Rudolf Elmer used to work for Julius Baer, a Swiss bank that goes back to 1890. Elmer divulged details of 2,000 high net-worth individuals who hold accounts with Julius Baer to WikiLeaks, and some Asians figure in this list. We are waiting for the list to come into the public domain; as far as one knows, the government doesn't have access to this list either and almost certainly there are Indians on it.
The government does possess access to another list though. This concerns LGT (Liechtenstein Global Trust). The German government paid an ex-LGT employee (Heinrich Kieber) to part with accounts held by Germans in LGT, and in the process, unearthed the names of some resident Indians (RIs) and NRIs too. That was almost three years ago.
About two years ago, following an exchange-of-information clause in the Double Tax Avoidance Agreement (DTAA), Germany provided a list of 26 (reportedly) Indian names to India, and it is this list that the government is reluctant to divulge, unless the Supreme Court intervenes.
Why is the government reluctant? First, because there is a secrecy clause in DTAA. This doesn't seem convincing, because secrecy clauses don't typically concern third countries (Liechtenstein). Second, because this will hamper obtaining information under DTAAs with other countries. That doesn't seem convincing either, certainly not for OECD countries.
Since 2002, there has been a model agreement on exchange of information on tax matters, developed by the OECD's global forum on effective exchange of information. This is not binding, but several bilateral agreements have been signed on this basis.
For instance, Article 26 of the OECD Model Tax Convention on Income and Capital states that "in no case shall the provisions of paragraph 3 be construed to permit a Contracting State to decline to supply information solely because the information is held by a bank, other financial institution, nominee or person acting in an agency or a fiduciary capacity or because it relates to ownership interests in a person."
Unfortunately, it also states, "Any information received under paragraph 1 by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State, and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection of, the enforcement or prosecution in respect of, the determination of appeals in relation to the taxes referred to in paragraph 1, or the oversight of the above. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions." If Liechtenstein changed its laws in 2009, that was because of Article 26.
The Swiss have also diluted secrecy provisions in Article 47 of their Federal Banking Act of 1934, originally introduced when Nazis sought to investigate assets held by Jews. However, even before dilution, privacy or confidentiality has never been absolute. Clauses on withholding information can be revoked if a Swiss judge or prosecutor imposes a lifting order, after there is a domestic or international criminal investigation concerning "terrorist financing, money laundering, insider trading and tax fraud".
What's now been diluted is the distinction between tax evasion and tax fraud. Tax evasion is non-reporting of income, while tax fraud is active deception. If it is a domestic Swiss client, the distinction still remains and tax evasion will not warrant lifting of secrecy, unless it is serious. However, if it is a foreign client, OECD and G-20 pressure has led to the distinction between tax evasion and tax fraud becoming blurred, even for numbered accounts (where names of account holders are only known to senior bank officials.) There has also been some EU pressure to harmonise tax laws, since EU believes EU nationals use Swiss bank accounts to evade taxes.
All kinds of mind-boggling numbers ($1.5 trillion) float around on Indian black money stashed abroad in Swiss bank accounts. Since black money is a vague expression, no one knows what the right figure is. There is also the Global Financial Integrity Report that, between 1948 and 2008, India lost $213 billion in illicit financial flows (with a present value of $462 billion) and that, between 2004 and 2008, capital flight abroad increased.
The assumption that there is a neat dichotomy between black and white income is false, since white becomes black and vice-versa. The proposition that black income understates India's rate of GDP growth is also false. The rate of growth in GDP isn't affected, unless share of black income in total income changes over time. There is a distortion and understatement. But if that distortion remains constant over time, why should rates of growth be affected?
That apart, many instances of corruption are actually transfer payments from the point of view of GDP. Having said that, the oft-cited figure that 40 per cent of India's GDP is black is likely to be an overestimate. Whatever be the definition of black, a key element is non-payment of taxes. The agricultural sector doesn't pay taxes. Nor does a large chunk of services — and there are legitimate exemptions too.
Consequently, something between 20 and 25 per cent (as a share of GDP) seems more plausible. There is no reason for all of this to fly abroad. After all, greater returns can be obtained in India — in the capital markets, in real estate and land.
But whatever be the number, there must be money stashed abroad, not just in Switzerland, but Singapore too. (Singapore has implemented stricter laws on client privacy in banks.) There are 327 banks and registered security dealers in Switzerland, most small. With the Swiss increasingly cooperative and open, we won't be able to obtain information on all these, but we should be able to obtain information about UBS and Credit Suisse, two major ones.
And ditto for other tax havens. Like the US, we might also be able to persuade the Swiss that bank accounts cannot be opened by Indian citizens unless there is a document stating that no taxes are due in India. However, who is "we"? For such purposes, "we" is the government. The government obtaining information is one thing. It being placed in the public domain is another.
All governments are reluctant to part with information. The Indian government is not one of the better ones, notwithstanding the RTI, PILs and court intervention — especially if benchmarked with developed countries, and not with the rest of South Asia. Therefore,
Julian Assange performs a useful role; we might get more out of WikiLeaks than out of the Government of India.
