On The Black Money Trail

Despite making all the right noises about exposing those on the black money list, how effective will the government be when push comes to shove.

WrittenBy:Vishakh Unnikrishnan
Date:
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The government on Monday disclosed the names of three Indians, Pradip Burman of Dabur group, bullion trader Pankaj Chimanlal Lodhia and Goa-based miner Radha S. Timblo, following an affidavit filed by Attorney General Mukul Rohatgi, that apprised the apex court that the centre has launched a prosecution against the three in what is popularly referred to as the Black Money Case.

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The Dabur promoter group, the Burmans, immediately responded, renouncing that the account was illegal and stated that Pradip was an NRI when he opened the account and all details regarding the account have been filed with the Income Tax Department, and appropriate taxes have been paid.

The opposition took little time to criticise the government’s move, with Congress member Sandeep Dikshit stating that this was a case of “selective leakage of names, and was a suspicious move by the centre”. Many also stated that the revelation was in a way innocuous, and that main culprits were yet to be named. The job isn’t over for the centre as yet, with the opposition and civil society expecting names of big political leaders as well as businessmen who have allegedly stashed money abroad to evade taxes. More so after a recent interview in which Finance Minister Arun Jaitley stated that there were Congress names on the black money list which would “embarrass the party” once the names were revealed.

Although the rhetoric was always present, the brouhaha over unaccounted money, or black money as we like to call it, gained steam with Ram Jethmalani’s petition on “large amount of unaccounted money stashed abroad” by Indian citizens, with the purpose of, but not restricted to, evading taxes.

Hassan Ali Khan was the protagonist in Jethmalani’s petition to the Supreme Court. The Enforcement Directorate in 2007 disclosed that Khan was involved in a deal amounting to 1.6 billion US dollars. Upon a raid on Khan’s residence, documents and evidence were found that suggested deposits worth 8.04 billion dollars with UBS bank. The ED also claimed that Khan had dealings with billionaire Saudi arms dealer Adnan Khashoggi, who supplied arms to the LTTE. Jethmalani in his petition had asserted that Khan wasn’t even interrogated adequately.

UBS bank’s reluctance to cooperate with the government cost them their banking license and prevented them from sealing a deal to buy the Indian mutual fund business of Standard Chartered Bank. Reserve Bank Of India (RBI), however, eventually went ahead and granted UBS their license. The government’s response on why the RBI reversed its initial stance was that granting license to UBS would facilitate flow of foreign funds to India. The apex court conceded that this argument cannot override constitutional concerns.

Initially the SC asked a high-level commission already investigating Khan and others associated with unaccounted money to be converted into a Special Investigative Team (SIT) that would be headed by two retired judges.

Jethmalani and others in their petition sought the disclosure of documents, including names and bank particulars, of Indian citizens in the principality of Leichenstien. Leichenstien is a small landlocked sovereign nation state in Europe: a well-known tax haven. Germany, as reported by The Local, a German newspaper, spent around 5 million Euros to get and reveal information about Liechtenstein. It also reported that in 2010, German tax authorities recuperated €1.6 billion Euros from tax dodgers after buying data on Germans with assets in Switzerland and Liechtenstein. Germany, though, had to bear the consequences, as the Swiss warned that Germany’s bullheadedness over obtaining tax fraudsters by obtaining information from clients would jeopardise the tax agreement that they have with each other.

Jethmalani and petitioners alleged that a document revealing the names of some 1400 bank holders in Leichenstien had been secured by the government of Germany, which in turn offered to share the information with any country that requests the same. The petitioners also allege that Germany had no tax clause that restricted the sharing of such information.

The Achilles’ heel that the government refers to, as an excuse for not being able to reveal details on name of account holders, is the Double Taxation Avoidance Agreement (DTAA). According to Jethmalani, the agreement does not in any sense impede the government from revealing the names provided by the Federal Republic of Germany.

The court, after it perused through the agreement, conceded that the ”information” of account holders that need to be disclosed, need not be pursuant to any DTAA agreement, as Liechtenstein is an independent and sovereign nation state in itself. The DTAA agreement applies to various issues that crop up with respect to citizens of Germany or India that are liable to pay taxes in either country.

The court also stated that the agreement does not even remotely concern itself with information regarding Indian citizen’s bank accounts in Liechtenstein that Germany has secured and is willing to share.

Article 26 of the double taxation agreement, as the court mentions, reads that in no case shall there be an imposition in administrative measures that need to be carried out in accordance with the law of either country in the contractual agreement.

It also states that there shall be no restriction to the supply of information which is not obtainable under the laws of either state, i.e the law of one state cannot restrict the supply of information to the other, in cases where the information is of national interest. This pertains to information regarding trade and businesses.

With the government cornered, it pulled out its trump card, and stated that the clause stated by the court is subject to how it is understood “internationally”. The apex court however, did not buy the argument.

The court in fact did not issue an order to disclose the names as that would be under the presumption that every account holder in banks of Liechtenstein has acted unlawfully. The premise being that revelation of details of bank accounts of individuals without any evidence to accuse them of tax evasion would be a violation of their rights to privacy, and also the fact that merely having a bank account in a particular jurisdiction cannot be grounds for revelation of details of his or her account.

The final order by the apex court was for the government to disclose the names to the petitioners, and list those names with respect to the investigations that have been concluded and show cause notices that have been issued.

The Modi government took the matter seriously and on the Prime Minister’s first day in office, constituted an SIT, as per the directive of the Supreme Court. The SIT is headed by former Supreme Court judge M.G. Shah and is comprised of sleuths from top intelligence agencies including RAW and IB. The team had submitted its first report to the apex court in August. The court lauded the efforts of the SIT on the progress of their investigation. The next report by the SIT is scheduled for November 11.

This brings us to present day. After the court directed the government to furnish documents and information to Jethmalani, Attorney General Mukul Rohatgi sought modification on the order, stating that confidentiality had to be maintained under DTAA convention and tax information agreements in line with internationally accepted principles of exchange of information.

Rohatgi also mentioned that if information is disclosed, the government will not be able to sign a proposed inter-governmental agreement with the US for exchange of information that would help aid exchange of information between financial institutions.

The Modi government did not delay a moment in constituting an SIT, and media and civil society have largely lauded the effort. But even so, what the investigation reveals is the fact that the government has got its hands tied, and will always have the option of revoking the apex court’s order stating that the act is ultra vires.

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