beyondbrics

Where is corruption most rife: in India, the country from which, depending on your estimate, between $500bn and $1.5tr in illicit funds have been spirited overseas since 1947; or the countries in which those funds are deposited?

That was the question raised by AP Singh, the head of India’s Central Bureau of Investigation, in a speech to the first-ever Interpol Global Programme on Anti-Corruption and Asset Recovery, which opened in New Delhi on Monday. Singh pegged the amount of illegal Indian money held abroad at $500bn, or nearly 30 per cent of India’s 2010 GDP.

According to Transparency International’s Corruption Perception Index 2011, the answer to our question is clear. In TI’s ranking from best to worst, India clocks in at 96 out of 192 countries, while Switzerland sits pretty at number nine. (New Zealand tops the list, perceived as the world’s least corrupt country.)

But Singh took issue with that ranking while discussing the nature of corruption and graft: does the recipient of stolen goods – in this case, tax haven countries like Switzerland, the Cayman Islands and Dubai – bear any responsibility for the theft? Is Switzerland, where Singh said Indians were the biggest foreign depositors, any less responsible for the “black money” it holds for powerful Indian politicians, industrialists and billionaires than India?

This from Singh’s speech:

Fifty-three per cent of the countries said to be least corrupt by the Transparency International Index are offshore tax havens, where most of the corrupt money goes. The tax havens include New Zealand which is ranked as the least corrupt country, Singapore ranked number five and Switzerland ranked number [nine].

There is a lack of political will in the leading tax haven States to part with information required to trace such assets as they are all too aware of the extent to which their own economies have become geared to this flow of illegal capital from the poorer countries. India in particular has suffered from the flow of illegal funds to tax havens such as Mauritius, Switzerland, Lichtenstein, British Virgin Islands, etc.

But Singh might be letting India off lightly at the expense of the Swiss and others. In 2008, when the German government offered to provide the names of foreign citizens with money deposited in Lichtenstein’s LTG bank, countries like the Czech Republic, Spain, Italy and Finland accepted.

India declined to pursue the accounts of its citizens, prompting Transparency International India to report allegations “that this money belongs to the rich and powerful politicians, industrialists and stock brokers and that is [the reason for] the reluctance on the part of Government of India.”

In August 2011, the French government handed over a list of 700 HSBC bank accounts held by Indians in Switzerland. As The Indian Express reported, “details of HSBC’s Indian account holders have emerged because a former employee stole data in 2008 and later handed these over to French authorities. Several countries including UK, Spain, Italy and France itself have used this data for tax evasion investigations.”

The information remains to be acted upon. The Congress Party-led government has said much about the scourge of black money but so far has done little to fight it.

An amended double taxation avoidance agreement with Switzerland proposed in October would, according to India’s finance ministry, “allow India to obtain banking information (as well as information without domestic interest) from Switzerland in specific cases for a period starting from 1st April 2011.”

But, Subramanian Swamy, an economist and former minister of commerce and industry, told beyondbrics at the time that, because it was prospective and not retrospective, the pact was meaningless.

The Indian government, he added, didn’t have the political will to pursue black money because “it’s quite clear that some of the big businessmen and some of the politicians and their sons and daughters have accounts [abroad].”

Indeed, Singh noted in his speech that the money stolen in many of the country’s most recent, epic government graft scandals – including the 2G telecom spectrum scam that robbed the exchequer of an estimated $39bn, the 2010 Commonwealth Games debacle infamous for $80 rolls of toilet paper and the case of the now-jailed chief minister who racked up $660m in illegal income – found its way to Dubai, Singapore and Mauritius before traveling to Switzerland, the British Virgin Islands and the Cayman Islands.

“’Ethics in Governance’ would hold key to good governance in any society,” Singh said. “I am prompted to recall a famous verse from the ancient Indian scriptures which says ‘Yatha Raja Tatha Praja’, in other words, ‘if the king is immoral so would be his subjects’.”

What, then, of the king’s bagman?

Related reading:
India’s curse of ‘black money’, FT
Singh calls for clean-up of political funding, FT
India probes deeper into ‘fake pilots’, FT
Don’t make it easier for dictators to steal, FT