Indian black money

Black money in Swiss banks

While official numbers are not available, Swiss banking officials have said that the largest depositors of illegal foreign money in Switzerland are Indian.^[4]

In August 2010, the government revised the Double Taxation Avoidance Agreement to provide means for investigations of black money in Swiss banks. This revision, expected to become active by January 2012, will allow the government to make inquiries of Swiss banks in cases where they have specific information about possible black money being stored in Switzerland.^[5]

In 2011, the Indian government received the names of 782 Indians who had black money saved in HSBC. As of December, 2011, the Finance Ministry has refused to reveal the names, though they did confirm that no current MPs are on the list. In response to demands from the Bharatiya Janata Party (BJP) opposition party for the release of the information, the government announced on 15 December that, while it would not publish the names, it would publish a white paper about the HSBC information.^[6]

In February 2012, Central Bureau of Investigation (CBI) director A P Singh speaking at the inauguration of first Interpol global programme on anti-corruption and asset recovery said: "It is estimated that around 500 billion dollars of illegal money belonging to Indians is deposited in tax havens abroad. Largest depositors in Swiss Banks are also reported to be Indians". In a hint at scams involving ministers, Singh said: "I am prompted to recall a famous verse from ancient Indian scriptures, which says – यथा राजा तथा प्रजा. In other words, if the King is immoral so would be his subjects"^[2][7]

The Ministery of Finance through the Central Board of Direct Taxes released a White Paper on Black Money in May 2012 giving the Income Tax Department increased powers.^[8].

[edit]Court cases

[edit]Supreme Court on black money

In January 2011, the Supreme Court of India (SC) asked why the names of those who have stashed money in the Liechtenstein Bank have not been disclosed.^[9] The court argued that the government should be more forthcoming in releasing all available information on what it called a "mind-boggling" amount of money that is believed to be held illegally in foreign banks.^[10]

The SC on 4th July 2011, ordered the appointment of a Special Investigating Team (SIT) headed by former SC judge BP Jeevan Reddy to act as a watch dog and monitor investigations dealing with the black money. This body would report to the SC directly and no other agency will be involved in this. The two judge bench observed that the failure of the government to control the phenomenon of black money is an indication of weakness and softness of the government.^[11] The government subsequently challenged this order. The bench (consisting of Justice Altamas Kabir in place of Justice B Sudershan Reddy, since Justice Reddy retired) on September 23, 2011 pronounced a split verdict on whether government plea is maintainable. Justice Kabir said that the plea is maintainable while Justice Nijjar said it is not. Due to this split verdict, the matter will be referred to a third judge.^[12]

[edit]Hasan Ali case

In April 2011, Hasan Ali Khan was arrested by Enforcement Directorate and the Income Tax Department on charges of stashing over 36,000 crore in foreign banks.^[13] ED lawyers said Khan had financed international arms dealer Adnan Khashoggi on several occasions.^[14]

However, this case is becoming yet another perfect instance of how investigative agencies like Income Tax Department go soft on high-profile offenders.^{[15][16][17][18]} Ali's premises were raided by ED as far back as 2007. According several news reports, the probe against him appears to have been proceeded at an extremely slow pace and seems to have hit a dead end.^{[16][19][20][21][22][23]}

[edit]Public protests and government's response

Further information: 2011 Indian anti-corruption movement and Corruption in India

[edit]Government committee on black money

After a series of ongoing demonstrations and protests across India, the government appointed a high-level committee in June 2011 to study the generation and curbing of black money. The committee finalised its draft report on 30 January 2012. Its key recommendations were:^[24]

1. The two major national parties (an apparent reference to Indian National Congress, BJP) claim to have incomes of merely Rs 500 crore and Rs 200 crore. But this isn’t “even a fraction” of their expenses. These parties spend between Rs 10,000 crore and Rs 15,000 crore annually on election expenses alone.
2. Change maximum punishment under Prevention of Corruption Act from the present 3, 5 and 7 years to 2, 7 and 10 years rigorous imprisonment and also changes in the years of punishment in the Income Tax Act..
3. Taxation is a highly specialised subject. Based on domain knowledge, set up all-India judicial service and a National Tax Tribunal and giving Income Tax Department extra judical powers.
4. Just as the USA Patriot Act under which global financial transactions above a threshold limit (by or with Americans) get reported to law enforcement agencies, India should insist on entities operating in India to report all global financial transactions above a threshold limit.^[24]

[edit]Setting up of Directorate of Income Tax Intelligence and Criminal Investigation

Directorate of Income Tax Intelligence and Criminal Investigation (DCI) is an agency of the government of India which investigates potential criminal violations of the Income Tax Act, 1961 and related financial crimes in a manner intended to foster confidence in the tax system and compliance with the law.[1][2] The Directorate was created in the Central Board of Direct Taxes, Department of Revenue, Ministry of Finance, with immediate effect.[3].The DCI will perform functions in respect of criminal matters having any financial implication punishable as an offence under any direct tax law including, inter alia –(i) Chapter XXII of the Income Tax Act 1961 (Act 43 of 1961); and (ii) Chapter VIII of the Wealth Tax Act 1957 (Act 27 of 1957).This was started after protests on the Black Money issue.