Wednesday, 21 October 2020

The Rise Of Scamsters

Updated: July 6, 2013 12:50 pm

The US President, Abraham Lincoln, in 1860s talking about condition in his country, regarding corruption, which is linked to the black money, had said: “I see, in the near future, a crisis approaching, which unnerves me and causes me to tremble, for the safety of my country. Corporations have been enthroned, an era of corruption in high places will follow, and the money-power of the country will endeavour to prolong its reign by working upon the prejudices of the people until the wealth is aggregated in a few hands and the Republic is destroyed.”

It was a prophetic warning, which should have been heeded even by India, from the era of independence, to control this menace. Corruption has not only wrecked the country and its economy, it has also dealt a severe blow to the good governance.

In the biggest global expose of its kind on offshore investments and secret financial transactions, an international group of investigative journalists has found details of more than 1.2 lakh offshore entities and trusts belonging to individuals and companies in more than 170 countries and territories, including India. According to the Indian media reports, there are 612 Indians in the list, who include two members of Parliament and several industrialists.

Details of these transactions were contained in 2.5 million secret files, 2 million emails covering nearly 30 years, details of over 1.2 lakh offshore firms/trusts and 12,000 agents. Owners and benefactors of offshore accounts are spread across more than 170 countries. They were obtained by the International Consortium of Investigative Journalists (ICIJ). Based in Washington DC, ICIJ is an independent network of reporters who work together on cross-border investigations. The secret files provide facts and figures about cash transfers, incorporation dates, links between companies and individuals that illustrate how financial secrecy has spread aggressively around the globe.

The expose has also thrown light on the functioning of “nominee directors” in offshore companies, several of whom have also been engaged by Indian patrons of offshore companies.

For instance, a cluster of 28 “sham directors” have been identified as having served as the on-paper representatives of more than 21,000 companies between them, with some individual directors representing as many as 4,000 companies each.

The expose comes shortly after a list of 18 Indians, who had bank accounts in the LGT Liechtenstein Bank, and around 700 Indians, who had accounts in HSBC in Geneva, became public. In a few cases, account holders were prosecuted and paid penalties to Income-Tax authorities for deposits they had made abroad without paying taxes in India. Around 2.5 million secret files include. This is a big heist in money laundering, which is defined as disguising the source or ownership of illegally-gained funds to make them appear legitimate, or hiding money to avoid paying taxes or using legally-gained money in pursuit of unlawful activities.

The Government of India has received the data officially and the Finance Minister says that inquiries have been put in motion. In fact, the task of investigation into the black money is stupendous before our Central Board of Direct Taxes. One reason for the same is the weak laws, where everything is to be proved by the prosecution agency. Why doesn’t in some cases, say tax evasion of say 10 crore or above, the onus should be put on the person charged with evading the taxes. The President, when as a Commerce Minister, when I was a Director there, had made a memorable comment in a meeting, which is worth reproducing. “I have seen companies become bankrupt or closing down, but not the owner of such firms or companies.”

Keeping money in the offshore accounts by the richest class in India is not the only loot going on by evading taxes. The big Industrialists, whether in airlines, or manufacturing industry, take the maximum amount of loans from the government banks and find ways and means not to repay the same.

Bad loans of India’s domestic banks in 2011-12 have already crossed more than Rs 147,000 crore. This is what is called Gross NPA (Non Performing Assets) for all banks (public, private, foreign) for 2011-12.

Total bad loans of the Indian banks in the first two quarters of 2012-13 (six months out of 12 months of the year) were Rs 142,000 crore.

In fact, the private banks are doing better than the public sector banks, who are subjected to the pulls and pressures of giving loans and also occasionally write them off. The RBI is also worried that big borrowers are getting the benefits of debt restructuring like lower interest rate, moratorium on repayment and fresh loan.

Obviously, nobody is bothered about the good governance, which has already taken a hit in black money matters. Swiss Banking Association report, 2006, says that India has $1,456 billion in Swiss banks. It is a matter of shame that we are to be told by other countries about such facts and not by our agencies.

Instead of taking any action, the standard ploy in the government is to set up an inquiry committee or an inquiry commission to discover as to why a particular incident happened, when the causes are well known. It is equally applicable to Commonwealth Games, Adarsh Housing or 2 G Scam or Coal Scam. If a hall of shame were to be set up, in the National and State Capitals, probably it will have to be the biggest building in such places.

In the season of swindles, inducement, enticement, kickbacks and scams, a study by US-based Global Financial Integrity, a non-profit research body, on the illicit flight of money from the country concludes that India has been drained of $462 billion between 1948 and 2008. Government must remember that it must make an example of those, who are looting the nation and not paying what is due to the government. Example is the best school for mankind as they would not learn at any other. Life happens at the level of events, not of words.

By Joginder Singh

(The author is Former Director, CBI)

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