SHASHI THAROOR (THIRUVANANTHAPURAM): Sir, this is an old problem. It is a national problem and not a partisan problem. It is not one that requires Adjournment to the House, but rather constructive attitudes to deal with it collectively. No one on this side of the House disagrees that black money is a serious problem or that the black money stashed abroad should be identified and brought back, if possible.

          Indeed, as an old UN hand, I was pleased when Shri L.K. Advaniji quoted so extensively Mr. Kofi Annan, the former Secretary-General of the United Nations. As you know, in those days I was at the United Nations, and I had the pleasant task of vetting and approving many of Mr. Kofi Annan’s statements before they were issued. I was very glad to see some of my own phrases being cited by such a senior Leader of the Opposition.

          Yes, black money is particularly pernicious for a developing country like India. It is because it prevents much needed investments in health, in education, in roads and in welfare. There is no disagreement on that. Indeed, this is not, Advaniji, the first debate on this subject. I do not share your extensive experience of our House, but having researched the debates in this House on the subject of black money, there were debates on black money in each one of the first eight Lok Sabhas, where attempts were made to grapple with it. There was the Santhanam Committee Report; there was the Wanchoo Committee Report. There were general agreements in this House that black money in India is generated by various practices such as real estate sales, siphoning of Government resources from welfare programmes, kickbacks on Government contracts, especially international procurements, and malpractices in international trade, especially under-invoicing. Shri Bhartruhari Mahtab has already given us a very full list of these issues. 

          What is the scale of the problem? I think, Shri Laluji was quite right to be concerned and confused about the various numbers that we have seen flung about in the course of this debate. Amazingly, fanciful numbers have been mentioned. Advaniji has even cited Baba Ramdev. Baba Ramdev claims that it is Rs.1,456 lakh crores of black money. That will be equivalent to some 30 trillion American Dollars. Our entire GDP is only 1.5 trillion. So, that would mean that something like 20 times our GDP is supposed to be illegally sitting abroad. Much of the black money has been created when our GDP was much lower. In fact we only reached trillion dollars about four years ago. I think we should not probably get our economics from a yoga teacher.

The more realistic numbers are the ones that some have referred to, from the Global Financial Integrity Report called - The Drivers and Dynamics of Illicit Financial Flows from India 1948 to 2008. This was published in November 2010 by Global Financial Integrity. It concludes that we lost a total of 213 billion dollars in illicit money since 1948, the present value of which in today’s dollars would be about 462 billion. That is 20 lakh crores of rupees, which is serious money. But it is not the numbers that have been going around on the internet or we have been getting on our SMSes. Even when it comes to Swiss banks, which have been particularly highlighted here today, official Swiss bank figures show that only 0.07 per cent of all the assets in Swiss banks are held by Indians.  That is, about something in the neighbourhood of 2.5 billion dollars out of 3.5 trillion dollars in Swiss banks by foreigners, under Rs.10,000 crore. We are not – I hasten to correct the hon. Members who have said this – the country with the largest Swiss bank deposits, as somebody said. We are certainly not more than all the other countries combined. I assure the hon. Members that these figures can be verified from the websites of the Swiss authorities.… (Interruptions)

          Even one illegal rupee in a Swiss bank is unpardonable. But, let us at least agree on the dimensions of the problem. That is where we have perhaps been a bit confused in the debate today. The fact is that the Swiss banks are a red-herring in this debate. Essentially, Swiss banks pay one per cent interest at the most. It is highly unlikely that Indians with black money are leaving it there at that rate of interest. Far more likely is that the bulk is being reinvested elsewhere perhaps, including in our country, because in our country, as we have seen in the last decade, housing prices have risen ten times since 2000, we have seen the Sensex going up six times since 2000, we have seen Government bonds are offering 8 per cent whereas the best abroad is 3 per cent. So, we are a very attractive investment destination for Indian money.

It would not at all be surprising if money were coming back into India in what is called “round tripping” from places like foreign banks. 55 per cent of the foreign institutional investments in India in 2009-10, totalling 85 billion dollars, were made through the participatory notes route. This is something that has been mentioned by Shri Owaisi just now. A lot of this is illegal money that has gone and come back perhaps, but how do we find out? We know that our domestic investors have to fulfil stringent ‘know your customer’ norms. These are much more lax for participatory notes. We need investments from abroad. We need to soak up black money. We know that for many years, from 1951 onwards, we used to have voluntary disclosure schemes, various Government bonds and so on to soak up the money. In some ways the money is coming back into our country into productive investment that could partly explain what is happening here.

At the same time, there are specific concerns. 40 per cent of the total FDI coming into India comes from Mauritius. We have been trying to renegotiate the Tax Treaty we have with Mauritius. Inevitably our strategic interest will affect how far we can push the Government of the day in Mauritius. But the fact is also that the peculiarity with Mauritius is that the taxation laws there are applied to those who are residents in Mauritius. There is no taxation on capital gains in that country. If an entity sets up paper companies in Mauritius, their Direct Taxation Avoidance Agreement becomes in fact a non-taxation agreement, really a sort of double non-taxation agreement for us.

You know that we had under our Income Tax Department rules the power to examine and verify whether the resident status of a company in Mauritius was genuine or not. The NDA Government, of course, withdrew that power by Circular 789 of April 2000, which has already been mentioned here. Now, just a certification from the Mauritius Government is enough. Shri Yashwant Sinha has pointed out that the Supreme Court has upheld the validity of this decision. But, why was it done? It has actually rendered roundtripping much easier because there is no longer the power to question the residential status of a company in Mauritius.

I am also a little curious about the assumptions in some of the statements by the Opposition today that these tax haven countries are just waiting to hand over information and money to us if only our Government is tough enough to ask. The opposite is true. India can do a number of things with the banks of foreign countries; but only subject to the domestic laws of those countries and of course of international law, including treaties to which India is a party.

I think Laluji, Achariaji and others have asked what prevents the release of the names by the Government of India. It is very simple. India is a party to treaties and is subject to the secrecy clauses in the agreements signed with these treaties. For example, if you take  the Indo-Swiss Agreement under the DTAA between India and Switzerland, information on Swiss bank deposits cannot be revealed by them until we provide evidence of criminality. If we provide evidence of criminality, they will provide it; otherwise, they will not do so. In fact, our position on this has been upheld by the Supreme Court in their order of July 4^thon a petition submitted by Shri Ram Jethmalani.

 The fact is Switzerland is ranked number one on this year’s Financial Secrecy Index compiled by the Tax Justice Network. Since 1934, breaking bank secrecy is a criminal offence in Switzerland. It is a country in which tax evasion is not a crime under their law. So, we can get their cooperation on illicit money, but we need to know the names of the individuals we are investigating, and of the banks where they have their money. Without credible and concrete evidence, no Swiss Government is going to render cooperation to any Indian Government. They said very clearly that they will not support fishing expeditions for names in their banks.

          Now, the DTAA with India was amended actually by the Swiss in October, just two months ago, and a person under investigation may now be identified by means “other than name and address”, and the bank connection must be identified only to the extent known. That sounds good. But the same para adds that Switzerland will apply the principles of proportionality and practicability in evaluating any offer or request by the Indian Government.  So, they can still say that our requests are not precise enough.

          Now, to suggest that the Government of India has not been strong in its efforts is particularly unfair, because India has led the push in the G-20 on this issue, on black money, since the Pittsburgh G-20 Summit in 2008. The push in the G-20 against banking secrecy, against opaque cross-border financial  dealings. India has been a leading player in this. Indeed, the West only woke up really after 9/11 when they saw terrorists were moving money, and then of course they got more excited after the global financial crisis in 2008-2009.

          India has joined the Financial Action Task Force of the G-8. We have pushed the G-20 to restructure and strengthen the OECD’s Global Forum on Transparency and the Exchange of Information for tax purposes. I would like to quote from the Head of the Global Forum on Tax Transparency who says they would “rate India first in terms of promoting the standards, in terms of fighting tax evasion, and having the international community lining up behind it.” Indeed, Madam Speaker, the Director of the OECD Centre for Tax Policy and Administration has specifically said that “just two years into the OECD programme India has made remarkable progress. India has made its stand very clear at the G-20 and other global forums. It has negotiated up to 22 Tax Information Agreements, and now it has begun implementation. Hence, I have seen more progress in the last two years than in the previous two decades.” … (Interruptions)

1. SHASHI THAROOR : There has been a real progress being made by the Government.

          In addition, Madam, the fact is that we have ratified this year the U.N. Convention against Corruption. Advaniji had citied this document. He had shown the U.N. Convention against Corruption. It is worth stressing that one of the main factors in the U.N. Convention against Corruption that makes it attractive for us is that they have a Chapter on International Asset Recovery, a major breakthrough, which is one of the reasons why developing countries like India wanted to sign the Convention against Corruption.  Because reaching an agreement on this Chapter of Asset Recovery involved intensive negotiations, as the needs of countries seeking the illicit assets had to be reconciled with the legal and procedural safeguards of the countries which had the money in their banks. In fact, we tried of course to establish presumptions that this is national money which we need to claim from them and they in turn wanted to say that from their point of view, they had to protect their procedures that guarantee their banking secrecy and the assets in their countries’ banks.

But in the end the Convention against Corruption gives us what we want. It establishes ‘asset recovery’ as a fundamental principle of the Convention. There is a framework now in both Civil and Criminal Law for tracing, freezing, forfeiting and returning funds obtained through corrupt activities as long. As long as we can prove ownership, we can do this. In fact, if the country does not cooperate, the UN Convention signatories can use the Convention itself as a legal basis for enforcing confiscation orders. There is Article 54 (1) (A) of the Convention which provides that “Each State party shall take such measures as may be necessary to permit its competent authorities to give effect to an order of confiscation issued by a Court of another State party.”    So, we have an instrument now and the Government has taken a number of related steps. It has enacted legislation incorporating counter measures against non-cooperative countries.  For example, there is a 30 per cent withholding tax on companies from countries that do not cooperate with us. There are tightened provisions on transfer pricing. There is a provision in 30 of our DTAAs on assistance for collection of taxes, including taking measures of conservancy, and the Government is trying to put this into the other agreements as well.  There are eight more income tax overseas units set up, more manpower has been deployed to the transfer pricing and international taxation and a large number of officers have neen given specialised training.  So to suggest that the Government has not been acting, has not taken its responsibilities seriously, is really and completely inaccurate.  And given  these negotiations, the Government has been able to make specific requests in 333 cases to obtain information from foreign jurisdictions.  It has already obtained over 9,900 pieces of information regarding suspicious transactions by Indian citizens.

Now, there was a reference made to the secret information passed to the Government in July by the French authorities which in fact reveal 700 bank accounts held by Indians in Geneva.  All of these are being investigated.  Hundreds of crores are already recovered. What is striking is that this has been done. One cannot criticise the Government for not doing this sooner because this involves data theft.  You cannot expect any Government to go abroad to steal data.

 What has happened now is, therefore, Madam Speaker, that we have the provisions, we have ratified the conventions, we have taken the necessary action and we are facing up to this Government’s responsibilities in solving the problem of black money. 

Reference was made by many speakers to Hasan Ali Khan.  The Hasan Ali Khan case is shocking. But he did get caught. His prosecution is evidence of the Government at work to prosecute the holders of black money abroad.

The fact is that there is a lot of domestic black money too.  There is black money in politics, everyone is this Parliament knows. Black money is emerging from property purchases.  In fact, under Chapter 20(C) of the Income Tax Act, it was actually possible for the appropriate authority to pre-emptively purchase property at the claimed selling price. But this provision was abolished again by the NDA Government in July, 2002. So, it is not that everything is not  being done by the Government and everyone is cooperating on attempting to get black money.  It seems to me, Madam Speaker that we need to incentivise compliance. The issue is not only about compliance. We have to agree.  … (Interruptions)

MADAM SPEAKER: Hon. Member, you speak very well.

SHASHI THAROOR : I would like to say that it is very easy to shout slogans or to clamour for adjournments. The real question here we have to ask is what can we do together. This is a national problem and the question we have to ask each other is what can we do together to resolve it.I would like to suggest a few things to the Opposition. 

We have to tackle the problem of tax evasion which involves cooperation with the Government on tax reform and rationalization and on financial sector reform.  We have to tackle black money coming from real estate, which means again cooperation on effective land titling on land revenue and land record systems and on eliminating policy distortions in that. And in the rationalization of taxation; it has been suggested that the stamp duties are a problem.

We have to tackle black money in education, which means that we need the cooperation of all parties in removing the scarcity of good education supply in our country. There are constraints in offering good quality education in our country, and that is why, some colleges are able to take black money to provide good education. 

We need, Madam Speaker, to also have effective implementation of Government spending programmes, strengthen their implementation and financial management. This affects all of us.

We do need to tackle electoral reforms.  The fact is that there are electoral reforms needed which require political consensus in this House.  The President of my party has called for Government funding of elections and the issues need to be looked into collectively. We have all accepted that there is black money in elections.  We must overturn that practice.   

We have to deal with the corruption issue. We are now having before us shortly a Bill on the Lok Pal. We will have to create an effective mechanism to deal with corruption.

And as Dr. Farooq Abdullah pointed out earlier today, we must take action against money involving criminal activities, terror-related funding, and initiatives to reform and strengthen law enforcement and criminal justice.

 In other words, I would respectfully say to the Opposition that instead of adjourning the House, I would call on the Opposition to let us work together to deal with the real problems facing this country. There is a great deal to be done. We do not need to adjourn the House; we need to use the House to create the policies and the reforms that will give us an effective hand to deal with black money whether here or abroad.