Indians stashing 'black money,' beware. High court wants your name

Supreme Court in Delhi tells lawmakers that a list of secret foreign bank account holders that may be hiding illegal funds must be handed over Wednesday.

Wikileaks founder Julian Assange once said that Indians have more black money stashed in tax havens than any other nationality.

Such assertions may be hard to prove. But Indian officials estimate that hundreds of billions of dollars of untaxed, or “black," money are held in offshore havens – and they are planning to do something about it.

Today the Indian Supreme Court gave the Indian government 24 hours to reveal the names of all Indians it suspects to have illegal or hidden bank accounts in places ranging from Mauritius to the British Virgins Islands.

The high court expects the names to be turned over Wednesday in a sealed envelope. The Modi government this week revealed three individuals who allegedly stashed untaxed money in secret account. But the list being asked by the court is said to run to 700 names handed over by French and German authorities, based on information obtained from banks in Switzerland and Liechtenstein.

The Indian Supreme Court will send the names to a special investigative committee set up by the Modi government, which will investigate claims and recommend action.

The previous Congress Party-led Indian government of Manmohan Singh didn’t disclose the identity of secret account holders, citing confidentiality. But the ruling BJP party raised the issue of black money constantly in the run up to national elections this spring, and so the issue has taken on a highly political nature.

In what has created titillation in the Indian media, Finance Minister Arun Jaitley is not denying the possibility of former Indian officials, including high-ranking ministers of the opposition Congress Party, being named. "I am neither confirming, nor denying. I am only smiling," he told Indian TV channel Times Now. When pressed, Mr.Jaitley said, "If my opponent's name is there, I will be very enthusiastic in declaring it."

India finished a White Paper on black money in 2012 and defined it two ways: Black money can be generated from legitimate businesses that no tax is paid on. Black money can also be the gains from illegitimate businesses like smuggling, illicit trade, human and arms trafficking, and corruption.

Black money is usually sent out of the country secretly then brought back as foreign investment and reinvested in sectors such as real estate.

Conflicting figures exist on how black money is transferred. Global Financial Integrity, a Washington-based think-tank, estimated that Indian citizens parked some $462 billion in overseas tax havens between 1948 and 2008.

The White Paper notes that Foreign Direct Investment (FDI) between April 2000 and March 2011 arriving to India’s shores from tiny Mauritius was a whopping 41 percent of all FDI sent during that time.

“Mauritius with its small economy cannot be the sources of such huge investments,” reads the paper. “...and it is apparent that the investments are routed through these jurisdictions for avoidance of taxes and for concealing the identities from the revenue authorities of the ultimate investors, many of whom could actually be Indian residents, who have invested in their own companies.”

The Modi government pledged to crack down on black money before the year is out. It has already formed a special team that has sought details from Swiss authorities. Earlier this month a high-level Indian delegation of the revenue department met Swiss authorities and convinced them to share details of the 700-odd Indians who are reported to have bank accounts with the HSBC Bank in Geneva.

In a joint statement last month Indian and Swiss officials said that: “Swiss authorities would assist in obtaining confirmation on genuineness of bank documents on request by the Indian side and also swiftly provide information on requests related to non-banking information.”

Yet India’s tax treaties with Germany, France, and Switzerland ban the disclosure of names at preliminary stages of inquiry. The problem for the Modi government would be in disclosing names before cases are filed in India.

To avoid the appearance of a political witch hunt, Congress Party officials are calling for Prime Minister Modi to issue all the names publicly at the same time. “We tell them not to limit the declaration of names only to few individuals,” said Ajay Maken, senior member of the Congress Party. “We want to tell the BJP and the Prime Minister that half-truth is not the truth. They should not go for selective and vindictive leakages.”

Doubts remain about whether the government can stop the flow of money leaving the country illegally. Senior Delhi lawyer Prashant Bhushan says black money harms the Indian economy because the system not only allows, but encourages, the siphoning out of funds that then get laundered in tax havens all over the world and re-invested in India.  “The real owners don’t exist anywhere on paper,” says Mr. Bhushan. “They remain ghost figures.”