How much Indian black money is stashed away in Swiss banks? Nearly $1 trillion, says this book

Ever since the Modi government rode to power with the promise of bringing back the billions stashed away by Indians in tax havens abroad, they have been constantly reminded of this promise. The National Democratic Alliance (NDA) drafted a new Black Money Act on May 11, 2015, and also announced a voluntary disclosure scheme till September 30, 2016, for declaring assets and until December 31, 2016, to pay tax at 30 per cent and penalty at 30 per cent.

In October, the government announced that it had collected Rs 4,147 crores ($623 million) as part of this scheme. Various estimates put the amount of black money from India anywhere between $181 billion and $1.8 trillion dollars. Regardless of which estimate one takes, the fact remains that even a fraction of the amount abroad has not been recovered.

Two examples suggest that governments may not be serious. The response of the government in the Supreme Court (in the Ram Jethmalani case) indicated that tax demands of Rs 71,848 crores had been raised against Hasan Ali Khan, his wife and other associates. If this is the tax demand, then the income on which this would have been raised could be more than Rs 1,50,000 crores. This is a mind-boggling figure since our national income for that year is of the order of Rs 60,00,000 crores.

But, something more interesting has been reported. The Swiss authorities told a news magazine that the Indian authorities had sent a request in January 2007 for legal assistance in the Hasan Ali Khan case but the documents were not valid.

The Centre, in an affidavit to the Supreme Court, had detailed the action it had taken against Hasan Ali Khan, his wife Rheema and Kolkata-based businessman Kashinath Tapuria, who allegedly were holding about $8 billion in a UBS account in Switzerland. In a communication from Folco Galli, information chief of the Swiss Department of Justice and Police, Berne, the magazine Hardnews was informed that the Indian authorities had submitted “forged” documents to seek assistance.

In its May issue, the magazine said the Swiss sought more information. Apparently, the Swiss authorities wanted to provide further assistance in the case if the Indian authorities could satisfy the Swiss government’s demand to establish dual criminality ie, what is a crime in India is also a crime in Switzerland. The Swiss also wanted to know whether the offence was an object of Indian money laundering. But since April 2007, the Indian government has not responded.

Also, in the space of nine years (between 2007 and 2016), Hasan Ali’s tax liability “dropped” considerably. In 2016, the Income Tax Appellate Tribunal (ITAT) in its ruling brought the income figure down to Rs 10 crore, and the tax liability a mere Rs 3 crore, after the IT department failed to establish its claims in court. On the list provided by the German authorities, the government maintained that it could not reveal the names since it had been obtained under the double taxation treaty. But it said that it was proceeding against account holders under tax laws.

The question as stated earlier remains: Why did the government ask for information under the double-taxation treaty from Germany when the names were from Liechtenstein? Moreover, where was the issue of confidentiality vis-à-vis criminals? Germany had released its own list and how could they ask India not to release the list?

The Finance Ministry at that time said it had the names but would not reveal them and the affidavit suggested that the petitioners could go through the Right to Information (RTI) route. Of course, the RTI application would have been thrown out.

Julian Assange, in an interview with an Indian television channel, had clearly indicated that Indians accounted for a large number of Swiss bank account holders. He also recollected that many banks entertained customers only with a minimum of Rs 5 crore in assets.In another interview, the Swiss whistle-blower, Rudolf Elmer indicated that the names of account holders include Bollywood icons and sportspersons. Obviously, no aam aadmi is going to find mention in all these lists. Other than these, the Panama Papers revelations of 2016 also indicate substantial Indian involvement.

The Associated Chambers of Commerce and Industry of India (ASSOCHAM), the apex business body in India, in its study on black money published in 2014 estimated that $2 trillion is stashed away abroad in the form of black money. In June 2014, it had suggested that the new government come out with a six-month amnesty scheme that would facilitate the transfer of such funds back home on a voluntary basis with a payment of 40 per cent tax.

Another reason for illicit money being stashed abroad is commissions in defence deals obtained by Indian middlemen. The now infamous Bofors deal of the late 1980s needs a special mention since it toppled the then Rajiv Gandhi government. The recent AgustaWestland scam is another example. The alleged middleman in the deal, Guido Haschke, revealed that while AW 101 did not meet the technical (altitude) requirements of the IAF, the deal was signed after Haschke tweaked the contract with the help of his Indian contacts. AgustaWestland allegedly paid €30 million in bribes, of which €20 million was routed through Haschke and Carlo Gerosa.

A CBI report into the matter revealed that prior to SP Tyagi being appointed as Air Force chief, the IAF had “vehemently opposed” the lowering of the altitude requirement. This changed after Tyagi came into the picture and the IAF then reduced the altitude requirements, allowing AgustaWestland to re-enter the bidding process.

It might be worthwhile to arrive at some estimates and make some inferences regarding Indian illicit money abroad. In an article in the August 2009 issue of the Swiss Review, Konrad Hummler, the chairman of the Swiss Private Bankers Association claimed that nearly one trillion out of 2.8 trillion of Swiss money was black money. Julian Assange of Wikileaks fame had told an Indian TV channel that Indians were the largest investors in Swiss banks.

That means out of one trillion US dollars (the Swiss currency’s exchange rate was nearly the same as the US dollar) more than 50 per cent is owned by Indians. This alone comes to about $700-800 billion in 2008-09. This is only as far as bank deposits are concerned. Then there are other exotic financial products offered by Swiss banks – offshore also – where Indians are invested in. Furthermore, there are funds accumulated directly abroad through commissions in defence contracts (remember Bofors!) which are not going out of the country due to trade mispricing. Also, diamonds, pearls and rubies are kept in Swiss vaults. Since it has been nearly 12 years post the estimate by Hummler, it might be safe to say that the amount could easily be $1 trillion.

Excerpted with permission from Black Money and Tax Havens, R Vaidyanathan, Penguin India.