Thanks to Baba Ramdev, concern about vast quantities of black
money and illegal wealth of Indians stashed in tax havens abroad
has spread far and wide among the public in our country.
Suddenly Switzerland has become a suspect destination and tax
authorities have said they will monitor Indians travelling to that
country and other tax havens.
The current rulers claim that they have done more than any
previous regime to deal with the issue of black money and
tax havens. They question the credibility of earlier governments
of V.P. Singh, Atal Bihari Vajpayee and others, and say that
they did not do anything.
However, to set the record straight, there has been a sea
change in the international attitudes to the role of tax havens
prior to global financial meltdown of 2008 and after. While
earlier, there was a certain global indulgence towards them
as “innovative” financial centers, they have since 2008 come
under pressure from powerful Western countries such as USA
and Germany to cooperate in the investigation of money
laundering, tax evasion, and recovery of illegal wealth earned
through criminal and corrupt dealings. There is no more a climate
of tolerance towards illegal financial transactions, and due to
pressure from OECD and international agreements such as the
UN Convention Against Corruption, Switzerland and other tax
havens stand ready to share information and cooperate in the
repatriation of illegal wealth; this has already happened in the
case of Philippines, Peru and Nigeria, and only recently Swiss
banks froze the wealth in the accounts of Tunisia’s ousted
president and forty leading figures in his government.
Also, we need to remember that whatever action being taken
by the present Government is due to prodding by the Supreme
Court based on a case filed by Ram Jethmalani and other
senior citizens and not out of its own volition.
What has happened now?
After the twin towers attack on 9/11 in the USA in 2001,
attention turned to the financing of international terrorism.
Around 2006 many countries in the West realized that
terrorists are using the tax havens for funding of arms
smuggling and terror financing. Because of the secrecy
provided by the banking system in these off-shore
jurisdictions, the terrorists were finding it easier to route
their funds through these locations.
Hence the functioning of the tax havens came under the radar
screen of the US and other Western countries.
Then came the financial meltdown in US and Europe in the year
2008, from which these countries are yet to fully recover. The
meltdown impacted US after their sub-prime crisis wherein a
significant number of banks and other financial institutions had to
be saved by the Government. Later it spread to Europe with one
country after another facing severe economic crisis. This is
primarily due to lack of savings by households and consumption
in excess of savings. Crisis of such magnitude with significant
unemployment, made these countries look closely at the tax havens
since their rich citizens were evading taxes by stashing funds in
these locations. It is like a severe crisis in a family wherein members
desperately try to find some money under the rice box or inside
some old books!
France and Germany were in the forefront of the fight against tax
havens. UK is a reluctant follower since UK has good number of
tax havens under its own protection. USA is also against its citizens
hiding money in these tax havens.
Around late 2007 Germany obtained from an informant data stolen
from the LGT Bank of Liechtenstein and got information about
thousands of names having illegal money in that bank. The chief of
German Post had to resign since his name was there in that list.
The German foreign minister announced that he would share the
data with any other country interested. US, UK, Australia, and
many other countries showed interest and collected the data.
India was not interested. After much prodding by the leader
of opposition in Parliament that time namely, L.K. Advani, the
government approached German authorities and has been able
to obtain data on accounts held by Indians.
Even after getting it the Government has not shown interest in
releasing the names. Presumably there are nearly 100 Indian
names. Government hides behind the double taxation treaty with
Germany when this data has nothing to do with that treaty since
it is about Indians illegally holding money in a third country bank
namely that of Liechtenstein.
Thus, the global situation is conducive now compared to ten or
twenty years ago to deal with these tax havens. The main reasons
are concern about terror financing in USA and Europe and the
economic meltdown in developed economies which have made
these countries decide not to show any forbearance towards illegal
money stashed in these jurisdictions.
So the contention that nothing was done by V.P. Singh, or by
P.V. Narasimha Rao or by Vajpayee is not meaningful since
in those days the global situation was not conducive to raise
issues about tax havens. Actually USA and Europe were praising
these tax havens and even calling them “innovative” financial
centers. Post 2008 the entire situation has changed.
Hence the present is the most appropriate time to deal with this
issue and India should take a lead in the campaign to close all
these tax havens and create a new global financial architecture
based on transparency and integrity rather than on privacy and
secrecy
R. Vaidyanathan is Professor of Finance in IIM-Bangalore | 
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