The Great Indian ‘Crusade against Black Money’ Drama

Nilotpal Basu

FOR quite some time, corruption and black money has been agitating the public mind in this country. This was particularly more so, in the urban landscape.  This was elevated to an unprecedented height in the run-up to the last general elections in 2014. The background music was provided by the anti-corruption campaign under the banner of India against corruption led by the `Gandhian icon’ Anna Hazare.  

However, the central demand of the Anna Hazare-led movement which doubtlessly captured the public mood against growing instances of corruption and scam under the UPA dispensation was to have an all-powerful Lokpal in place; an institutionalised ombudsman who would be invested with no holds barred powers for nabbing corruption in high places. This campaign brought a sting into the prime ministerial campaign of Narendra Modi.  The Modi campaign, of course, added spice by making a very specific claim that within hundred days of his assumption of office, each Indian citizen would be richer by Rs 15 lakhs which would directly find its way into the individual bank accounts!  

That is now history; and, indeed, a ‘bad joke’!  No less than Modi’s man-Friday, BJP president Amit Shah has publicly admitted that it was a mere electoral rhetoric – a jumla.  But nobody talks of the Jan Lokpal which added the urgency in the momentum to oust the Congress and to install Modi in South Block. After three and a half years, India awaits the establishment of a new Lokpal.  

‘CRUSADE AGAINST BLACK MONEY’

The Modi bandwagon’s familiar trait has been to adopt a hit and run approach.  To shrug off these obvious omissions, an anti-corruption, anti-black money narrative has been their mainstay. The initial honeymoon period and the comparative demobilised state of the principal opposition helped the government to have its writ run with consummate ease.  

Having no less comprehension than anybody else, the Modi government’s narrative on black money stashed in secret foreign bank accounts and tax havens have remained largely confined to repeating mundane details of number of investigations, number of possible cases, number of individuals involved and so on and so forth.  The Special Investigating Team (SIT) set-up at the behest of the Supreme Court has reportedly completed its primary study of the material.  Based on that, the SIT is also said to have given its recommendations to the government. However, the opacity with which the government functions ensured these recommendations are not shared in the public domain.  

Obviously, the Modi government with its aggressive neo-liberal policies which fringes on completely abrogating personal freedom of individual citizens, in its bid to create a National Security State, much in the line of most ultra-rightwing  regimes in other parts of the world, knows well that the legal framework of the country is ill-equipped to deal with the international financial flows which make ‘black money’ to be stashed in foreign locations and often, re-routed back to the country for super profits.  

In fact, this is all too well-known.  After the share market scam, in the first years of this century, the parliamentary committee enquiry concluded that new financial instruments which marked the current phase of financial globalisation like participatory notes, incorporation of Overseas Corporate Bodies and their activities which made financial flows both outside and inside the country to facilitate tax evasion and other activities for enhancing the wealth of the super rich were beyond the reach for our regulators. Therefore, any meaningful initiative to stop generation of black money using the foreign route would require a new law. That law needs to take into account the experience internationally define new types of financial crimes and so on and so forth. Specifically, the UN convention on corruption could be a good starting point, enabling us better access to offshore data.  But, alas, this was not to be!  

DEMONETISATION: ‘SPEARHEAD TO WEED OUT BLACK MONEY’

Knowing full well that in the present age of international finance driven globalisation, only 6 per cent of India’s black income are held in cash, the fateful announcement by the prime minister to the nation on November 8, 2016 unleashed an unprecedented campaign which targeted the large denomination notes which accounted for 86 per cent of cash in circulation.  With black incomes mainly held in real estate, shell companies formally located in tax havens, precious mineral, gold and ornaments and so on and so forth, the government was destined to fail in its mission against black money.  

Naturally, almost the entire amount of extinguished currencies have come back proving the government’s claims and estimates even made in statements before the Supreme Court to be totally without any practical basis. It has brought untold miseries to the ordinary people starving the informal and unorganised sector, the peasantry and millions of common citizens and small depositors in banks who had been debarred from accessing their own money deposited in savings accounts.  The overall impact of this disaster is now for all to see. The growth rate of the economy has plummeted. But the main burden of the catastrophe has been borne by the more vulnerable sections of the working population.  The most severe impact has been on the employment sector, with not only the failure to create new jobs but even slashing existing ones. Whichever way the employment figures are being calculated, the grave crisis is palpable.  

But far from admitting their mistake, the government is continuing with its grand narrative of this ‘crusade against black money’. While responding to the opposition’s call for observing the anniversary of demonetisation to bring out the tragic outcome on the life and livelihood of the people, the government has announced its celebration of this crusade on November 8. Deceit could not be more sinister!  

PARADISE PAPERS: A STRANGE IRONY

But an earthshaking revelation of the dynamics of international finance capital and the architecture of the present, globalised international financial and economic order has hit the global media space with unprecedented strength and velocity. The Paradise Papers have been brought into the public domain.   

The Paradise Papers constitute a stock of 13.4 million corporate records primarily from the Bermuda firm Appleby and Singapore-based Asiaciti Trust and corporate registries maintained by governments in 19 secrecy jurisdictions which go by the description of `tax paradises’.  The leaks of these corporate records were secured by the German newspaper, Süddeutsche Zeitung.  The German media group shared their great acquisition with the International Consortium of Investigative Journalists (ICIJ), obviously realising that the humongous material could not be processed in a publishable form without international cooperation. The Indian Express, as the Indian collaborator of this international media effort, has now come out with the results of their stupendous scrutiny of information and data.

Unlike the earlier material from Offshore Leaks (2013), Swiss Leaks (2015) and Panama Papers (2016), Paradise Papers focused on the shadowy activities of giant corporate groups and their veiled offshore financial activities rather than those on individuals.  Appleby, like the Mossack Fonseca (as in Panama Papers 2016), facilitates setting up of companies and bank accounts overseas providing for nominee office bearers and helping secure bank loans and transfer of shares behind multiple secrecy jurisdictions. In a true sense, Paradise Papers symptomatise the soft underbelly of the shenanigans of international finance capital, providing them the ‘veil of secrecy’.  Entity like Appleby, although not a tax adviser, with an experience of 119 years is a leading member of the global network of lawyers, accountants, bankers and other operatives who helps set-up offshore companies, manage bank accounts for clients to avoid or evade taxes, manage real estate assets, open escrow accounts, purchase private aircrafts and luxury yachts paying low tax rates and simply employ offshore vehicles to move millions of dollars across the world.  

Setting up offshore financial facilities for corporate benefit in a rapidly globalising world may not be per se illegal. But, for a growingly unequal world, firms like Appleby hold a key in helping MNCs to exploit loopholes in respective domestic laws to avoid legitimate taxes thereby accentuating the inequality which is eventually threatening those economies.  

In the wake of the Paradise Papers, Bernie Sanders has rightly posed the question – “The major issue of our time is the rapid movement towards international oligarchy in which a handful of billionaires own and control a significant part of the global economy. The Paradise Papers shows how these billionaires and MNCs get richer by hiding their wealth and profits and avoid paying their fair share of taxes.”  

THE INDIAN STORY

Among the 180 countries whose references appear in the data, India ranks 19th.  Their numbers amount to 714 individuals.  Among Appleby’s clients, Sun Group, an Indian corporate, is the second largest, internationally.  A large number of Indian corporate including the Adanis and Ambanis also appear in the references along with well-known politicians including sitting and former ministers.  

It is clear that the offshore footprints of some of India’s major corporate players came to incorporate shell overseas companies on a huge scale.  The memos show how most of these were controlled from India.  The papers reveal that  assets of Indian companies were being used to guarantee loans by offshore companies without  disclosure to Indian regulators, change in ownership of offshore companies to actually change the ownership of shares held in Indian companies without paying taxes and, of course, round tripping.

All these could take place because of absence of appropriate provision in the Statute Book or the text of the bilateral treaties for avoiding double taxation.  

Paradise Papers should definitely help Indian regulators to access information for plugging revenue leakages and criminal actions.  

DECEIT OF MODI GOVERNMENT IS PARAMOUNT

The Paradise Papers have actually proved that black money or rather black incomes arising from avoidance and evasion of taxes on income and wealth at the cost of public exchequer  is not so much through manipulation and concealment of cash held; but essentially through such web of transactions concealed through the ‘veil of secrecy’.  It is also clear that the government whose initiative should be in evolving clear laws to plug the loopholes for such activities to deny information to regulators. As much as demonetisation had a disastrous impact on the economy in general and the poor and the vulnerable in particular, it was more of a charade to cover up the delinquencies of the rich and the powerful corporates who are backing the government.  

The changes brought in the Foreign Contribution Regulation Act and Companies Act through Finance Acts of 2016 and 2017 have resulted in removing the cap on corporate donations to political parties, enabling of foreign contributions conducive to influx of foreign and corporate capital flooding their coffers, obviously for a quid pro quo and removing the requirement of disclosure of the recipients of such donations.  

While the ‘brave new world of global finance’ as revealed in the Paradise Papers is wreaking havoc for the public exchequer, the corporates are being further facilitated to gain further stranglehold on the political process and government formation.  

The demonetisation exercise is, therefore, a distraction to create an impression that the government is seriously waging a war against black money!  In every other way, the rich and the powerful have been its beneficiary and the most vulnerable its worst victims.  The hypocrisy of the government is now way too obvious from these experiences!

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