Pressure grows for India to bring back 'black money' stashed overseas

The embattled Indian government says the challenge is getting notorious tax-haven nations to help. But international experts say the most common obstacle nations face in trying to recover money is their own governments.

Vivek Prakash/Reuters
Supporters of India's yoga guru Swami Ramdev participate in a regular "puja" or religious ceremony after Ramdev ended his fast against corruption in the northern Indian town of Haridwar on Sunday. Ramdev called off his eight-day-old hunger strike to denounce corruption after a prominent spiritual figure persuaded him to end his action, local media said.

Swami Ramdev, the Indian yoga master turned anticorruption campaigner, ended his protest fast over the weekend, but not without spurring popular pressure on the government here to recover so-called black money.

Black money includes embezzled government funds, private money hidden from tax collectors, and the profits of illegal enterprises. Nearly 464 billion dirty dollars have left India since its independence, according to an estimate by the Global Financial Integrity watchdog group in Washington.

Indians want all that loot back.

Once illicit assets leave Indian shores, however, it’s extremely difficult to get them back, even with an international treaty for that purpose.

The embattled Indian government says the challenge is getting notorious tax-haven nations to help. But international experts argue the most common obstacle nations face in trying to recover money is their own governments.

“Governments are often voted in on the basis that they will fight corruption,” says Tim Daniel, a partner with Edwards Angell Palmer & Dodge, a London-based law firm. “But after a couple of years they begin to lose interest because they realize that these [black] moneys are amassed by people who were responsible for bringing them to power.”

So far, the Indian government has convinced few people that they are serious about cracking down on corruption and recovering black money.

Corruption activists going rogue

As a result, anticorruption activists have started going rogue. Mr. Ramdev spoke of raising an “army” of youths – unarmed, he later clarified – to protect him in case the police once again attacked one of his rallies. The comments raised eyebrows in Indian media, but paled in comparison to statements made at an April convention held by Transparency International India at the Habitat Center, a staid den of polite society here.

One speaker, a former income tax commissioner named Vishwa Bandhu Gupta, lamented that during the 2001 terrorist attack on Parliament some policemen gave their lives to save “these scoundrels.” He claimed another problem was that most Indian media has been bought off.

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Many in the audience cheered and offered drastic remedies. One suggested it was time for the Army to take over and clean house. Another spoke of creating a paramilitary army to target the corrupt.

Feeding off such energy, Mr. Gupta suggested it was time to boycott Switzerland, a country where Indians suspect much of the black money is stashed in secret accounts.

“The Swiss are trying really quite hard now to do something about this,” says Mr. Daniel. “When it comes to assets held by kleptocrats … the Swiss passed a law earlier this year that allows them to take action unilaterally – this is a real breakthrough.”

International framework for action against corruption

That’s because often victim governments won’t push to recover monies – or will call off actions. He cites the case of Asif Ali Zardari, the current president of Pakistan. During the previous regime of Gen. Pervez Musharraf, Daniel worked with the government to try to recover a mansion owned by Mr. Zardari in England.

Then, “Zardari pulled what I call the ultimate escape trick, which is to be elected president. And we were told to drop the proceedings,” says Daniel.

Daniel says that only $5 billion in illicit assets from all nations have ever been recovered. “It’s a pretty bleak picture,” he adds.

But the international legal framework for recovering more of these funds is slowly emerging with the signing of the UN Convention Against Corruption (UNCAC) by 140 countries. India recently ratified the treaty, which binds countries to adopt a standardized set of laws for handling corruption. Without these standards in place, countries like Switzerland may be disinclined to help recover stolen assets.

It will take a couple years at least to implement UNCAC, says a Western diplomat.

Taking action

Even then, the government appears “not very serious” at recovering black money, says Anupama Jha, executive director of Transparency International India. “Whatever step it has taken so far is only after pressure from civil society.”

The Indian government is taking some action. The government is spending $1.7 million to figure out just how much black money is at home and abroad. On top of ratifying UNCAC, India has signed Tax Information Exchange Agreements that can penetrate bank secrecy with 27 countries.

The finance ministry says it is prosecuting black money cases totaling some $17 million from accounts in Germany. At home, the ministry claims recovering $6.7 billion in unpaid income tax and detection of $12.4 billion in other tax scams over the past two years.

A press handout from the ministry argues that most countries still do not have an agreement with India to assist in tax collection because “it involves commitment of domestic resources for collection of tax demand of the other country.”

Experts say, however, that implementation of UNCAC should surmount most hurdles to asset recovery – so long as a country’s government keeps working to recover black money.

“If states are not willing to tackle corruption and take action to recover assets, what can we do about that?” asks Maud Perdriel-Vaissiere, managing director of SHERPA, a Paris-based group of anticorruption advocates.

She says moves are afoot to interpret UNCAC in a way that allows private citizens – not just governments – to initiate legal proceedings to recover black money on behalf of victim states. Ministry of Finance spokesman D.S. Malik rejected that interpretation saying “these are government dues, so government has to do it.”

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