It may seem like an unpalatable truth to the powers that be in the country. But it’s the unholy nexus between politicians, bureaucrats and businessmen which has ensured that the black economy thrives in the country.
Regardless of government claims that it’s taking steps to bring back black money stashed abroad, very little has been done or is being done in real terms. Not only has the government come under searing attack from the main Opposition party in parliament, the BJP, it is also finding itself under increasing scrutiny by the Supreme Court which has described the siphoning away of money into banks abroad as “pure and simple theft”.
To the government’s discomfiture, the country’s apex court has been demanding to know the exact sources of black money and whether it was being generated through smuggling, arms deals and drug trafficking. It also asked the government what action was being taken against Indian citizens whose funds are parked illegally in foreign banks.
As we followed the black money trail, we found that the bureaucrats-businessmen nexus is best highlighted through two cases now in the news -one, involving the Pune-based stud farm owner Hasan Ali and the other concerning Liechtenstein’s LGT Bank where the government is currently in the Supreme Court’s firing line.
With the Hasan Ali case in which it is alleged that the businessman was involved in sending black money abroad for Maharashtra politicians and businessmen, even though the income-tax and Enforcement Directorate (ED) conducted raids at Ali’s premises as far back as 2007, the probe against him appears to have proceeded at an excruciatingly slow pace. As officials in New Delhi told this newspaper, it’s feared that Ali’s prosecution would reveal the names of the powerful and well-connected and expose the skeletons in their cupboard. Little wonder then that it took the ED more than a year after the initial raids to even seek information from those Swiss banks where Ali reportedly had accounts.
Not surprisingly, given the government’s tardiness in pressing ahead with its probe, Ali got enough time and opportunity to withdraw his money from these accounts.
Trying to defend the government the government, Union finance minister Pranab Mukherjee admitted early last week at a press conference called especially to explain the government’s stand on black money that the ED had received information about three Swiss bank accounts allegedly held by Ali but in which there were no deposits. “In one account $60,000 was deposited but next day the amount was withdrawn. There was no trace of it,” said the FM. As for the LGT Bank account, in October 2007, an employee of LGT Bank which is in the tax haven of Liechtenstein sold a CD to German officials for 4 million euros. The CD contained the names of tax evaders belonging to Germany, USA, UK, France and India. The German government, in turn, offered to share the names of tax evaders from each of these countries with their respective governments.
The US, French and UK governments promptly took the names of their tax evaders from the Germans and began the process of prosecuting them. However, the Indian government was tardy and delayed obtaining the names of Indian tax evaders from the Germans for one-and-a-half years. It eventually obtained these names in March 2009 but by then it was too late.
Indian citizens figuring on that list had been given ample time to either withdraw the money from the bank or leave the country and become NRIs, a status under which they could not be questioned by the Indian authorities.
The government continues to refuse to reveal the names taking cover behind a secrecy clause with the Germans even though no German bank was involved in these transactions and German authorities themselves ‘stole’ this data.

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Got millions, bro? 77 tax havens to stash away in
India is witnessing unprecedented growth in its black money economy, now estimated to constitute an alarming 50 per cent of the country’s GDP. This, in turn, means that `32 to 35 lakh crore is generated in this parallel economy every year, say experts.
“At least $70-80 billion goes out every year, no one has actual figures,” says Prof. Arun Kumar, professor of economics at the Jawaharlal Nehru University (JNU) in New Delhi and author of the book Black Money in India.
He said the Indian economy has been losing 5 per cent of its GDP over the last 30 years because of black money sent outside. If this had not happened, India could have been the world’s second largest economy in the world after the US.
There are 77 tax havens in the world and black money is parked across these countries. It is very easy to park money in these tax havens. In Cayman Islands, one needs just to set up a company with $ 2,500, and the postal address of a lawyer or chartered accountant, the first step towards setting up a shell company where the black money is parked. Money is then transferred from one shell company to another so that 5-6 layers are created and it is not possible to trace the trail.
Some of this money can then be taken out and invested back in India via Mauritius through participatory notes (PNs) where no names are given and the black money becomes white.
Experts also question the need for Indian authorities to get names from authorities in tax havens to take action against them. They point out that the Radia phone tap incident shows that the I-T department is tapping phones as a matter of routine and in real time gets information on who is sending money abroad. Authorities only need to prosecute these people and they will themselves bring back the money from their secret accounts. The I-T authorities are not doing what they are supposed to do. Amending avoidance of double taxation laws with tax havens as the government is claiming it is doing will notsolve this problem as in this case information only about the legal money is obtained.

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In order to recover black money, government has offered
five voluntary disclosure of income schemes (VDIS) since 1951. Under these scheme tax evaders were given amnesty from prosecution in case they come forward and declare their undisclosed income.
The last such scheme was launched in 1997-98 when government got taxes worth `10,000 crore. This was more than 12 times the total collections from earlier such amnesty schemes. During the 1997-98 scheme, nearly five lakh people declared their undeclared income. The value of assets declared was `33,697 crore. Cash accounted for 50 per cent of the total assets declared followed by jewellery amounting to 37 per cent. However, only 0.43 per cent of the declarants made disclosures of `1 crore and above. The government is once again thinking of launching a new amnesty scheme. Union finance minister Pranab Mukherjee has said that the government has constituted a group to advise on whether such a scheme should be launched. However, critics of this scheme say that only a small amount of the black money is revealed during these schemes and it is against the honest tax payer who has been paying his taxes on time. Such schemes dont check future tax evasion. But it creates an environment where tax evaders think that they would get amnesty for their past crimes and increase the incidence of tax evasions. To check black money, government has also increased searches of business premises to recover undeclared money. As a result in the last 18 months, the income tax department has been able to detect undisclosed income of `15,000 crore. The Directorate of Transfer Pricing has detected mispricing of `33,784 crore, which has prevented shifting of an equivalent amount of money outside India. Again, the critics point out the amount recovered is just a fraction of the black money generated every year. Government is also amending agreements with foreign countries so that it is easy to get information regarding money parked in foreign banks by Indians. India has completed negotiations of new tax information exchange agreements with ten tax havens which include Bahamas, Bermuda, British Virgin Islands, Isle of Man, Cayman Islands, Jersey, Monaco and St. Kitts and Nevis. Government is also amending the double taxation avoidance agreements (DTAA ) with 65 countries to allow for exchange of banking information and information regarding taxpayers. However, critics say that double taxation avoidance agreements could help the government to get information only about the legal money and not black money.