COMMENTARY

banks” they might fi nd that their objec- On a Wild Goose Chase for tive would be better realised if they Black Money in Switzerland direct their energies elsewhere. Misplaced Focus The banking expert who went to Dubai D Ravi Kanth declined to enter into any transaction to recycle the rupees into Swiss Francs The noisy call to “bring back banking expert on tax havens or dollars saying it was a crime to do so black money” from Swiss bank recently fl ew down to Dubai to under the existing Swiss laws. According accounts of Indians ignores the A provide investment advice to an to the adviser, who did not wish to Indian group based in the Emirate. He be identifi ed, “The Indian government larger and growing deployment of was taken around a warehouse and should be focusing on the new fi nancial illegal wealth in fi nancial centres shown a large quantum of funds stored centres of Dubai, Singapore, Virgin like Dubai. It is also overlooked as cash that he was required to inject into Islands, Luxembourg, etc, where much that such money is rarely kept in unauthorised accounts in Swiss banks. of the has accumu- Given the popular image of the Swiss lated over the last two decades rather the bank accounts of individuals banks as the world’s storehouse for than on Swiss banks, which are used as but is held by trusts which make illegal funds, the adviser’s task should a smokescreen to divert attention from investments and whose benefi cial have been easy. That is what many expect the real problem.” These funds in tax owners are hidden from public to be common place as evidenced by the havens are often routed back to ongoing drama about bringing back black through Mauritius, which has a double gaze. Is this a serious effort or illegal money stashed in Swiss banks. taxation avoidance agreement with India. to end tax evasion and capital During the general elections earlier The focus, however, remains on Swit- fl ight or is it a public drama in this year, the zerland. There is no clear estimate of the BJP which everyone knows no one is ( ) fl agged the issue of illegal wealth size of unauthorised funds held by Indi- held by Indians abroad and the need to an nationals in Swiss banks. The Swiss serious? repatriate it home as one of its main pri- National Bank (SNB), the central bank, orities if elected to offi ce. A BJP leader releases data annually on deposits held often mentioned a fi gure of $1 trillion by foreign nationals, but these are of all that he said had been siphoned off from funds – both legal and illegal monies. India to Switzerland. And it is diffi cult to discern which of But the hue and cry about bringing these accounts can be treated as de- money back that is now engaging the clared and which as undeclared funds. National Democratic Alliance (NDA) According to the SNB, the deposits government, the courts and the media held by Indian companies or citizens in seems to be a deliberate attempt at the Swiss banks are estimated around obfuscating the process by which illegal Swiss Francs (CHF) 1.95 billion in 2013, income is generated, how and to what CHF 1.34 billion in 2012, and CHF 2.03 extent it is taken out of the country, how billion in 2011. These fi gures do not tell it is deployed, and where it is invested. If us whether they are deposits by Indian D Ravi Kanth ([email protected]) is the government, the courts and the spe- banks, companies, or individuals, and of a journalist based in Geneva who writes on cial task force constituted to investigate course how much of it may be illegal. developments at the World Trade Organization the issue were to focus their efforts on The CHF 1.95 billion of Indian deposits in and other multilateral institutions. “bringing back black money from Swiss Swiss banks is about $2.02 billion, a far

16 NOVEMBER 22, 2014 vol xlIX no 47 EPW Economic & Political Weekly COMMENTARY cry from the $1 trillion fi gure that has For instance, in 2009 the United account holder, for example, has the been bandied about. The informal esti- States forced the largest Swiss bank, right to appeal once – while a decision mate is that somewhere around $25 bil- U nion Bank of Switzerland (UBS), to share has to be taken in 30 days. Within those lion is what Indians are holding as ille- information on nearly 4,500 rich Ameri- 30 days, the Swiss government can de- gal wealth in Swiss banks. can clients and pay a fi nancial penalty of cide whether to share or refuse informa- $780 million. Following the disclosures tion on a case by case on the basis of evi- New Centres made by a former UBS offi cial Bradley dence from the foreign government. But Bankers in Europe say that much of the Birkenfeld, an American citizen, the US even with all these changes India and illegal monies held by Indians abroad government exerted pressure on the other governments will continue to fi nd that have been obtained by over-invoicing Swiss government. Washington declared it diffi cult to receive information of hold- of imports/under-invocing of exports, a commercial war on Switzerland ers of accounts with unauthorised money corruption in defence deals, and from threatening Berne that it would cancel based on fi shing expeditions.1 the gold and diamond trade with Dubai, US banking licences to UBS and other among others, are deployed either in the Swiss banks if information was not Forms of Disguise Asian fi nancial centres or ploughed back promptly shared. The Swiss government However, to look for illegal wealth held into the domestic market. Instead of panicked and chose to act on a war foot- in “bank accounts” is looking for some- maintaining unauthorised accounts in ing. The UBS case led to a large-scale thing that may not be there. With the in- the names of individuals, the holders of reform of Swiss bank secrecy laws and, creasing diffi culties involved in individ- illegal wealth turn to gold and diamond fi nally, the Swiss government had to fall uals maintaining undeclared accounts, traders in Dubai who can place them in in line. there is a shift towards maintaining the market without any trace of identity. The Swiss government, under inter- funds through a structured company The government has abundant fi nancial national pressure, has also relaxed the or trust with nameplate addresses often intelligence to know where the illegal “confi dentiality” provisions for sharing located in Mauritius or other tax havens. wealth and funds are accumulating, information about illegal or unauthor- By maintaining trusts, it becomes dou- particularly about the role of Dubai ised deposits with all other countries, bly diffi cult for the and Singapore. including India, subject to certain condi- to provide evidence about the real iden- Dubai, of course, is the headquarters tions (caveats). In cases not based on tity of individuals behind these trusts. for the hawala operators. It is now India’s “fi shing expeditions” – i e, searching for But where are these trusts registered? largest trading partner and there are information without knowing whether And where do they park their funds? strong reasons to believe that the myste- such information exists – it is now rela- The shell companies and trusts usually rious growth of India’s trade with a non- tively easy to get information about un- look for registration in tax havens like oil producing emirate is linked to the authorised deposits of foreign account the , Virgin Islands, the transfer of illegal monies to this offshore holders from the Swiss banks. and of course Dubai, Singa- fi nancial centre (Krishnaswamy and Earlier, any government seeking pore, and Mauritius. There certainly Shaw 2014). In short, the bulk of Indian information about unauthorised depos- continues to be the occasional spurt of money is in Dubai, Singapore, and within its held by its citizens in Swiss banks had fund fl ow to Switzerland because of the the country. But, by focusing on Switzer- to provide the names and bank details, sophisticated investment advice offered land, the government is able to divert at- including the account numbers, without by Swiss banks. Unlike Swiss banks, the tention from real cen- which the Swiss government refused to banks in Dubai deploy unauthorised de- tres that have emerged during the last share information. Under the new Swiss posits in risky products such as reversi- few years. law, India and other countries, which ble convertibles that bet on the move- have entered into double-taxation agree- ment of equity or basket of equities or Changes in Swiss Rules ments with Switzerland, can obtain currencies. Therefore, there will always That Switzerland has long been the information after providing the account be some demand for the services of world’s fi nancial magnet for attracting number or the name of the account Swiss banks. foreign deposits and maintaining them holder along with legitimate proof or And as everyone knows if the govern- under a rubric of confi dentiality-cum- evidence of the account holder having ment really was serious about preventing secrecy provisions is well known. But violated domestic tax obligations. growing international pressures from A major change in the Swiss law is the Paris-based Organisation for Eco- that the government can now share in- available at nomic Cooperation and Development formation without involving the account (OECD), the rich country macroeconomic holder/client if it is satisfi ed on the basis S Thanu Pillai policy club, and other major trans-Atlantic of the evidence provided by India or any T.C.28/481, Kaithamukku capitals, particularly Washington, have other country. Thiruvananthapuram 24 forced the Swiss government to reform The legal work is now cut short but Kerala Ph: 2471943 their banking secrecy provisions. not entirely removed. The foreign

Economic & Political Weekly EPW NOVEMBER 22, 2014 vol xlIX no 47 17 COMMENTARY the recycling of black money it would real estate, and in smuggling, crime, for Note have ended the practice of foreign insti- payment as bribes and of course in elec- 1 In the odd case, governments have been lucky tutional investors ( s tions. A part – only a part – is temporari- with fishing expeditions. One such case was FII ) making invest- the Liechtenstein affair which surfaced in ments through Participatory Notes ly stashed abroad and invested in various 2008. The Indian government was provided ( -Notes). By not doing so, the govern- avenues out of the reach of the domestic with information about unauthorised account P holders which was delivered to the Supreme ment is deliberately allowing unde- tax official. But it is rarely kept as “cash” Court. The German government purchased the clared Indian funds to be channelled in accounts in Switzerland or elsewhere. information from a former Liechtenstein bank official in the LGT Group, a banking firm back into areas like real estate. For dec- This illegal income is turned into illegal owned by the ruling dynasty of Liechtenstein. ades the government has known that a wealth but it keeps getting recycled back Based on the information received from Ger- many, the Indian government began proceed- large chunk of foreign direct invest- into the domestic economy through ille- ings – without having established a case of tax ment ( ) and funds coming gal hawala trade or legally through the violation. The 627 names of Indian holders giv- FDI FII en to the Supreme Court by the Indian govern- through Mauritius is Indian black mon- Mauritius FDI/FII/PI route. ment are from the Liechtenstein list. ey being laundered back via door plate All this brouhaha about bringing back Then there was the HSBC case, where a ­software professional, , stole the companies in the ­island-nation. If the illegal monies parked in Swiss banks has bank’s list of private clients and handed them government were to be brave enough to come back to embarrass the BJP govern- over to the French government. Paris, in turn, informed Germany, India, and other countries abrogate the double-taxation treaty ment. That the govern- about their citizens maintaining illegal ac- with Mauritius, it should be able to ment came to power by spending an un- counts in the HSBC in Switzerland. Following the information received from the French gov- know the identity of individual benefi- precedented amount on elections is as ernment about the Indian account holders in cial owners of trust, offshore companies clear as day and night. That the BJP has the HSBC, the then Indian Minister of Finance, P Chidambaram, pressed the Swiss govern- and family foundations, etc, which are been heavily funded by, among others, ment to share information. But the Swiss gov- routing funds back to India. the gold and diamond traders in Surat ernment and courts dismissed the Indian re- quest on the ground that it was based on the and Mumbai is also well known. Most of stolen evidence provided by a former bank of- Round-tripping the illegal money held outside India be- ficial – which is a crime under the Swiss law. In short, the Swiss government said it could not Big money illegal income is generated by longs to corporates, owners of family provide information based on a criminal action tax evasion in real estate and exports/ companies and politicians. It is fairly by the HSBC employee. imports. It is also generated by corrup- clear why the periodic exercises to “un- tion in large government procurement earth” or “bring back” black money re- Reference orders. A large part of it is used and re- semble a charade which is increasingly Krishnaswamy, R and Abhishek Shaw (2014): “The Puzzle That Is India-UAE Trade”, EPW, used in the domestic economy, again in looking tired and bored with itself. 18 January. The Problem of Caste NEW Edited by Satish Deshpande

Caste is one of the oldest concerns of the social sciences in India that continues to be relevant even today. The general perception about caste is that it was an outdated concept until it was revived by colonial policies and promoted by vested interests and electoral politics after independence. This hegemonic perception changed irrevocably in the 1990s after the controversial reservations for the Other Backward Classes recommended by the Mandal Commission, revealing it to be a belief of only a privileged upper caste minority – for the vast majority of Indians caste continued to be a crucial determinant of life opportunities. This volume collects significant writings spanning seven decades, three generations and several disciplines, and discusses Pp xi + 425 Rs 595 established perspectives in relation to emergent concerns, disciplinary responses ranging from sociology to law, the ISBN 978-81-250-5501-3 relationship between caste and class, the interplay between caste and politics, old and new challenges in law and policy, 2014 emergent research areas and post-Mandal innovations in caste studies. Authors: Satish Deshpande • Irawati Karve • M N Srinivas • Dipankar Gupta • André Béteille • Rajni Kothari • Kumkum Roy • Sukhadeo Thorat • Katherine S Newman • Marc Galanter • Sundar Sarukkai • Gopal Guru • D L Sheth • Anand Chakravarti • Carol Upadhya • Ashwini Deshpande • Meena Gopal • Baldev Raj Nayar • Gail Omvedt • Mohan Ram • I P Desai • K Balagopal • Sudha Pai • Anand Teltumbde • Surinder S Jodhka • Ghanshyam Shah • Susie Tharu • M Madhava Prasad • Rekha Pappu • K Satyanarayana • Padmanabh Samarendra • Mary E John • Uma Chakravarti • Prem Chowdhry • V Geetha • Sharmila Rege • S Anandhi • J Jeyaranjan • Rajan Krishnan • Rekha Raj • Kancha Ilaiah • Aditya Nigam • M S S Pandian Orient Blackswan Pvt Ltd www.orientblackswan.com Mumbai • Chennai • New Delhi • Kolkata • Bangalore • Bhubaneshwar • Ernakulam • Guwahati • Jaipur • Lucknow • Patna • Chandigarh • Hyderabad Contact: [email protected]

18 NOVEMBER 22, 2014 vol xlIX no 47 EPW Economic & Political Weekly