OECD has been quite proactive in ensuring that there is little place to hide this ill-gotten wealth. India is a little ambivalent about the exact implications of this drive as it fears that its dirty money-driven development could get compromised. It remains to be seen whether Advani would have the courage to do an Obama on these banks.

Hardnews investigations reveal that most foreign bank accounts are of Indian companies and politicians. Will Advani have the courage to do an Obama on these banks? Sanjay Kapoor Berne (Switzerland) / Delhi

Read more stories by Who will bell the cat?

This story is from print issue of HardNews