Indian black money
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From
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In India, black money refers to funds earned on the black market, on which income and other taxes have not been paid. The total amount of black money deposited in foreign banks by Indians is unknown. Some reports claim a total of US$1.06 trillion is held illegally in Switzerland.Other reports, including those reported by theSwiss Bankers Association and the Government of Switzerland, claim these reports are false and fabricated, and the total amount held in all Swiss bank accounts by citizens of India is about US$2 billion.
In February 2012, the director of India's Central Bureau of Investigation said that Indians have US$500 billion of illegal funds in foreign tax havens, more than any other country. In March 2012, the government of India clarified in its parliament that the CBI director's statement on $500 billion of illegal money was an estimate based on a statement made to India's Supreme Court in July 2011.
In a televised address on 8th November 2016 by Indian Prime Minister Narendra Midi, it was announced that banknotes of ₹500 and ₹1000 would cease to be legal tender from midnight. Automatic teller machines(ATM)at some places were closed on 9th and 10th November. Government organisations have brought out new notes. The Govt of India had accepted the proposal of RBI in bringing out ₹2000 banknotes and a new version of the ₹500. The old notes are being removed from circulation.
Source of black money
Some Indian corporations practice transfer mispricing by under-invoicing their exports and over-invoicing their imports from tax haven countries such as Singapore, UAE, and Hong Kong. Thus the promoters of the public limited companies who hold rarely more than 10% of share capital, earn black money abroad at the cost of majority share holders and tax income to the Indian government. By the year 2008, the cumulative Illicit Financial Out flows from the country touched US$ 452 billions.
Politicians, political parties corrupt higher officials of government and its institutions take bribes from foreign companies and park or invest the money abroad in tax havens for transferring to India when needed. Many times locally earned bribes, funds and collections are also routed abroad through hawala channels for evading from Indian tax authorities and consequent legal implications.
In the Vodafone-Huthchison tax case, a foreign multinational company also evaded tax payments in India by making transactions with shell companies registered in tax haven countries.
The unlawfully acquired money kept abroad is routed back to India by the round tripping processes. Round tripping involves getting the money out of one country, sending it to a place like Mauritius and then, dressed up to look like foreign capital, sending it back home to earn tax-favoured profits.
Foreign direct investment (FDI) is one of the legal channels to invest in Indian stock and financial markets. As per data released by the Department of Industrial Policy and Promotion (DIPP), two of the topmost sources of the cumulative inflows from April 2000 to March 2011 are Mauritius (41.80 per cent, US$54.227 billions) and Singapore (9.17 per cent, US$11.895 billions). Mauritius and Singapore with their small economies cannot be the sources of such huge investments and it is apparent that the investments are routed through these jurisdictions for avoidance of taxes and for concealing the identities from the revenue authorities of the ultimate investors, many of whom could actually be Indian residents, who have invested in their own companies.
Investment in the Indian stock market through participatory notes (PNs) or overseas derivative instruments (ODIs) is another way in which the black money generated by Indians is re-invested in India. The investor in PNs does not hold the Indian securities in her or his own name. These are legally held by the FIIs, but derive economic benefits from fluctuations in prices of the Indian securities, as also dividends and capital gains, through specifically designed contracts..
Foreign funds received by charitable organisations, non-government organisations (NGOs) and other associations need not disclose the Indian beneficiary.
Gold import through official channel and smuggling is a major conduit to bring back the black money from abroad and convert into local black money as the gold commands high demand among the rural investors particularly. Also fictitious high value round trip transactions via tax haven countries by diamonds and precious stones exporters and importers is a channel for to and fro transactions outside the country. Also, fictitious software exports can be booked by software companies to bring black money into India as tax exemptions are permitted to software companies.
Unlike in earlier decades, the interest rates offered abroad in US currency is negligible and there is no capital appreciation if the money is parked abroad by the Indians. So, Indians are routing their foreign funds back to India as the capital appreciation in Indian capital markets is far more attractive.
Black money in Swiss banks
In early 2011, several reports Indian media alleged Swiss Bankers Association officials to have said that the largest depositors of illegal foreign money in Switzerland are Indians.These allegations were later denied by Swiss Bankers Association as well as the central bank of Switzerland that tracks total deposits held in Switzerland by Swiss and non-Swiss citizens, and by wealth managers as fiduciaries of non-Swiss citizens.
James Nason of Swiss Bankers Association in an interview about allowed black money from India, suggests "The (black money) figures were rapidly picked up in the Indian media and in Indian opposition circles, and circulated as gospel truth. However, this story was a complete fabrication. The Swiss Bankers Association never said or published such a report. Anyone claiming to have such figures (for India) should be forced to identify their source and explain the methodology used to produce them."
In August 2010, the government revised the Double Taxation Avoidance Agreement to provide means for investigations of black money in Swiss banks. This revision, expected to become active by January 2012, will allow the government to make inquiries of Swiss banks in cases where they have specific information about possible black money being stored in Switzerland.
In 2011, the Indian government received the names of 782 Indians who had accounts with HSBC. As of December, 2011, the Finance Ministry has refused to reveal the names, for privacy reasons, though they did confirm that no current Members of Parliament are on the list. In response to demands from the Bharatiya Janata Party (BJP) opposition party for the release of the information, the government announced on 15 December that, while it would not publish the names, it would publish a white paper about the HSBC information.
According to White Paper on Black Money in India report, published in May 2012, Swiss National Bank estimates that the total amount of deposits in all Swiss banks, at the end of 2010, by citizens of India were CHF 1.95 billion (INR 92.95 billion, US$2.1 billion). The Swiss Ministry of External Affairs has confirmed these figures upon request for information by the Indian Ministry of External Affairs. This amount is about 700 fold less than the alleged $1.4 trillion in some media reports.
In February 2012, Central Bureau of Investigation (CBI) director A P Singh speaking at the inauguration of first Interpol global programme on anti-corruption and asset recovery said: "It is estimated that around 500 billion dollars of illegal money belonging to Indians is deposited in tax havens abroad. Largest depositors in Swiss Banks are also reported to be Indians". In a hint at scams involving ministers, Singh said: "I am prompted to recall a famous verse from ancient Indian scriptures, which says – यथा राजा तथा प्रजा. In other words, if the King is immoral so would be his subjects" The CBI Director later clarified in India's parliament that the $500 billion of illegal money was an estimate based on a statement made to India's Supreme Court in July 2011.
After formal inquiries and tallying data provided by banking officials outside India, the government of India claimed in May 2012 that the deposits of Indians in Swiss banks constitute only 0.13 per cent of the total bank deposits of citizens of all countries. Further, the share of Indians in the total bank deposits of citizens of all countries in Swiss banks has reduced from 0.29 per cent in 2006 to 0.13 per cent in 2010.
The through the Investigation Division of the Central Board of Direct Taxes released a White Paper on Black Money giving the Income Tax Department increased powers.
2015 HSBC leaks[edit]
In February 2015, Indian Express released the list of 1195 Indians account holders and their balances for the year 2006-07 in HSBC's Geneva branch. The list was obtained by French newspaper Le Monde and included the names of several prominent businessmen, diamond traders and politicians. The number of Indian HSBC clients is roughly double the 628 names that French authorities gave to the Indian Government in 2011.Indian government said it will probe into this matter.[ The balance against the 1195 names stood at ₹25,420 crore (US$3.9 billion).
The list which had names of dictators and international criminals, was simultaneously published by news organisations in 45 countries including The Guardian, UK; Haaretz, Israel; BBC, London.HSBC had helped its clients evade taxes and said in a statement that "standards of due diligence were significantly lower than today."
2016 Panama Papers leak
The 2016 Panama Papers scandal is the largest-ever leak of information on black money in history. International Consortium of Investigative Journalists first obtained the leaked information, revealing over 11 million documents. These documents pertain to 214,000 offshore entities and span almost 40 years. The papers originated from Mossack Fonseca, a Panama-based law firm with offices in more than 35 countries. The list of names exposed in the scandal includes 500 Indians who flouted rules and regulations, such as Amitabh Bachchan, Aishwarya Rai, Niira Radia,kP Singh, Garware family, Harish Salve, and others.
Domestic black money
Indian companies are reportedly misusing public trusts for money laundering. India has no centralized repository— like the registrar of companies for corporates—of information on public trusts.
SIT on black money
Noted jurist and former law minister Ram Jethmalani along with many other well known citizens filed a Writ Petition (Civil) No. 176 of 2009 in the Supreme Court of India (SC) seeking the court's directions to help bring back black money stashed in tax havens abroad and initiate efforts to strengthen the governance framework to prevent further creation of black money.
In January 2011, the SC asked why the names of those who have stashed money in the Liechtenstein Bank have not been disclosed.The court argued that the government should be more forthcoming in releasing all available information on what it called a "mind-boggling" amount of money that is believed to be held illegally in foreign banks.
The SC on 4 July 2011, ordered the appointment of a Special Investigating Team (SIT) headed by former SC judge BP Jeevan Reddy to act as a watch dog and monitor investigations dealing with the black money. This body would report to the SC directly and no other agency will be involved in this. The two judge bench observed that the failure of the government to control the phenomenon of black money is an indication of weakness and softness of the government.
The government subsequently challenged this order through Interlocutory Application No. 8 of 2011. The bench (consisting of Justice Altamas Kabir in place of Justice B Sudershan Reddy, since Justice Reddy retired) on 23 September 2011 pronounced a split verdict on whether government plea is maintainable. Justice Kabir said that the plea is maintainable while Justice Nijjar said it is not. Due to this split verdict, the matter will be referred to a third judge.
In April 2014, Indian Government disclosed to the Supreme Court the names of 26 people who had accounts in banks in Liechtenstein, as revealed to India by German authorities.
On 27 October 2014, Indian Government submitted name of three people in an affidavit to the Supreme Court who have black money account in foreign countries. But on the very next day, Supreme Court of India orders centre Government to reveal all the names of black money account holders which they had received from various countries like Germany. The honorable bench of the Supreme court also asked the Centre not to indulge in any kind of probe rather just pass the names to them and Supreme court will pass the order for further probe.
But the facts were the other way round, as the clarification affidavit filed by the Finance Ministry on October 27 revealed. The affidavit asserted that a complete list of cases where information had been obtained from the German and French governments, with the status of the action taken by the government was submitted by the Central Board of Direct Taxes on June 27. It added that the CBDT officials also met and briefed the SIT on the status of the cases, background of the information received, non-sharing of information by Swiss authorities, and constraints faced by the government and alternative methods of securing account details.
On 12 May 2015, Ram Jethmalani attacked Modi Government for failing to bring back the Black money as was promised before Election.
On 2 November 2015, HSBC whistleblower Herve Falciani said he is willing to "cooperate" with the Indian investigative agencies in black money probe but would need "protection".Prashant Bhushan and Yogendra Yadav furnished a letter written by Falciani on 21 August 2015, to Justice (retd) M B Shah, who is heading the SIT on black money.Under the supervision of the SIT the I-T department has recovered just around Rs 3,500 crore from some of the account holders and expected to recover a total of 10000 crore till March 2015.
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