Swiss banks don't want to hide, so we don't want to seek!

The government has a list of politicians who have black money stashed away with an obliging UBS. But it will do nothing about it!

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Vishwabandhu Gupta | July 13, 2010


Hide and seek!
Hide and seek!

If you want to know what the Indian government does not want you to know about Swiss banks' operations, let's begin with some backgrounder.
Union Bank of Switzerland (UBS) is in a severe crisis over charges of financial frauds, being accessory to money laundering and huge losses in the US. Barack Obama has put pressure on Swiss banks, threatening sanctions on the entire Swiss economy after Swiss banks refused to hand over the names of American depositors.

These banks have urged American authorities that they can charge them whatever tax they think they ought to pay under the US law but only thing they want is that these depositors, their clients, should not be criminally prosecuted and sent to jails. Obama had voluntarily offered a short-term amnesty to American depositors in Swiss banks from criminal prosecution, if they make complete confessions before the Internal Revenue Service (IRS). Reports say over 30,000 Americans have made confessions and, hold your breath, each shall have to pay 60 to 90 percent tax on their largest deposit amount.

But Obama is now refusing to waver from his right of criminal prosecution of American citizens as well as confiscation of assets of all Swiss banks operating in America since the amnesty period is over. Further, the Senate is also busy drafting a bill with a provision to send to jail any American who opens an account in any tax haven.

Not only Swiss bankers have been brought to knees by a tough Obama administration but they have also agreed to make a similar surrender to all other G20 nations, including incidentally, India. Earlier, during a G20 meeting which was also attended by Prime Minister Manmohan Singh, the EU had threatened Swiss authorities of severe action.

Thus, the shell of Swiss secrecy now stands almost cracked, if not completely broken yet. On June 14, the Swiss parliament has given a go-ahead to Swiss banks to share information with all other nations with which it shall sign a treaty of exchange of information about their depositors.

The Swiss are still negotiating for immunity from criminal prosecution of their erstwhile depositors and also to impose the same transparency protocol on all other 28 tax havens too so that the secret banking, is given a burial the world over.

Early in 2008, the Reserve Bank of India got a request from biggest Swiss and European bank, UBS, to open a branch in the country. RBI has stipulated a set of requirements that any foreign bank must fulfill to have a branch in India and UBS did not qualify on these parameters. The UBS application should have been rejected by RBI itself and it had been rejected several times before. But RBI forwarded it to the then finance minister for directions. The reasons for the finance minister’s intervention were, apparently, linked to something else.

Just at the same time the Income tax Department hit a historical pay dirt in Pune. A little-known race course punter named Hasan Ali had been raided. Data from his laptop sent income tax sleuths in a dizzy. This laptop had the data of numerous deposits of over $5 billion in countless numbered accounts, and nobody knew to whom those numbers belonged. The bank's name was UBS, location Zurich. Despite a tough investigation, Hasan Ali kept his mouth shut. Only one name surfaced in the laptop, that of notorious arms dealer Adan Khashoggi.

It was a clear roadblock in the probe. The Income Tax Act does not have powers of custodial investigations. Tax authorities could not request courts for a permission to administer a narco test to Hasan Ali. And, in the absence of information about those whose money had been laundered, Swiss authorities were not likely to oblige either. The Income Tax Department could have gone to the Supreme Court citing the huge quantum of evasion of roughly Rs 25,000 crore in foreign tax havens but it did not.

The finance ministry also, ironically, had already axed its own feet. It had weakened the government’s powers to investigate money launderers like Hasan Ali. It had stuck down the Foreign Exchange Regulation Act (FERA), which used to send people to jail for money laundering. In its place was a toothless Foreign Exchange Management Act (FEMA) that merely imposes hefty penalties. FERA had been stuck down to help notorious industrialists who deal more in black money than white.

The finance ministry saw “god’s hand” in UBS’s request. It stuck a quiet deal. If UBS gives all real names behind account numbers found from Hasan Ali’s laptop, it would get a permission to open the branch in India. UBS too saw a good deal in it and over a dozen names, under a secret cover, was handed over to the finance minister. The notorious Swiss Bank had officially entered in India. Swiss banks, which already have untaxed sleaze of $1.4 trillion with them, now had the opportunity to collect more by being present in India. No one noticed it. The opposition slept. Not only this, a Swiss Bankers Association delegation visited India, met everybody, and also got the permission to play on the stock market as an FII via Mauritius route (which, in simple terms, means no taxes on profits made).

But what was the finance ministry’s game plan? It probably had expected UBS to name some big businessmen, and if it was so, it can always arm twist individuals with this information for some gains. But information received crumbled all hopes. The UBS list allegedly included the names of several politicians. UBS’s document was quietly buried and the entire matter was conveniently forgotten. It is this bitter experience that is now making UPA II shy from insisting that more names be given to the government.

What the Indian government is hiding from its citizens is that between 2008 and 2010 a dozen Swiss ministers have visited Delhi clandestinely and they were willing to give all the names of the Indian depositors in their banks, provided India let them enter industrial and commercial sectors where the Swiss government feels it can make money.

India’s government has gone completely opaque and in coma on this issue. Tragedy is that even if we can get even $200-300 billion in taxes and parts of Indians’ Swiss deposits, is it worth living in this unscrupulous country?

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