dalitrefugees: CORRUPTION: BLACK ECONOMY The Family’s Silver A lack of sincerity is evident in the Centre’s overtures on black money LOLA NAYAR

SANDIPAN CHATTERJEE

Block Ahead A protest against corruption, an Anna Hazare fan in Calcutta

CORRUPTION: BLACK ECONOMY

The Family's Silver

A lack of sincerity is evident in the Centre's overtures on black money

LOLA NAYAR

http://outlookindia.com/article.aspx?277042

What Civil Society Wants...

Demand 1: Ordinance to declare black money a national asset with powers to seize as well as confiscate, be it at home or overseas
Reality: A panel has been set up; will be a long-drawn process.
Demand 2: Disclose the identity of those with loot stashed abroad
Reality: Practical difficulties with confidentiality; India has so far not taken (unlike the US) measures to file criminal cases to get information
Demand 3: Life sentence or capital punishment for those found guilty
Reality: Not being the "rarest of rare" cases, courts may not agree to capital punishment; given past record, big fish may escape even life term
Demand 4: Join global efforts to combat drug and terror funding
Reality: Global move to cleanse the system acting as incentive; India still to ratify UN Convention on Corruption, use options effectively
Demand 5: Enact legislation so as to make property transactions transparent
Reality: Limited efforts so far to tackle this major source of black money generation and displacement of the poor
Demand 6: State funding of elections, right from national to state, municipal and panchayat
Reality: No sign of collective political will to change the system blamed for much of corruption; EC taking steps to curb poll spending

What The Government Says It Has Done

Measure: Avoidance of double taxation agreements with 44 countries. Also renegotiated to facilitate sharing of banking info.
Impact: Will help get information on future accounts, but not old ones
Measure: Etched fresh agreements with 14 out of 70 tax havens; 3 pacts operationalised
Impact: May help to ferret out info on funds rerouted back to India from these tax havens, mostly in the form of FDI
Measure: Three think-tanks to study black money issue and suggest course correction
Impact: No action has been taken on previous studies; cynicism about whether new reports will see desired response
Measure: Dedicated criminal investigation directorate and Exchange of Information Unit set up to track financial crimes
Impact: Few tax evasion cases between Rs 100-500 cr nabbed
Measure: Committee on black money to review existing laws; Special CBDT panel to track habitual tax offenders
Impact: Experts feel lack of political will means that enforcement could remain a flaw
Measure: Govt says fishing expeditions not allowed so has to follow available routes to ferret out information
Impact: US, EU showed that there are options. India's slow pace raises sincerity issues.

***

As a pitched battle between civil society and the political class plays out in the maidans and the media, the idea of "getting back" the black money stashed overseas has become the holy grail of the fight against corruption. It's gone beyond the politically savvy strategy that the BJP, among others, unveiled in the run-up to the 2009 general elections. Whether it is $500 billion or $1.4 trillion, there's no denying that the prospect of getting back even a fraction of the black money estimates has deep resonance for a public fed up with the daily soap of scams while struggling to make ends meet.

Against this growing outpouring of anger against corruption, the government has been trying to point to issues of practicality. While generally acquiescing to the demands of civil society (a section of which is currently involved in a cantankerous co-drafting of the Lokpal Bill), the government has been casting doubts on the intentions/political agenda of the players. There's also been a rash of commentary on how some of the measures to curb black money—like declaring it a "national asset" or handing out stiff jail sentences and worse to offenders—are just earnest sentiments, and can't really be implemented.


	"We are afraid to get the information as we will not know what to do with it...it will be far too explosive. "V.U. Eradi, Tax Reforms Export

That may well be the case—but remember it's the political class and the bureaucracy that will have to finally act on tackling the issue of black money. Though the corporate sector is generally blamed for fostering the parallel economy, experts apportion a larger share of the blame on other, known players. The most obvious one, sadly, is the politician (commenting on the jump in personal assets declared by members of Parliament from one election to another, a former CBDT chief points out, "The declared asset of the politician is just the white money part.").

No less involved are sections of the bureaucracy (consider the recent examples of Neera Yadav, former UP chief secretary, Arvind and Tinu Joshi, and B.S. Lalli, CEO of Prasar Bharati, all of whom face really serious charges of corruption). Then, of course, key players are sundry deal-makers (of whom we caught some enlightening snippets in the Niira Radia tapes).

While all the impediments are known, the UPA is doing what governments do best: setting up a number of committees to suggest action plans. But going by past track records, the committees don't inspire confidence. Despite some high-profile arrests in the 2G-spectrum case, so far the government's actions to root out corruption, on which the black economy thrives, remains suspect. In fact, it's got people wondering: how serious is the government about tackling the issue of black money?


	"We have a history of spoiling our cases, despite SC strictures and all the mechanisms to get information."Arun Kumar, JNU Professor

"My study shows that the government is not serious about tackling the issue. It's dragging its feet. This perception is spreading and it's not desirable," says R. Vaidyanathan, professor of finance at IIM-B. That's becasue this further fosters the perception that the government is also involved. It's an act of omission rather than commission, he warns.

Totally sceptical of government's avowed intentions to act on black money, Promod Chawla of the National Network For India Trust points to his own experience over the past two years trying to ferret information through RTIs—including to the cabinet secretariat—on government efforts to get back funds from accounts held by Indians in Swiss banks. After doing many rounds of the various government departments, on May 24, 2011, he got a reply stating that the Enforcement Directorate has rejected the RTI query as it is "devoid of merit".

"It's a cat-and-mouse game. The effort of the regime is to tire you out. The regime has all the powers to hide and not give you all the information," says Promod, who confesses that his group's efforts to unravel black economy over the last four years have led to several dead-ends. What the group's study has reinforced is the belief that an estimated 50 per cent of funds stashed overseas belongs to politicians, 40 per cent to past and present bureaucrats and the remaining 10 per cent to businessmen, drug and arms dealers.

Tax reforms expert V.U. Eradi, who served as joint secretary during V.P. Singh's tenure as finance minister, echoes the sentiments, "We are not serious about getting the information. In fact, we are afraid to get it as we will not know what to do...it will be far too explosive." Eradi buttresses his argument by pointing to a report in the Economist last year which highlighted how the EU had negotiated with the Swiss government to get a part of the tax levied on the money parked in the banks by non-residents, while India "has not even thought to do the same".

Using the route used by the EU, India too could get an estimate of the funds parked there by Indians and perhaps later use the US method to gain access to 'tax evaders'. Many of the experts who have had an inside view of the negotiations overseas or have participated in international meets on money-laundering reveal that in private their foreign counterparts often express amazement that Indian officials just don't want to get the information available. This has been the story for the past 20 years.


	"The regime's effort is to tire you out. It has all the powers to hide and not give you all the information."Promod Chawla, RTI Activist

Prof Arun Kumar of JNU, an authority on black money, is scathing about the tardy manner in which Indian authorities are pursuing cases abroad (particularly when countries like Germany are even offering information). "It is possibly to give time to account-holders to settle things," states Kumar, contrasting the Indian government attitude to the many lines of action pursued by the US—including the threat to take over ubs's US operations to access the names and bring the culprits to book.

Most experts agree that, partly thanks to the global fight against terror, tax havens and banking secrecy are vulnerable concepts—in fact, this is the best time for governments to deliver a body blow to the parallel economy. "In India, we have a history of spoiling our case despite Supreme Court strictures and having all the mechanisms to gather information," stresses Kumar, citing black economy as the cause for the various economic problems in the country, including poverty and inequality.

Experts estimate that around 50 per cent of GDP—or about Rs 33 lakh crore of black money—is generated every year through corruption at various levels. While black money which operates within the country can be productive, what goes overseas is seen as non-productive.

Dr Shankar Acharya of ICRIER, who had done a study of black money in the mid-'80s, underlines that while economic reforms did away with licence raj, continuing government control on land use and other discretionary powers as in the case of mineral resources is fostering the black economy. So whether it is spectrum or defence deals or infrastructure contracts, kickbacks and paybacks persist. Similarly, all government jobs and plum postings as head of psus are reported to carry considerable value. Stating that "our system of election funding" at all levels has "created a demand for black money", Acharya adds, "I don't know if this government has done much to tackle the black money issue."


	The reluctance of Indian officials vis-a-vis access to information available on money-laundering amazes foreign experts.

Sure, the government has done some work. It has, for instance, renegotiated avoidance of double taxation agreements with 44 countries, which will facilitate sharing of information, including banking flows. Similarly, it has worked out arrangements with 14 out of 70 tax havens to get access to fund flows from Indians. But there is disquiet that all these may only help in future cases, while putting the lid on old cases. Unless, that is, the government wishes otherwise.

Having seen the track record with Bofors and the Hasan Ali cases, bringing the small fry in the net and letting big ones escape is not likely to appease the masses. So far, despite ample evidence, government action has been found lacking. Author of Crime and Money Laundering, Jyoti Trehan, who has served a stint with Interpol, is sad that the proposal to set up a Money Laundering Authority with the best talents, as envisaged under existing laws, never got translated into action. "Instead, the moth-eaten Directorate of Enforcement, which is not equipped to handle such cases, has been given the task," says Trehan, underlining that black money is just one aspect of transnational crimes.

If some say that black money overseas is nothing but an over-hyped myth, government action on tackling the issue—even to just debunk it—is seen as a complete farce. And the way things are moving, it's only going to fuel the common perception about enormous, ill-gotten Indian wealth overseas.

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