UPA govt. squeezing and looting the country till the last day in power -- BJP
Wednesday, 06 May 2009
1) BJP demands that allotment of BSNL’s Wi Max franchise should be suspended immediately and the Telecom minister be sacked immediately as the reports suggest a wholesale loot and corruption. It is reported that the five firms of the six short listed companies for this purpose are floated by Raja’s confident Sanjay Kapoor and are registered on single date with same notary, same auditor, same witnesses, same address and same email id.
If the current process of allotment goes ahead, it will mean giving 20 MHz spectrum without any investment and offering free use for these companies assets like BSNL’s 50,000 communication towers, 20,000 offices and two million km of fibre network, free of cost.
3) The UPA Govt is bent upon squeezing and looting the country till the last day in power. Rahul Gandhi’s press conference yesterday was declaration of war on its own allies. Congress has shown utter contempt for its present allies like TMC and DMK, NCP and its erstwhile partners like SP, RJD & LJP. It also reflected a sense of desperation when it chose to diminish its own CM of Andhra Sh. Y S Rajshekhar Reddy and its leaders in Orissa. This attempt to woo new allies will not only fall flat but actually result in loosing some of the present allies, because the Congress mindset and its ‘Coalition Adharma’ of ditching allies has been exposed.
It also reflected a typical dynastic trait which presents leader as holier than cow and in effect, they end up in practicing the reverse of what they preach. Indira Gandhi talked about feeling of nationalism to create IMDT, which was supposed to deport infiltrators but resulted in protecting them. Rajiv Gandhi sermonized about the concept of clean politics and ended up with scandal like Bofors. Now the crown prince wants to democratise Congress but will end up by tightening a dynastic hold.
BJP strongly objects to his comment that BJP has burned Christians in Orissa and killed Muslims in Gujarat, as it is not only baseless but is made deliberately to flare up the communal tension. Election commission must take notice of these communal and instigating remarks as it violates code of conduct.
2) BJP condemns UPA Govt’s decision to allow intrusive fact finding visits from America and permitting religious state body to sit in judgment on the extent of India’s religious freedom. USCIRF, a body created by US was never allowed to visit India since its inception. Earlier governments under P V Narsimha Rao, H D Deve Gowda, I K Gujral and Atal Bihari Vajpayee never allowed such institutions and individuals to sit in judgment on India regarding human rights.
But this time around UPA Govt. overruled objections raised by various officers who were sighting USCIRF’s partial view and vitiated method of reporting. The permission is granted with a political motive to present an incorrect picture of India’s diversity.
Press statement issued by BJP National Spokesperson and MP, Shri Prakash Javadekar http://www.bjp.org/content/view/2896/394/ The fraud has yet to fully unravel by explaining how the siphoned off money made satyam a maytas infrastructure firm which offered better margins for the Rajus. kalyanaraman CBI on how the Satyam fraud was pulled off Text: A Correspondent in New Delhi April 27, 2009 The financial fraud perpetrated by the founders of Satyam Computer Services was executed through a well-planned accounting system that used as many as 7,561 fraudulent invoices worth Rs 5,117 crore (Rs 51.17 billion) to inflate the company's sales, the Central Bureau of Investigation alleged Monday. Using cyber forensic techniques, the CBI deciphered the modus operandi of the Satyam fraud: that is generating false invoices to show inflated sales by the IT company. The accused had used an emergency option of feeding invoices directly to the company's inventory management software, which in normal circumstances would be routed and validated through several software systems. Investigation conducted by the CBI into the Satyam scam revealed that Satyam Computer Services Ltd has got a regular application flow for the generation of invoices. This regular flow has a series of applications like the Operational Real Time Management for creating and maintaining the projects, the Satyam Project Repository for generating the project ID, an application to key-in the main hours put in by the employees called Ontime, and a Project Bill Management System to generate billing advises from the data received from the Ontime and from the rates agreed upon with the customer. Based on these billing advises generated by PBMS, the Invoice Management System generates the invoices. Apart from the regular application flow, Satyam has another method of generating invoices through Excel Porting wherein the invoices can be generated directly in IMS bypassing the regular application flow by porting the data into the IMS. This application has to be used sparingly for emergency requirements. Investigation revealed that in order to perpetrate this fraud, the accused surreptitiously got a subroutine incorporated in the source code of the IMS application wherein a new user ID called 'Super User' was created and this Super User had the power to hide/show the invoices generated in IMS. By logging in as Super User, the accused could hide some invoices that were generated through Excel Porting. Once an invoice is hidden the same could not be visible to other divisions within the company but would only be visible to the sales team in Satyam's finance division. As a result, the concerned business circles would not be aware that such invoices exist. These invoices are also not despatched to the customers. Investigation revealed that all the invoices that were hidden using the Super User ID in the IMS server were found to be false and fabricated. Investigation further revealed that these false and fabricated invoices were generated for the purpose of inflating the sales and the amounts pertaining to these false and fabricated invoices were shown as receivables in Satyam's books of accounts thereby dishonestly inflating the revenues of the company. Some 7,561 invoices were found to be hidden in the IMS. These 7,561 invoices are collectively worth Rs 5,117 crore. It was also revealed that the accused have already entered 6,603 out of these false and fabricated invoices amounting to Rs 4,746 crore (Rs 47.46 billion) into their books of accounts thereby inflating the revenues of the company to this tune. During the course of the investigation, a detailed analysis of the computer logs pertaining to both the IMS application and the computer network of Satyam were analysed. This analysis was also matched with the Access control swipe card data of the company. As a result of this analysis, the individuals who have generated and hidden these false and fabricated invoices have been identified. The computer server where these incriminating electronic records were stored has also been identified and the incriminating data was retrieved and the required computer forensic expert's opinions were also obtained. As a result of this detection, the actual modus operandi as well as the individuals who have perpetrated the fraud have been identified. This will go a long way in unearthing the entire fraud and in the finalisation of the investigation pertaining to the falsification of accounts and forgery of documents by the accused in the Satyam scam. The bail application of disgraced former chairman of Satyam B Ramalinga Raju, B Ramaraju and V Srinivas was dismissed by the trial court on April 25. Eight persons are in judicial custody including the above three persons. The CBI has also obtained permission to conduct further investigations into the case pertaining to acquisition of assets by the accused and the diversion of funds. http://specials.rediff.com/money/2009/apr/27slide1-how-the-satyam-fraud-was-pulled-off.htm Jairam calls Advani a liar while refusing to answer the charges about the public loot in tax havens Jairam Ramesh does NOT refer to the debates in the recent G-20 summit. He also does NOT refer to the sources cited by Advani. By citing Bibek Debroy who quibbled about pricing the loot, Ramesh is shooting himself and his Congress Party in the foot. See the note on ‘Economist quibbling about pricing the loot’ in the following posts. Jairam is the liar, not Advani. Kalyanaraman Swiss money: Congress calls
Advani a liar Responding to Bharatiya Janata Party leader L K Advani's allegations about black money hoarded in Swiss bank accounts, Jairam Ramesh, the man in charge of the Congress' campaign for the forthcoming Lok Sabha polls, has advised the party's prime ministerial candidate against using 'obscure and unauthenicated Internet sources' to back his claims. In a curtly worded letter to Advani, Ramesh accuses him of lying on the issue, claiming that the numbers presented by the BJP leader were a 'total hoax'. This is the letter written by Ramesh to Advani: Dear Shri Advani, I have always been amused by the sources you cite in your speeches in Parliament and outside. But your use of some obscure and unauthenicated Internet source to raise the pitch on Indian money stashed away in Swiss banks is really the limit. It is not just amusing. It is shocking, coming from a leader of your purported stature. To put it bluntly, Shri Advani, you are lying. That your entire edifice of numbers on the black money issue is a total hoax has been demonstrated most convincingly by two of India's most distinguished economists -- Ashok Desai and Bibek Debroy -- who have both been critical of the Congress as well in the past on various issues. That there are Indians with Swiss bank accounts is incontrovertible -- many of them, incidentally, may well be BJP supporters and part of your election funding may well be coming from these sources. There can also be no dispute on the fact that we must try and get this money back. We have had amnesty schemes in the past -- some have succeeded and some have not. But I would like to ask you a straight question -- in the six years that you were Home Minister, can you tell the country one single step you took to get Indian accounts in Swiss banks made transparent? Your use of 'ISI' data to claim that poverty has increased during 2004/05-08/09 is another example of complete bogusness. I think you may well be referring to a study done by Inter Services Intelligence of Pakistan and not by our prestigious Indian Statistical Institute. The study of ISI, Kolkata stops at 2004/05 and whatever conclusions you have drawn from that study are completely false. I have already written to your aide Sudheendra Kulkarni on this issue. I attach a copy of the email I have sent him. Goebbels believed that if you keep repeating a lie several times, people will begin to believe it. Your ideological brotherhood has perfected this dictum. With regards, Jairam Ramesh
Economist quibbling about pricing the lootGood to know that an economist acknowledges it as ‘the loot’. Bibek, it is the loot of the millennium. Has Bibek understood how black money is generated and multiplied? Does he understand what Participatory Notes mean?When five economists meet, there are six opinions. So, good to have a sixth opinion. But, what is the big deal about pricing the loot? Get at the loot and get it back to the nation.Bibek will do well to read Sarkozy’s demand in the recent G-20 meet and the reasons why China opposes the agenda item: tax haven monies.KalyanaramanPricing the lootBibek Debroy Posted online: Apr 03, 2009 at 0115 hrs
The media have gone to town over Indian money in Swiss bank accounts and the immediate trigger has certainly been L.K. Advani’s press statement of March 29. Since there is discussion without checking facts, let’s first have a quote from the Advani press release. “The extent of illicit money lodged in Swiss banks is mind-boggling. Estimates vary... According to Wikipedia, they totalled $2.6 trillion (Rs 130 lakh crore in today’s exchange rate) in 2001. In 2007, they were believed to be about $5.7 trillion (Rs 285 lakh crore), a staggering 80 per cent increase in six years... It is equally well-known that many wealthy Indians have deposited their illicit monies in secret Swiss bank accounts and tax havens elsewhere around the world. As per credible estimates, these amounts range between $500 billion (Rs 25,00,000 crore) and $1400 billion (Rs 70,00,000 crore)... In February, UBS, the largest Swiss bank, was forced by the US tax authorities to reveal the names of some 300 presumed tax evaders. The US threatened to sue UBS. Fearing that this could lead to the demise of the bank, the Swiss authorities invoked an emergency clause in their banking law and gave the data to the US... Last year, I had written a letter to Prime Minister Dr Manmohan Singh about the need to get the names of Indians, presumed to have secret accounts in LGT Bank in Liechtenstein in Western Europe... The BJP will form a Task Force comprising experts in law, accounting, management and intelligence to prepare a strategic document for India to recommend ways to get back the national wealth stashed away illegally by the corrupt politicians, venal businessmen and criminal overlords.” Here is another quote, this time from an email that has been circulating on the Internet for at least two years. “India has more money in Swiss banks than all the other countries combined! ...Swiss Banking Association report, 2006 details bank deposits in the territory of Switzerland by nationals of following countries: India, $1,456 billion; Russia, $470 billion; UK, $390 billion; Ukraine, $100 billion; China, $96 billion... In March 2005, the Tax Justice Network (TJN) published a research finding demonstrating that $11.5 trillion of personal wealth was held offshore by rich individuals across the globe. The findings estimated that a large proportion of this wealth was managed from some 70 tax havens. Further, augmenting these studies of TJN, Raymond Baker — in his widely celebrated book titled Capitalism’s Achilles Heel: Dirty Money and How to Renew the Free Market System estimates that at least $5 trillion have been shifted out of poorer countries to the West since the mid-1970s.” The media has freely swallowed the $1400 or $1456 billion figure, a number also referred to in the Advani press release. Nor is the BJP the first political party to mention this figure. It has been cited by other non-Congress parties too and the original source seems to be a Swiss Banking Association. There doesn’t seem to be anything called a Swiss Banking Association. There is a Swiss Bankers Association, which builds on its USP of bank-client confidentiality. In public domain reports and surveys, there is certainly no 2006 report I can track down. So is this a figment of someone’s imagination? While on the Swiss Banking Association, let’s also have facts of the UBS case right. UBS was prosecuted in Florida for tax evasion and, in 2008, IRS (Internal Revenue Service) requested information on 19,000 (later increased to 52,000) UBS clients. Swiss criminal law prohibits release of this information. Nor does the double taxation agreement between the US and Switzerland cover such general requests for information. No doubt with some arm-twisting, and pressure through the Swiss Financial Market Advisory Authority (FINMA), there was an agreement to part with information, with the Swiss drawing a distinction between tax fraud and tax evasion. Let’s also not forget that in Florida, an ex-UBS employee provided evidence, establishing tax fraud. Extrapolation of the UBS case to suggest that the Swiss are about to give up their USP of bank-client confidentiality seems far-fetched, even if there are such pressures emanating from elsewhere in Europe. Nor can I find any figures in Wikipedia about “illicit money” in Swiss banks. The $2.6 trillion figure for 2001 and $5.7 trillion for 2007 are for off-shore funds, perfectly legal. Let’s move on to the Tax Justice Network (TJN), which is against tax havens and tax competition, arguing that this encourages capital flight from developing to developed countries. The TJN’s estimates, including the $11.5 billion figure, focus on tax abuse, not illegality. Nor should one forget that capital flight to developed countries isn’t caused only by tax havens (the pull) but also by irrational policies within developing countries (the push). We are now left with the Global Financial Integrity (GFI) report of 2009 (2002-06 data) and Raymond Baker. There are several methodological problems with estimating capital flight and, though innovative, the GFI can’t be completely authentic, since one is talking about unrecorded transactions. Having said this, whenever the GFI is quoted, people latch on to the Asian figure, forgetting that the bulk of this flight within Asia is from China. And the quote is also from the executive summary, placing India (together with Russia) in the annual band of $10 to $100 billion, which is quite a large interval. Now we probably know where that $500 billion figure in the Advani press release came from, five multiplied by $100 billion. Had one read the report, one would have discovered the annual Indian figure is more like $25 billion. Since the GFI builds on Raymond Baker’s pioneering 2005 book, one doesn’t have to add anything on Baker. What we are thus left with is a maze of figures, some concocted, others real, but sometimes quoted out of context. That doesn’t mean the issue is unimportant. Some reasons for capital flight (administered and unrealistic exchange rates, foreign exchange controls, unrealistic and non-transparent tax rates) have become unimportant in post-1991 India and BOP (balance of payments) data suggest there has been some reversal of capital flight. How else does one interpret a net capital inflow of $17.7 billion in the “other flows” category in 2007-08? This residual category primarily means delayed export receipts and errors and omissions. Stated simplistically, the reserves position shows this forex has come in. But we don’t know why it has come in. However, this reversal is restricted to situations where the push was unreasonable domestic economic policy. There are other unreasonable domestic policies too, including the political process and criminalisation of politics. These are issues we should talk about, not so much the pull of tax havens. But first, let us get the figures right. The writer is a Delhi-based economist express@expressindia.com http://www.indianexpress.com/story_print.php?storyid=442488 April 3, 2009G-20 Pact Has New Rules and Commitments of $1.1 TrillionBy MARK LANDLER and DAVID E. SANGER LONDON — Attempting to bridge deep divides in policy and financial philosophy, the leaders of nearly two dozen of the world’s largest economies agreed Thursday to a broad array of new fiscal and regulatory steps, in a desperate effort to revive the paralyzed global economy. At the conclusion of the first economic summit meeting to rivet world attention in decades, Prime Minister Gordon Brown of Britain announced that the leaders had committed to $1.1 trillion in additional loans and guarantees to finance trade and bail out troubled countries. But the funds he announced are well short of a direct injection of stimulus into the world’s economic bloodstream — the result of a continuing division between continental Europe and much of the rest of the world over whether to act now or wait see how current spending measures take effect. “This is the day the world came together to fight against the global recession,” Mr. Brown declared. “Our message today is clear and certain: we believe global problems require global solutions.” In the end, the daylong conference — which also served as President Obama’s debut on the world stage — yielded what seemed to be a more forceful and detailed blueprint for recovery than a similar gathering in 1933, which failed to fend off the rampant protectionism and misery of the Great Depression. Among the steps Mr. Brown detailed are strict new regulations on hedge funds and rating agencies, as well as a crackdown on tax havens, which will be publicly named and subject to sanctions if they do not agree to share tax information with the authorities of other countries. The Group of 20 also agreed on new global rules to cap the pay and bonuses of bankers, as well as a common approach to dealing with the toxic assets on the balance sheets of the world’s banks. That is an issue that has bedeviled the Obama administration and other governments. Giving teeth to an endorsement of free trade at the last summit in Washington, the countries agreed to “name and shame” countries that erected trade barriers. They also pledged $250 billion in financing for trade. The most concrete measures relate to support for the International Monetary Fund, which has emerged as a “first responder” in this global crisis, making emergency loans to dozens of countries. The Group of 20 pledged to triple the resources of the Fund to $750 billion — through a mix of $500 billion in loans from countries, and a one-time issuance of $250 billion in Special Drawing Rights, the synthetic currency of the Fund, which will be parceled out to all its 185 members. The countries, in turn, could lend that money to troubled neighbors. The I.M.F.’s members also agreed to lend the proceeds from sales of the fund’s gold reserves to the poorest countries. A financial stability board with enhanced authorities will also be created to provide an early warning mechanism to alert nations of systemic risks to the international economy, the communiqué said. “Together these steps give us confidence that world economy can return to trend growth,” Mr. Brown said. The announcements came after negotiators from the United States and Europe worked frantically to hash out an agreement on new regulations, a day after France and Germany signaled a rift over the level of scrutiny that regulators should have over hedge funds and other global financial institutions. While the United States was determined to resist European efforts to create regulatory authorities with crossborder authority, officials said the two sides worked out policies on transparency and early risk warnings for banks that would placate France and Germany. “There’s not going to be a ceding of sovereignty to a global regulator,” said a White House official, who spoke on condition of anonymity because the negotiations were confidential. France other Europeans countries also pressed China to accept action against tax havens, a step it has resisted because of the possible consequences for its coastal banking centers, Hong Kong and Macao. “I think we’re going to see an agreement,” said Stephen Timms, the financial secretary to the Treasury. “I am expecting sanctions against tax havens. We want that pressure to be maintained.” Britain began talks on Wednesday on a tax information exchange agreement with Liechtenstein, an Alpine principality used by wealthy Europeans and others as a place to stash money. The leaders also agreed to increase by $250 billion the financing available for world trade, which has suffered a crippling double-blow from the financial crisis and the economic downturn. “The goal is to finance banks and guarantee credit for international trade,” said Lord Malloch-Brown, the British minister for Africa, Asia, and the United Nations. “In rescuing national banking systems, it had an unintended consequence of neglecting the international businesses of those banks.” Julia Werdigier and John Harwood contributed reporting. http://www.nytimes.com/2009/04/03/world/europe/03summit.html?_r=1&hp=&pagewanted=print Secret wealth abroadBy S Gurumurthy Switzerland has been accused of giving shelter to black money and there has been a lot of inflow of such wealth from India and other countries of the world.” This is not L K Advani, on election mode, speaking last Sunday, but the Swiss ambassador to India briefing the media in Delhi last year. The occasion was the 60th anniversary of Indo-Swiss Friendship Treaty. Admitting that Indian black money gets hoarded in his country, he added that the new law in Switzerland would, not stop it, but control it “up to a certain limit”. The Swiss diplomat authentically answers the first of the FAQs, that is, whether a lot of Indian money is really stashed away in Swiss banks. Swiss banks are not the only secret destination. There are 37 such shelters in the world, says US Inland Revenue. The secret owners of the secreted monies operate in secrecy — venal businessmen, corrupt politicians, public servants, drug lords, and criminal gangs like the D-company. The slush monies are the financial RDX for terror, besides weapons of mass destruction of national and global finance. That there is secret money is no more a secret. Only the amounts and persons are secret. But how much of India’s stolen wealth could be stashed in Switzerland? Specific estimates of this later. Before that, here is a sideshow, but a relevant one. In the late 1980s, at the behest of The Indian Express, while investigating the Reliance scam, I had attempted to trail the Indian monies secreted abroad. In the course of the probe, I had contacted Fairfax, a US investigative firm, to uncover the Indian wealth stashed abroad. Impressed by their skills, I persuaded the Government of India to engage the firm for the task. Fairfax agreed to work for a slice of the black wealth uncovered by them as fee. According to Swiss sources then, the Indian money secreted in Swiss banks was some $300 billion. That was enough to excite Fairfax to go for the kill. But, soon my efforts landed me in jail on March 13, 1987, when the CBI arrested me on charges that later turned out to be bogus, but were enough to stop the probe. The whole nation knew then that the real reason why rulers struck was their fear that the probe had targeted the Bofors payoff and secret money of the ruling family abroad. Rajiv Gandhi, who was the prime minister then, moved honest and bold civil servants like Vinod Pandey and Bhure Lal out of the probe and eventually sacked V P Singh who, as finance minister then, had authorised the efforts. The chain of events that followed led to corruption emerging as the major issue in the 1989 polls in which Rajiv Gandhi, who had wiped out the opposition in 1984 elections, was defeated, and V P Singh became the prime minister. But there is a great lesson in these developments that often goes unnoticed. And that is, the way the bold national interest initiative to unearth the Indian black wealth abroad was aborted clearly confirmed that the ruling family was mortally afraid of any probe into secret money abroad. This fear haunts the family-led Congress party even today. That is why the 1987 episode is relevant now. Illicit money is the dirty outcome of modern capitalism. But, after 9/11, the US realised that not just the buccaneers in business, but Osama bin Laden could also hide his funds in secret havens and use them to bomb the world. Campaigns against dirty money as high security risk commenced with the path-breaking research done by Raymond W Baker, a Harvard MBA and a Brookings scholar. He published his research as a book Capitalism’s Achilles Heel: Dirty Money and How to Renew the Free- Market System. The book was published in 2005. This set off intense debate in the US as the exposure linked dirty business and dirty money with terror and national security. Raymond Baker had estimated, using authentic data, tools and reasons, the dirty wealth secreted in banks at $11.5 trillion to which, he found, one more trillion was being added annually. He added that in the process the West was getting an annual bounty of $500 billion from the developing countries, India included. Global Financial Integrity (GFI), a global watchdog headed by Baker to curtail illicit money flows, has recently brought out detailed estimates of the black wealth hoarded in secret havens from different countries. GFI research shows that during the period 2002 to 2006, annually $27.3 billion was stashed away from India, making a total of $137.5 billion for the five-year period. That is, in just five years, Indian wealth amounting to Rs 6.88 lakh crore has been smuggled out of India. This gives a clue as to how much Indian money would have slipped out of India in the last 62 years, particularly during the Nehruvian socialist regime when the income tax (97.5 per cent) and wealth tax (almost equal to the income earned on investments) together constituted double the income earned. It is undisputed that the Nehruvian socialist model forced huge sums out of India. So the amount of Indian black wealth secreted away in the last 60 years — estimated at from $500 billion (Rs 25 lakh crore) to $1400 billion (Rs 70 lakh crore) — does not seem to be wide off the mark. Economists call it flight of capital. This is the people’s money stolen from them. See the consequence even if part of it is brought back. A portion of it would make India free from all external debts which is now over $220 billion; India will transform into an economic superpower; some 10 or 15 Indian rupees could buy a US dollar which today 50 Indian rupees cannot; a litre of petrol on our roadside would cost Rs 15 or even less, against today’s 50 plus; the cost of imports in rupee terms would be down to a third or half; India’s entire infrastructure needs can be funded; India will become so energy efficient and costcompetitive that exporters may need no sops at all; India will lend to — not, as it does now, borrow from — the world; Indian housing can be funded at affordable cost; rural poverty can be wiped out... The list is endless. But, then, is it possible to bring back the secreted monies? What are the roadblocks to such efforts? http://www.expressbuzz.com/edition/print.aspx?artid=|35JpDfHVas=
A deafening silence on funny money It was unthinkable six months ago. Switzerland, once a pet of Western capitalism, is now its hate object. During World War II, the tiny nation was the common love of both the Allied and Axis powers, at war with each other. But neutral Switzerland, a friend of all since Napoleonic days, is friendless today. Its prime attraction, financial secrecy secured by law, has become its nemesis. Germany first, France next, the US later, with the UK joining last, have, individually and together, declared a war against secret banking and tax havens like Switzerland. It is a crusade by the West against the Swiss, says the media. Tax havens ask for no income tax from non-citizens and their banks ask no questions about their money. Modern capitalism had all along winked at secret banks and tax shelters; even nicknamed secret money ‘funny money’. But now the West chases secret money like it targets al-Qaeda. Why this miraculous shift? The short answer: ‘financial crisis’. The Guardian of UK wrote (March 4), “European leaders grew increasingly agitated at how tax havens have fostered secrecy that has contributed to the collapse of banks the world over”. The newspaper’s Tax Gap Series estimated the unaccounted global wealth held in secret havens, including Switzerland, at $13 trillion. The annual tax evasion on the dirty fund, estimated at $255 billion was, the newspaper said, twice the global budget for poor nations. Der Spiegel, a German magazine, reported (March 3) that “Cash strapped governments around the world see the opportunity to finally put an end to bank secrecy” to access the money concealed by their nationals. It added “British Prime Minister Gordon Brown, French President Nicholas Sarkozy and German Chancellor Angela Merkel are now joining forces” and “they have set their sights on Switzerland”. The crusade against Swiss banks was started by Germany in early 2008 when its intelligence bribed — bribed? Yes — an informant in LGT Bank in Liechtenstein and got a CD containing the names of some 1,500 tax dodgers, and raided half of them, who were its citizens. It also offered, free of cost, the names of citizens of other countries. Many accepted the offer gratefully. Thereafter, in the third quarter of 2008, Germany pressed the Organisation of Economic Co-operation and Development (OECD) to blacklist Switzerland for protecting tax dodgers. Switzerland is an OECD member and two-thirds of the Swiss speak German. Yet Germany couldn’t care less. Soon, France joined Germany. “We want to put a stop to tax havens”, thundered Sarkozy. At the preparatory G20 summit in Berlin early February, European leaders vowed to launch a global crusade against tax havens at the G20 meet in London, said the Irish Financial News. Europe’s anger was explicit in its refusal to allow the Swiss plea to be presented before the G20 in London. The US moved even more menacingly. On February 18, the US Inland Revenue threatened the largest Swiss bank, UBS, with a lawsuit — that would have bankrupted it — unless the bank disclosed the names and accounts of some 300 American tax dodgers. A frightened UBS forthwith surrendered the secret data to the US before the account holders could stall it by a Swiss court order. Later, the Obama administration told the US Senate that it would bring laws to prise open the world’s most secretive tax havens. At this point the UK joined the crusade. Switzerland wilted under the pressure. Spiegel wrote that, for generations, the Swiss had held bank secrecy as “not negotiable”, and added that it was “no longer” so. The magazine quoted Swiss finance minister Merz as saying that they would have “to compromise”. The Swiss justice and foreign ministers, the magazine reported, had hinted that the country might have to stop protecting tax dodgers. Subsequently, a nervous Merz met Gordon Brown on March 14 with a deal to prevent any move in G20 to blacklist his country. The deal was that Swiss banks would adopt the bank transparency rules of OECD countries. Brown claimed that it was “the beginning of the end of banking secrecy”. Yet, the US is pressing ahead with a law to punish banking secrecy. When the crusade of the West against Swiss banks is succeeding, here Dr Manmohan Singh and his government, instead of celebrating, seem to be worried at their success. Three bits of evidence expose the Congress-led government’s not-so-well-hidden worry. First, when Germany’s finance ministry offered the LTG bank secret data to any country that needed it, the government would not ask for it despite reports that it contained some 100 Indian names. When in April last year, L K Advani wrote to Manmohan, requesting him to ask Germany for the data, the then finance minister responded evasively. Transparency International noted India’s “stoic silence over the issue” and that it “has not approached the German government for the data’’ (Economic Times, May 25 2008]. More, the revenue secretary in Delhi has reportedly advised the Indian ambassador in Berlin not to push Germany for the details as Germany might not like it – clear proof that the government is scuttling, not getting, the details. Second, when, in the G20 preparatory meeting at Berlin, Germany and France were threatening to blacklist Swiss and other secret tax shelters, India’s silence at Berlin was deafening. Montek Singh Ahluwalia, the PM’s righthand who, along with Dr Rakesh Mohan, represented India at Berlin, did not utter a word in support of Germany and France. India, a principal victim of banking secrecy, should have been leading the war cry against it. But it did not even morally support those waging the war. Third, when on Sunday last L K Advani told Manmohan Singh that India should join in the G20 effort to break banking secrecy, the PM did not respond. The spokesperson of the Congress Abhishek Singhvi responded that G20 was not the forum for that, being blissfully ignorant of the fact that it was a main agenda of G20 meet. In fact just ahead of the meeting, Sarkozy had threatened to walk out unless the G20 decisively acted against secret banks and tax havens. No need to strain further to understand Manmohan’s compulsions. The fear that drove the ruling family to abort the 1987 probe into Indian monies secreted abroad is still evident. But Advani’s threat to turn the recovery of Indian wealth secreted abroad an election issue has got the PM and his party off guard. The party has blundered, saying G20 is not the forum, when it is precisely that. Now the prime minister cannot remain silent. He has to do something. At least make a show of doing. But can he? QED: Dr Manmohan Singh stands between the devil and the deep sea — between his party and L K Advani. About the author: comment@gurumurthy.net | ||||||||||||||||||||||||||||||||||||||
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Appendix E: Hawala cases |
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This section provides brief descriptions of cases where hawala or hawala-like techniques were used to launder proceeds derived from various predicate offenses. If the case has been adjudicated, identifying information is provided. In others, the investigation was ongoing at the time of writing, so particulars are not provided and certain details of the case may be designated as hypothetical.
Narcotics Trafficking (1)
In mid-1997, several people were convicted of conspiracy to launder as well as laundering the proceeds of the sale of Pakistani heroin and opium (18). This case involved a legitimate foreign exchange business, Frankfurt-based MGM Marwex Geldwechsel, its U.S. branch, MGM Marwex International and a hawala network spanning several countries.
Narcotics Trafficking (2)
Several Pakistani and Afghan nationals allegedly importing heroin into a major U.S. metropolitan area are suspected of collaborating with a bank officer to launder the proceeds of the sale of the heroin. This bank officer is believed to open accounts without following appropriate 'know your customer' procedures and also assists the traffickers with the management of these accounts, which are used for hawala-like transfers. Large numbers of checks have been processed through these accounts, and money has then been wired to Dubai and other places. It is also believed that other traffickers have availed themselves of this money laundering scheme. In addition, this bank officer may be handling the receipt of shipments of negotiable instruments from a south Asian country on behalf of suspected criminals in that country. These shipments may represent part of a money laundering scheme as well as potential violations of U.S. laws regarding the import of currency and the source country's laws regarding the export and possession of currency.
Narcotics Trafficking (3)
In 1985, British courts convicted a Mr. Choraria (19) of 'being knowingly concerned in the fraudulent evasion of the prohibition of importation of a Class A controlled drug, namely heroin'. Choraria was described as the 'banker who knowingly enabled payment for heroin imported into this country illegally to be transferred to India from whence the heroin had been sent'.
Choraria operated two legitimate businesses, an import/export financing firm (confirming house) and a remittance business (it is possible that at least part of this remittance business was hawala-based). In this case, Mr. Choraria brokered the transfer of funds between parties in Karachi and Mumbai as part of heroin smuggling.
This case has two somewhat humorous aspects: hawala had to be explained at length during the trial by Mr. Choraria's nephew, as the system was not known to Choraria's bankers. In addition, some of the British criminals involved in the case did not seem to understand how the money was being transferred.
Narcotics Trafficking (4)
The investigation of a Delhi-based hashish trafficking organization revealed that the traffickers had established several false corporate identities. Under the cover of these identities, machinery was shipped to Germany, the United Kingdom, the Netherlands and Australia. Hashish was concealed in this machinery. Hawala was used to repatriate the proceeds of the hashish sales back to the Indian traffickers.
Terrorism (1)
The investigation into the assassination of an important Indian politician revealed that the assassins were, in fact, terrorists. These terrorists used hawala to transfer the proceeds of the sale of narcotics to arms dealers for the purchase of military hardware.
Terrorism (2)
The series of bomb blasts in a major Indian city in 1993 was financed through hawala. The investigation revealed that the funds supporting these bombings (specifically funds used to buy explosives and to pay the bombers) were handled by hawala operators in the United Kingdom, Dubai and India.
Alien Smuggling
A worldwide alien smuggling network is suspected of using hawala banking techniques to move money between North America and South Asia to pay the alien smuggling 'fee' and additional payments (e.g. for lawyers) are also made.
Welfare Fraud
Certain immigrants from a particular country are accused of committing large scale welfare fraud in two major U.S. cities. An employee of a car rental agency deposits large numbers of checks into a personal checking account, and then wires money to a variety of locations, including Dubai (this is documented by Suspicious Activity Reports filed by the bank where the account is held). Since it is known that there are many immigrants from this country working in Dubai, it is suspected that hawala is then being used to remit money (which probably includes proceeds derived from welfare fraud) from Dubai back to this country, which has a poorly developed banking system, via couriers. This is the sanitized text from one of the Suspicious Activity Reports associated with this case:
SUSPECT ONE MAKES FREQUENT LARGE CASH DEPOSITS INTO HIS CHECKING ACCOUNT AND IN A FEW DAYS HE WIRES IT OUT OF THE COUNTRY. HE HAS BEEN SEEN WITH SUSPECT TWO. THIS ACTIVITY SEEMS UNUSUAL FOR HIS OCCUPATION.
Insider Trading
A citizen of a South Asian country, who was an investment banker in a major U.S. financial center is accused of giving 'tips' to various friends and relatives. After some illegal trades took place, the banker resigned and apparently fled the United States for his homeland. At the same time, several of his associates also traveled to this same country as well as several European financial centers. An analysis of seized bank records indicates that money was wired to persons apparently of the same nationality in at least one of these financial centers. It is possible that these wire transfers were the first part of hawala-like transfers of the proceeds from the illicit trades to the investment banker's home country.
Customs and Tax Violations (1)
A Pakistani living in the Washington, D.C. metropolitan area was doing hawala transfers for other expatriates. Large cash transactions at the bank used by some of the defendants were brought to the attention of customs and tax authorities. Their subsequent investigation uncovered a scheme in which surgical instruments manufactured in Pakistan were being imported at inflated prices (over-invoicing) to facilitate the transfer of money from the United States to Pakistan, in apparent violation of Pakistani law. Convictions were obtained for customs violations, making false statements and tax fraud (20).
Customs and Tax Violations (2)
An individual representing himself as being in the gold business in a large U.S. city, specifically as a 'gold broker', is suspected of various customs and tax violations as well as money laundering. This individual has made very large cash deposits at several banks, and at least one bank has closed this individual's account because of these deposits. This individual's bank account was examined in conjunction with a tax investigation. This individual claims to supply various gold shops with gold bullion, and also that he sells gold coins and jewellery to individuals. Interviews with owners of these businesses and alleged clients indicate that this is not the case. It is believed that this individual is acting as a bank for various individuals and businesses, assisting them in evading the payment of taxes.
Gambling
Hawala has been used not only as an alternative remittance system but as an alternative banking system in a South Asian gambling operation. Currency control laws made it nearly impossible for citizens of one country to take money to gamble in another, and there are similar problems with bringing gambling winnings back into the country. The gambling operators have engaged hawaladars to accept money 'on deposit' from gamblers, and pay winnings through them as well. This is something of a testimony to the reliability of hawala. During a conversation with one of the authors of this paper, one of the principals in this gambling operation reported that this had been going on for nearly twenty years without any significant difficulties…
khokha (also spelled koka; khokhu
in Gujarati): The literal meaning of this word is 'something hollow', 'bag' or
'paid bill'; it is used colloquially to refer to 10,000,000 [ten million]
rupees. When speaking of money, this word is often used interchangeably with crore.
http://www.interpol.int/Public/FinancialCrime/MoneyLaundering/Hawala/default.asp
Following the Terrorist Informal Money Trail: The Hawala Financial Mechanism
Strategic Insights, Volume I, Issue 9 (November 2002)
Strategic Insights is a monthly electronic journal produced by the Center for Contemporary Conflict at the Naval Postgraduate School in Monterey, California. The views expressed here are those of the author(s) and do not necessarily represent the views of NPS, the Department of Defense, or the U.S. Government.
Since 9/11, investigations into the al Qaeda financial network have led to several notable successes in the United States and Europe. Much of this achievement in the United States has resulted from strengthening the financial investigatory powers of domestic law enforcement agencies and coordinating them through the Treasury Department's new Foreign Terrorist Asset Tracking Center. In other countries, the Paris-based Financial Action Task Force, for example, is helping to coordinate the tracking of terrorist funds through the global banking system and cracking down on countries that fail to improve transparency and regulation. These efforts are already proving useful in uncovering large-scale drug-trafficking and money-laundering operations. They have also helped reveal important information on terrorist groups, particularly those operating in the West.
Financial investigators tracking al Qaeda assets rely heavily on data and paper trails from commercial banks and financial regulators in pursuing and investigating leads. Such data have included the tracing of wire transfers between suspected hijacker Mohammed Atta and Shaykh Saiid of Dubai, believed to be one of Osama bin Laden's key financial operatives. Unfortunately, these efforts have achieved little success to date in reaching the core of the al Qaeda financial network. The problem is that much of the organization's funding mechanisms—like its cells—are small and inconspicuous, often using a traditional Muslim method of money exchange called Hawala.
Workings of the Hawala System
The word "hawala" means "transfer" in Arabic. In some contexts, the word "hawala" is used synonymously with "trust," usually to express the personal connection between participants and the informal nature of the transactions.
In essence, Hawala is a transfer or remittance from one party to another, without use of a formal financial institution such as a bank or money exchange, and is, in this sense, an "informal" transaction. There are several other common aspects to Hawala. First, in most cases, Hawala transactions go across international lines, such as with worker remittances to their home countries. Second, Hawala usually involves more than one currency, although again this is not absolutely required. Third, a Hawala transaction usually entails principals and intermediaries. To accommodate requests of the principals, the intermediaries usually take financial positions. Later, much as in the case of conventional banking practices, these transactions will be cleared amongst the units to balance their books.
A typical transaction often involves an expatriate remittance. For example, an expatriate Pakistani worker in the United Arab Emirates wishes to send money back home. To do this he goes to an intermediary, the Hawaladar, to arrange the transfer. He makes payment in dollars or other convertible currency. The Hawaladar in the UAE contacts a counterpart in Pakistan, who makes payment in rupees to the remitter's family or other beneficiary. Obviously, some network of family or connections among Hawaladars is required to make such a system work on a large-scale and ongoing basis.
It is important to note that although the remitter in this case wished money be sent to a distinct location, no money actually crossed the border physically and no money necessarily entered the conventional or official banking system (unless of course the Pakistani recipient decided to place it there). The transaction rests upon a single communication between Hawaladars and is often not recorded or guaranteed by a written contract. The trust between the two Hawaladars secures the debt and allows the debt to stand with no legal means of reclamation. There is an implicit guarantee on payments, however, because a broken trust would result in community ostracism constituting economic suicide for the Hawaladar (Jost and Sandhu, 2002).
Typically, poorer individuals use the Hawala system to take advantage of the low cost and quick delivery that the system provides. For the blue-collared worker who transfers a monthly stipend of $100, the unofficial Hawala is a far cheaper way to send money back home than the official banking system, at a rate of around 1% of the amount transferred. Because of its low overhead costs, Hawala provides a more favorable market exchange rate than the official one. In short, the economic attraction of Hawala to the customer is usually the speed, low cost, and reliability of the system compared to use of established financial institutions such as banks, money exchanges, or Western Union. The system is ideal for use in isolated localities like the tribal areas of Pakistan and Afghanistan where formal financial institutions are rare.
Extent of the System
Hawala agents work in a range of settings—from curbside stalls and modest offices in South Asia to back rooms and secret locations in Europe and North America. The only limits to the size of a transaction are the willingness of the sender to carry cash and the capacity of the receiving agent to cover the transaction; exchanges in the tens of thousands of dollars are frequent.
Although Pakistan, India, and the Persian Gulf states are home to the largest concentration of Hawala organizations, Dubai, in the United Arab Emirates, perhaps handles the largest volume of transactions. The system has global reach. Investigators believe Hawala organizations exist throughout the United States and Europe.
Given its informal nature, there is no precise measure of the size of the system. Estimates abound though (Jost and Sandhu, 2002). Pakistani officials estimate that over $5 billion in transactions occur through Hawala networks every year, making it in effect an extremely large foreign exchange clearing house. One third of these transactions reportedly consists of the repatriation of funds from expatriate Pakistanis to their families. Pakistani nationals may hold between $40 billion and $60 billion in overseas financial assets—an amount roughly equivalent to the country's gross domestic product.
In the case of India, Interpol places the size of Hawala at possibly 40 percent of the country's gross domestic product. In 1998, the most recent year for which data are available, estimates place the amount of money in the country's Hawala system at $680 billion, roughly the size of Canada's entire economy (Baldauf, 2002).
In summary, the Hawala system, especially in South Asia, is extensive, extremely liquid and a rational choice for poorer segments of the population. While seeming a bit mysterious to outsiders, the fact is the Hawala is comparable in mechanics and economic structure to most other remittance alternatives, including those that run through licensed channels. The most obvious "legal" problem with Hawala in remitting countries is the lack of any registration or licensing, although the operations themselves are generally harmless. In receiving countries like India, there is in addition the more subtle potential clash between Hawala operations and exchange controls whereby Hawala transactions often result in increased black market transactions and expanded underground activity. The fact is, though, that Hawala is essentially an economic phenomenon. It would remain so even if there were no terrorist international transfers, drug trade, or money laundering.
Although the great bulk of Hawala transactions are as harmless as the remittance example noted above, the system has proved to be extremely useful for money laundering and masking the intricate financial operations required by terrorists, drug dealers and other criminal elements. Given its size and semi-legitimate status in South Asia, it is not hard for terrorists to transfer money using Hawala channels. They are labyrinths replete with pseudonyms, middlemen and dead-ends. Wealthy Arab patrons in the Middle East likely send funds to al Qaeda through Hawala organizations, as do myriad Arab charities acting as fund-raising fronts. The smaller the value of the transfer the less attention it is likely to attract, but it is still easy to transfer large amounts of money without raising questions.
Methods to Combat Terrorist Use of the System
In the war on terrorism, a major challenge will be to infiltrate and monitor Hawala networks in the Middle East. A crackdown by Arab and South Asian governments at the behest of Western governments is simply not feasible. The vast majority of the money is from legal, legitimate sources, and the Hawala organizations are numerous and extremely powerful.
Arab and South Asian governments have neither the effective means nor the will to closely monitor each transaction in these organizations. In any case, methods of this sort would most likely prove ineffective. As an amorphous collection of independent operators, Hawalas do not depend on a single location or infrastructure. A crackdown that attempts to ban the networks would simply drive them underground. Because many citizens in these countries would view actions of this sort as caving to Western demands at the expense of Muslim tradition, it could also create a backlash against the governments.
Instead, what may need to be done is to see how Hawalas can be licensed and or registered so that they will continue to serve those who need the service while, at the same time, not becoming abused by money launderers and criminals.
Along these lines, participants at a conference in Abu Dhabi held on May 16, 2002 recommended the setting up of control systems to monitor Hawalas with sufficient documentation about the remitters and recipients of funds, to guard against any diversion of such funds into illegal or criminal activities. They also called for government licensing and regulation of Hawala offices in the same way as insurance offices are regulated.
For its part, Pakistan is establishing a Special Investigation Group (SIG) in the Federal Investigation Agency (FIA) to counter terrorism. This group could help enforce Hawala regulations. In addition, crime wings of the FIA would help the SIG investigate cash flows to and from suspected groups and individuals through illegal monetary transactions.
If licensing, registration, or normal police work (described by Jenkins, 2002) is ineffective in stopping the abuse of the Hawala systems by terrorists, an economic approach should be considered. If the desire of the authorities is to constrain or significantly reduce the importance of Hawala activity, this means reducing the economic incentives to use the Hawala system. There is probably no better way to accomplish this than to facilitate cheap, fast remittances across international boundaries, and to do away with dual and parallel exchange markets, which are always an incentive to keep transactions underground.
In other words if those countries had reasonably expedient, well regulated and user-friendly banks, then the Hawala system would not have flourished and would not have been abused by terrorists and criminal elements. In this regard, there have been some encouraging signs. Several exchange companies in Egypt, Jordan, Lebanon and the Gulf countries have now adopted the door-to-door delivery of money in a manner similar to one that the Philippine banks have successfully introduced and implemented to stave off the unofficial market operators. The more innovative institutions in India are now using low-cost couriers to deliver door-to-door service. This compensates for the lack of presence of banks in different parts of the country. The smaller and more numerous exchange companies are also competing today with the Hawala system in speed, efficiency of execution, settlement, and delivery of money and services.
These factors may prove to be the demise of the Hawala system that has been prone to errors, fraud, and abuse by unscrupulous groups.
For more insights into contemporary international security issues, see our Strategic Insights home page.
To have new issues of Strategic Insights delivered to your Inbox at the beginning of each month, email ccc@nps.navy.mil with subject line "Subscribe". There is no charge, and your address will be used for no other purpose.
For Further Reading
Alden, Edward, "Terror's Money Trail" (Financial Times, October 18, 2002).
Baldauf, Scott, "The War on Terror's Money--India's Six Month Investigation Offers Lessons on Fighting Underground Banking" (Christian Science Monitor, July 22, 2002).
Farah, Douglas, "Al Qaeda's Gold: Following the Trail to Dubai" (Washington Post, February 18, 2002).
Frantz, Douglas, "Ancient Secret System Moves Money Globally" (New York Times, October 3, 2001).
Jenkins, Holman, "How About al Qaeda's Moneymen?" (Wall Street Journal, September 11, 2002), p. A15.
Jost, Patrick, and Harjit Singh Sandhu, "The Hawala Alternative Remittance System and Its Role in Money Laundering" (Interpol, October 2, 2002).
Sfakianakis, John, "Antiquated Laundering Ways Prevail" (Al-Ahram Weekly Online, April 4, 2002).
Siddiqui, Tahir, "Special Body to Counter Terrorism Planned" (Dawn, August 8, 2002).
http://www.ccc.nps.navy.mil/si/nov02/southAsia.asp
How hawala money is used to fund terror
|
|
Vicky Nanjappa in Bengaluru
http://www.rediff.com/news/2009/mar/06how-hawala-money-is-used-to-fund-terror.htm
Advani referred to an evasive answer from Home Ministry. The following reports why the answer is evasive
“We could approach Swiss Financial Intelligence Unit as a member of EGMONT GROUP an international organization for stimulating cooperation amongst FIUs across the globe and has FIUs of more than 100 countries as its members and Swiss is a member of that organization .(http://www.egmontgroup.org/europe.html).”
UPA Government should explain to the Indian people what was achieved by FIU-IND and what info was sought and received about public loot from Hindusthan stashed away in tax havens.
Kalyanaraman 29 March 2009
Financial Intelligence Unit-India joins Egmont group
June 18, 2007 15:20 IST
Financial Intelligence Unit-India (FIU-IND) has been
admitted as the member of the Egmont Group at its recent Plenary Session at Hamilton, Bermuda. The
Egmont Group is the international organization for stimulating cooperation
amongst FIUs across the globe and has FIUs of more than 100 countries as its
members. Membership has been granted to FIU-IND after verification of its
operational status by the Egmont Group and on being satisfied with legal
position and ability of FIU-IND to share information with foreign FIUs.
Membership of the Egmont Group, apart from meeting an important requirement of
the Financial Action Task Force (FATF), will facilitate and enhance exchange of
information by FIU-IND with its counterpart FIUs.
Admission of FIU-IND as a member of the Egmont Group is a major step forward in
India
joining the international community in its fight against money laundering and
terrorism financing. Indian Government continues to remain committed to fight
the menace of money laundering and financing of terrorism with its full might.
The global community is united in its fight against money laundering and
financing of terrorism. On its part, India has enacted the Prevention of Money
Laundering Act, 2002 (PMLA) which has been brought into force from 1st July,
2005. Financial Intelligence Unit-India has also been set up to receive
information relating to large cash and suspicious transactions under PMLA from
various entities in financial sector and disseminate information in appropriate
cases to relevant intelligence/law enforcement agencies. FIU-IND has, till now,
received more than 27 lakh Cash Transaction Reports and more than 1100
Suspicious Transaction Reports from various entities in financial sector.
FIU-IND is also authorized to share information relating to suspect financial
transactions with its counterpart FIUs.
BSC/AS/286
Federal Office of Police
Money Laundering Reporting Office Switzerland (MROS)
The Money Laundering Reporting Office Switzerland (MROS) at the Federal Office of Police (fedpol) is Switzerland’s central money laundering office and functions as a relay and filtration point between financial intermediaries and the law enforcement agencies. According to the Money Laundering Act MROS is responsible for receiving and analysing suspicious activity reports in connection with money laundering and, if necessary, forwarding them to the law enforcement agencies.
MROS is also a specialised body that publishes annual statistics on developments in the fight against money laundering, organised crime and terrorist financing in Switzerland, and identifies typologies that are useful for training the financial intermediaries. MROS is organised as a section within the Federal Office of Police; it is not a police authority in itself, but rather an administrative unit with special tasks.
The Reporting Office is a member of the Egmont Group, which is an international association of “Financial Intelligence Units (FIU)“ whose objective is to foster a safe, prompt and legally admissible exchange of information in order to combat money laundering and terrorist financing.
Contact
Federal Office of Police
Money Laundering Reporting Office Switzerland (MROS)
Nussbaumstrasse 29
CH-3003 Bern
T +41 31 323 40 40, F +41 31 323 39 39
E-mail
http://www.fedpol.admin.ch/fedpol/en/home/themen/kriminalitaet/geldwaescherei.html
Link between world of finance and terrorism: MK Narayanan’s speech (11 Feb.2007)
Munich Security Conference
Speaker:
Narayanan, M.K.
Function: National Security Advisor, Republic of India
Nation/
Includes audio. Republic of India
Speech at the 43rd Munich Conference on Security Policy
02/11/2007
I am delighted to have the opportunity to speak before
this distinguished audience on an issue that is of direct relevance to India’s security. I propose to address
the issue of financing of terrorism in the context of a sustained and
multi-pronged combat against international terrorism.
International terrorism is recognized today as one of the gravest scourges
facing mankind. Terrorism is not a new technique, and the view of many experts
is that it may never be fully eradicated. What has made terrorism more lethal and
widespread is the adoption of suicide tactics, the availability of modern
instruments, and global communications. The effectiveness of terrorism is often
enlarged by the elements of theatre in it, magnified further by the reactions
of targeted societies. The temptation to employ terrorist tactics is often
derived from the comparative advantages that terrorism as a technique provides
viz. the rapid spread of images, its immediate impact, and enabling communities
that lie at the extreme edge of frustration to make their presence felt.
Admittedly, there is no one monolithic source of terrorism. The diversity of
motivations becomes clear from an analysis of different geographical areas.
Undeniably, faith-based terrorism, which is sustained by strong external
linkages and connectivity, is the defining global threat today. Intricate
networking, connects vast numbers of radical Islamist terrorist groups, though
any notion that Islam, the religion, is responsible needs to be categorically
rejected.
World-wide, operations of terrorist groups reveal dangerous patterns. An
entirely new breed of terrorists has emerged. Terrorist outfits today have a
trans-national reach. New cells and new franchises are evolving. New support
structures and financing mechanisms are being created. Passing of messages is
becoming more sophisticated. Terrorist outfits are no longer tethered to
geographical locations, or for that matter, even to political ideologies.
Captured militants reveal that it has been possible to acculturate recruits
coming from different climes, backgrounds, skills and countries. Such
cross-cultural compatibility is paving the way for deadly attacks in unexpected
locales in the future.
The fight against international terrorism is thus likely to be a long drawn
out, and sustained, one. There are two major areas on which to concentrate:
First, the hard-core of terrorist planning where actual operations are
conceived and implemented; and Second, the manner in which sympathy is
generated for the objectives of particular cells, where recruits are inspired
to sign-up and where hiding places are created away from the rule of law.
For the panel discussion, I shall restrict myself to the First aspect. Reducing
the flow of funds and money supply to terrorist outfits and organizations is
perhaps the most vital aspect after penetration of these outfits. Reducing the
flow of funds would limit terrorist capability to acquire weapons, recruit
cadres, establish training facilities and state-or-the-art secure
communications. The difficulty, however, is that terrorism is generally a low
budget enterprise. Not all terrorist acts require large funds. The need for and
quantum of funds is determined by the size and area of the operation.
The more common methods employed by terrorist outfits to generate funds - as
experienced in the context of South Asia -
are:
1. Voluntary contributions: From individuals, members of expatriate communities, and organizations that sympathize with the broad objectives of the terrorist organization. The LTTE in Sri Lanka and the Al Qaeda, regularly receive sizeable contributions through such means.
2. Forced/Compulsory donations: Ethnic, ideological and religious terrorists are known to use the technique of forced or compulsory donations On special occasions such as religious festivals, sending round of collection boxes is fairly common, and provides anonymity as well. Compulsory subscriptions to pro-terrorist publications have laterally become an important avenue for generation of funds. The Pakistan-based Lashkar-e-Toeba’s monthly, Majalah-al-Dawana, and its weekly magazine, Al Ghazwa, are two prime examples.
3. State support/sponsorship: The Lashkar-e-Toeba, the Hizbul Mujahideen and the Al Badr (which operate in India), are well patronized, including through provision of funds, by certain official agencies across the border. Shared objectives such as involvement in Low Intensity Conflict provide the excuse for such official support. A tentative estimate of funds made available to such terrorist outfits annually is in the region of a few million dollars.
4. Extortion and use of coercive methods: Many terrorist outfits today imitate criminal enterprises. Intimidation of small businesses, individuals and even some State enterprises to extort funds has become common.
5. Association with Criminal Syndicates: Jehadi and non-jehadi terrorist outfits seek, and enter into, partnerships with Organized Criminal Syndicates, and outsource fund-raising to the latter. This is largely true of metropolitan cities. It takes many forms, but mainly bank robberies and kidnapping for ransom.
6. Utilisation of legitimate business enterprises: Terrorist outfits set up legitimate business enterprises viz. restaurants, real estate, shipping, etc. and utilize part of the proceeds to siphon off funds for terrorist activities. Among terrorist outfits, the LTTE has a very well-established network of legitimate businesses, which provide both funds as well as logistics for their activities. Jehadi terrorist organizations have begun to follow suit.
7. Stock market operations: Isolated instances of terrorist outfits manipulating the stock markets to raise funds for their operations have been reported. Stock Exchanges in Mumbai and Chennai (India) have, on occasions, reported that fictitious or notional companies were engaging in stock-market operations. Some of these companies were later traced to terrorist outfits.
8. Misuse of banking channels: Legitimate banking channels are regularly being used to fund terrorist operations. Many instances of funds received via banking channels from so-called safe locations such as Dubai and UAE intended for terrorist organizations have been detected by Indian Counter-Terrorist Agencies. Each individual transaction tends to be small so as not to attract attention and to avoid detection. Use of both real, and fraudulent, ATM cards has also been resorted to at times.
9. Narcotics: Funds from drug cultivation and trafficking in narcotics are extensively used to fund terrorist outfits. Both jehadi outfits and the LTTE rely heavily on such funds for their activities. The sharp rise in opium cultivation in Afghanistan - which has more than doubled during the past few years - raises concerns of more funds becoming available to terrorists. According to Indian Agencies at least 1/8th of their major interdictions reveal a drugs- terrorist nexus.
10. Counterfeit currency: Counterfeiting of currency is currently a favourite method being adopted (by Agencies across the border) to fund terrorist activities directed at India. Large amounts of high quality counterfeit Indian currency are detected each year - the normal route being via Nepal, and Bangladesh.
11. Charities: An important source of funds to jehadi terrorist outfits are religious charities. Sincere believers contributing to charities are perhaps unaware that a sizeable portion of the funds go to fund terrorist activities and terrorist outfits. Many of the charities are already designated as Terrorist Front Organisations; yet most continue to operate under new labels. The Al Rashid Trust went through several changes in nomenclature, while the banned International Islamic Relief morphed into the Sanabil Al Khir Foundation. Conduits through which such funds find their way to terrorist organizations include established banking channels such as the Habib Bank in Pakistan.
Moving
funds for terrorist purposes to the actual locale where a terrorist act is
perpetrated is a carefully executed exercise. Terrorist outfits, as a rule,
employ money laundering techniques so as to evade detection by Enforcement Agencies.
The most popular means employed in South Asia
for laundering funds, is the underground and parallel banking system which
ensures placing of funds without actual or visible movement of money.
A combination of conventional money laundering techniques, with placement of
funds utilizing the underground and parallel banking system has made it
extremely difficult to track funds utilized for terrorist purposes, since no
audit or paper trail is available. The globalisation of terror, and the ability
of terrorists to exploit state-of-the-art technology, thus further enhances
their capability to move hot money across international borders.
Even the most optimistic forecast is that terrorism as a form of asymmetric
warfare will continue for the foreseeable future. International cooperation
amongst States is, hence, a sine qua non. States still command larger resources
than any terrorist group, and pooling of strengths by all concerned States is
critical to defeat terrorism worldwide. Cooperation is needed both in the
bilateral and multilateral spheres, including collective approaches through the
United Nations. While some improvement has taken place in regard to bilateral
cooperation, the role of organizations such as the United Nations becomes
critical as terrorism becomes global. The 1267 Committee and the
Counter-Terrorism Committee of the Security Council have a key role to play in
this respect.
Many countries, including India,
have already in place a legal framework for tackling terrorism. Several - India included
- have specific legislations to prevent financing of terrorism. India has the:
(a) Foreign Exchange Management Act, 1999, (b) Narcotic Drugs and Psychotropic
Substances Act, 2003; and (c) Prevention of Money Laundering Act, 2003 (which
entered into force in July, 2005), apart from provisions in other Acts such as
the Unlawful Activities (Prevention) Act of 1967 as amended in 2004, to deal
specifically with the threat of terrorism.
Adoption by the UN General Assembly of the UN Global Counter-Terrorism Strategy
in September last year, has enabled a global consensus to emerge on measures
that States must undertake to prevent and combat terrorism. India is
committed to fully implementing the UN Global Counter-Terrorism Strategy,
including measures against the financing of terrorism. India has also
joined the International Convention for the Suppression of Financing of
Terrorism. We have established the necessary legal, regulatory and
administrative framework for combating money laundering and financing of
terrorism. A Financial Intelligence Unit-India is already in operation and will
be the nodal agency responsible for receiving, processing, analysing and
disseminating information relating to suspect financial transactions to
intelligence and enforcement agencies.
Conclusion
India
has been working with its international partners and regional organizations to
prevent and combat international terrorism. We have constituted Joint Working
Groups with 25 States, and regional organizations like the EU and BIMSTEC, for
coordinating and cooperating in our counter-terrorism efforts. These Groups
meet regularly, and have proved useful in providing a forum for the exchange of
information and experiences. In addition, India believes that there is need
for far greater vigilance and stricter provisions so as to make off-shore
jurisdiction more transparent. In addition, lifting banking secrecy and the
corporate veil in terrorist-related cases would help. Some new and innovative
disruption techniques could also be contemplated.
The importance of international cooperation in combating global terrorism, in
all its dimensions, cannot be over- stressed. Only by showing zero tolerance to
acts of terrorism committed anywhere in the world, and by working together,
including sharing of intelligence on terrorist activities, can we effectively
counter the terrorist threat. States must refrain from organising, instigating,
facilitating, participating in, financing, encouraging or tolerating terrorist
activities. They must take appropriate measures to ensure that their
territories are not used for setting up terrorist infrastructures or training
camps.
http://www.securityconference.de/konferenzen/rede.php?id=198&sprache=en&
A good summary of the capital flight out of developing countries is in the book at http://www.gfip.org/storage/gfip/executive%20-%20final%20version%201-5-09.pdf (Illicit financial flows from developing countries: 2002-2006 Global Financial Integrity by Dev Kar and Devon Cartwright Smith). The principal motive for such capital flight is the desire for accumulation of hidden wealth. A secondary reason is that part of this wealth is used to influence polities by paying purchase price to elected representatives who are getting increasingly criminalized as in Hindusthan.
Methods used to promote such accumulation are many not excluding: trade mispricing; commercial smuggling of diamonds, drugs, nuclear minerals, contraband goods; mispriced asset swaps; participatory notes for hawala transactions to convert Indian rupees into dollars or swiss francs through off-shore based tax havens such as Mauritius.
The book cited estimates that in 2006 alone, in just one year, the developing nations lost $1.06 trillion in illicit financial outflows. If this represents the annual average, the total money taken out of Hindusthan during the UPA regime of the last five years alone will compute to $5 trillion (not even counting the loot of earlier years).
A glaring evidence of the use of hidden wealth came out during the vote-for-cash scam during the last session of Indian Parliament. To vote for the nuke deal with USA and to make up for the loss of Communist votes, many MPs were bought out; an estimate mentioned in the media is Rs. 25 crores per MP’s vote. With just 50 MPs of non-Congress parties so switching sides to vote for the deal, the money transfers would amount to Rs. 1250 crores. This amount of Rs. 1.25 thousand crores is peanuts considering the total loot from Hindusthan held in 72 tax havens estimated to be Rs. 250 lakh crores.
It has been shown that Asia alone accounts for 50% of overall illicit flows. India’s share alone should account for 90% of the Asian cake. The estimate of $5 trillion (Rs. 250 lakh crores) held in 72 tax havens is thus a very conservative estimate. Switzerland may be a preferred destination since Cayman Islands door aast. And, the wealth holders can also spend weekends in the cold clime of the Alps which may explain the preference for the Swiss account tax haven.
Look at Charts 13 and 14 in the book. The top ten countries accounting for non-normalized illicit financial flows in just 4 years between 2002-2006 are: China, Saudi Arabia, Mexico, Russia, Malaysia and India.
India had undergone a methodical loot during the British colonial regime. The colonial regime has not been made accountable for the genocide and social upheaval caused by the loot not excluding the Bengal famine which killed millions of Hindusthanis.
The tragedy is that this colonial loot has been replaced by the sophisticated term ‘global illicit financial flows’ which is a shorthand for public loot for poor people.
If this is not cause enough for a revolution throwing the crooks out of power, I do not know what the future generations will say about our present generation which has allowed this loot to take place. This is a plunder of the wealth of the future generations. We are only trustees of this wealth which belongs to them and it is our dharma to bring back the stolen wealth and hand over the wealth for the benefit of our children and grandchildren and future generations. The present level of loot alone will be equivalent to Rs. 2.5 lakhs for every Indian. This will be something to start with for an Indian whose nominal annual per capita income is estimated to be only $1043 (Rs.52,150).
Let there not be death of outrage. This is enough reason for outrage against the rot in the state of Hindusthan.
Kalyanaraman
Global Black List Of Tax Havens Pushed
March 4, 2009 10:37 a.m. EST AHN Staff
Paris, France (AHN) - The meeting of the French and German Finance Ministers ended Tuesday in Paris with the conclusion that action must be taken against any financial center which will not cooperate in the global war against tax fraud and money laundering.
French Finance Minister Christine Lagarde wants all banks considered active in tax havens to be forced to come out with yearly reports on their activities, while German Finance Minister Peer Steinbrueck announced the Organization for Economic Cooperation and Development will prepare on its next G20 meeting on April 2 in London a black list of uncooperative nations.
Tax havens took center stage in financial circles the past few months. Germany initiated moves to collect taxes from its nationals who stashed wealth in Liechstenstein, while the United States Department of Justice is probing Swiss bank UBS for harboring 5,200 American depositors who parked their funds to evade taxes.
A United Kingdom study released this week said Britain is losing at least $5.6 billion(4 billion pounds) yearly to offshore tax havens. The TUC identified Jersey, Guernsey and the Isle of Man as popular tax havens for Britons with money to hide.
http://www.allheadlinenews.com/articles/7014298832
The Price of Offshore
In March 2005, TJN published The Price of Offshore, based on data from Boston Consulting Group; McKinsey’s; Merrill Lynch/Cap Gemini, and the Bank for International Settlements. This document estimated that the world’s High Net Worth Individuals (HNWIs) held around $11.5 trillion of assets offshore, which would generate a return of about $860 billion a year at a 7.5% rate of return, and a consequent tax loss of $255 billion (let's call it $250 billion as it's hard to be precise on this secret data) as a result of it being held offshore, more than three times the OECD countries’ official development assistance to the entire world. This figure was considered extremely conservative: it did not include tax losses arising from tax competition or trade mispricing; the surveys on which the data was based tended to exclude holdings of individuals with liquid assets below $1 million, and corporations, which reportedly pass more money through tax havens than individuals. Moreover, very large rises in global asset markets and in rates of return on assets since then would also suggest a significantly higher figure today. We must also stress that this is part of a much bigger global picture. Much tax is also lost through transfer mispricing (see below,) loopholes in domestic tax schemes that do not use offshore, and so on. See below for some of the other estimates that make up the global picture…
Global Financial Integrity
< Update: Jan 2009. New report from Global Financial Integrity on illicit flows from developing
countries. "In 2006, the most recent year of the GFI study, developing
countries lost an estimated $858.6 billion – 1.06 trillion in illicit financial
outflows." The statistical appendix for this study is available here An Excel version of this should be
available from GFIP >
http://www.gfip.org/storage/gfip/executive%20-%20final%20version%201-5-09.pdf
Raymond Baker, a U.S.-based expert in illicit financial flows, who runs the Global Financial Integrity Program at the Center for International Policy in Washington, made a different set of estimates of global dirty money in his ground-breaking 2004 book Capitalism’s Achilles Heel. He used both a bottom-up approach (adding up dirty money’s component parts –drugs money, mispricing, etc.) and a top-down approach (approximating it as a share of global GDP.) He estimated cross-border flows of global dirty money in a range between $1.1-1.6 trillion annually, about half of which came from developing and transitional economies, and two thirds of which is commercial dirty money. In April 2007, the World Bank endorsed Baker’s figure, although it has (astonishingly) not yet published its own independently researched data.
Using his lower $500bn estimate for developing and transitional economies, Baker said:“Through most of the 1990s, aid was running at about $50bn a year from all sources. It has edged up slightly in this decade. $50bn of aid in; $500bn of dirty money out. For every $1 that we have been generously handing out across the top of the table, we’ve been taking back some $10 of illicit proceeds under the table. There is no way to make this formula work, for poor or for rich.” The $500bn coming illegally out of developing and transitional economies is equivalent to 8% of their GDP…
Oxfam
A new March 2009 report from Oxfam adds this estimate, relevant for
developing countries:
A new analysis conducted for Oxfam by James Henry, former Chief economist at
McKinsey & Co, found that at least $6.2 trillion of developing country
wealth is held offshore by individuals, depriving developing countries of
annual tax receipts of between $64-124bn. If money moved offshore by private
companies was included this figure would be much higher.The scale of the losses
could outweigh the $103bn developing countries receive annually in overseas
aid. And capital flight is a growing problem with an additional $200-300
billion being moved offshore each year. http://taxjustice.blogspot.com/2009/03/oxfam-produces-new-tax-haven-data.html
CapGemini
CapGemini's World Wealth Report 2007 estimated HNWI (High Net Worth Individuals - those with more than) global wealth at $37.2 trillion in 2006, 11.2% higher than in 2005, with Singapore, India, Indonesia and Russia showing the highest growth in HNWI populations. It estimated a global total of 9.5m HNWIs. Note that this data only includes financial assets: non-financial assets will be far bigger. Ultra-HNWIs (those with more than $30 million in financial assets) saw their wealth grow even faster: a 16.8% rise from 2005 to 2006, to a total $13.1 trillion. CapGemini forecast HNWI wealth rising to $51.6 trillon by 2011. http://www.capgemini.com/resources/thought_leadership/world_wealth_report_2007/
…Alex Cobham
Research (pdf) by Alex Cobham at the Oxford Council on Good Governance shows that poorer countries forego $385 billion in revenues annually, due to tax avoidance and tax evasion. This is considered a conservative estimate, and is nearly four times bigger than total OECD countries’ foreign development assistance to the whole world. http://www3.qeh.ox.ac.uk/pdf/qehwp/qehwps129.pdf
Nationalise the Rs. 250 lakh crore public loot in tax havens
The Swiss Bank Accounts as tax havens is only a tip of the iceberg. There are 71 other tax havens where the public loot has been parked. The total estimate of such a loot is $11 trillion of which India alone accounts for over $5 trillion (Rs. 250 lakh crores using an exchange rate of Rs. 50 to a dollar). The job is not over until the fat lady sings.
I hope JD(S) and BJP make this a serious election issue and follow-through in nationalizing these benami transactions. Let the owners prove that the holdings are legal and pay up the back-taxes and face criminal proceedings. No mercies should be shown to the crooks who have looted from the poor people of Hindusthan.
kalyanaraman
IRS Cuts Penalties to Lure Tax Evaders
By EVAN PEREZ and TOM HERMAN
Come in from the cold (Wall Street Journal, March 27, 2009)
The IRS is trying to encourage people with undeclared offshore bank accounts to pay what they owe. General details of the offer:
· Pay all taxes owed, plus interest, dating back six years
· Pay a penalty of 20% of the value of the accounts for the year in which those accounts had their highest value
· Avoid criminal prosecution
· Milder penalties; previously, someone could wind up owing more in taxes, interest and penalties than the value of the foreign account
Source: Internal Revenue Service
WASHINGTON -- The Internal Revenue Service is offering leniency to many wealthy Americans who volunteer to pay taxes owed on assets stashed in offshore accounts, in exchange for information on the bankers who helped them hide the money.
Taxpayers who take part in a new program being offered over the next six months will face lower penalties than would otherwise be due, and will likely avoid criminal prosecution, the agency said.
A key part of the program, IRS officials said, is "developing intelligence" on bankers, lawyers, accountants and others who help the rich hide assets from tax authorities. This raises the likelihood that the IRS and the Justice Department could take aim at major financial firms, as they have against UBS AG, the Swiss bank that admitted in a settlement last month that some of its bankers had helped U.S. clients evade taxes.
Lawyers representing clients who are trying to make amends with the IRS said their clients are being prodded to name those who helped them set up offshore accounts, or risk losing the leniency they would receive by coming forward.
"The IRS is clearly interested in information about bankers, financial advisers, lawyers and intermediaries," said Scott D. Michel, a lawyer at Caplin & Drysdale who helps clients navigate the IRS's voluntary process to pay back taxes. "Lawyers who go in for voluntary disclosures are being asked to identify any such people with whom their clients interacted."
As the federal government struggles with rising deficits and public anger over financial bailouts, the White House and Congress have begun to focus on reducing tax evasion as a way to ease the financial strain. Recently, under pressure from the U.S. and other countries, Switzerland and several other countries seen as offshore tax havens have promised to increase information sharing with the IRS and other tax authorities to combat tax fraud.
For those holding accounts hidden from the IRS, "this is a chance to come clean on their own," IRS Commissioner Doug Shulman said in a conference call with reporters on Thursday. "For taxpayers who continue to hide their heads in the sand, the situation will only become more dire." The IRS has warned that it will crack down hard on evaders who don't come forward voluntarily.
Under the new program, account holders must voluntarily disclose unreported offshore income and pay any back taxes, interest and penalties. That typically includes paying all back taxes and interest going back a maximum of six years, filing or amending returns, and paying a penalty equivalent to 20% of the value of an account during the tax year in which the account had its highest value.
More
Previously, IRS penalties could be so severe that a taxpayer might wind up paying more in back taxes, interest and penalties than the value of the foreign account.
In addition, if taxpayers come forward voluntarily before the IRS has launched an audit, they likely would escape criminal proceedings.
The IRS devised the program as the federal government neared a victory in its battle with UBS over its role in encouraging tax evasion by U.S. account holders. UBS admitted to abetting tax evasion as part of a deal with the Justice Department that allowed it to avoid criminal prosecution. The bank also paid $780 million in fines and turned over information on more than 250 accounts. UBS continues to fight an IRS subpoena seeking information on 52,000 other accounts, arguing that disclosing the information would violate Swiss bank-secrecy laws.
As a result of the UBS case and other ongoing efforts, the IRS said, the number of people who have come forward to declare offshore accounts has more than doubled this year over the same period in 2008.
Jack Blum, a Washington tax attorney and expert on offshore tax jurisdictions, said the new IRS program seems aimed at helping tax authorities in new cases against banks in the same business for which UBS got in trouble.
It is unclear exactly how many Americans are hiding taxable income in secret bank accounts abroad, or how much in taxes they are evading.
A report issued by the U.S. Senate Permanent Subcommittee on Investigations last July said the U.S. each year "loses an estimated $100 billion in tax revenues due to offshore tax abuses." The report estimated that offshore tax havens hold trillions of dollars in assets belonging to citizens of other countries, including the U.S.
Write to Evan Perez at evan.perez@wsj.com and Tom Herman at tom.herman@wsj.com
http://tinyurl.com/debzmx
US offers tax deal for holders of offshore accounts
6 hours ago
WASHINGTON (AFP) — US tax authorities are offering a deal including reduced civil penalties and a guarantee against criminal prosecution to holders of offshore bank accounts who agree to pay back taxes.
A directive from the Internal Revenue Service, a copy of which was obtained Friday by AFP, states that tax collectors will agree to forego criminal penalties and potentially higher fines for account holders who step forward within the next six months.
The memo from deputy IRS enforcement chief Linda Stiff said the leniency would apply to persons who are not already under investigation and agree to pay back taxes over the past six years and a 20 percent civil penalty.
The directive also allows for an even smaller penalty of five percent for people who own the accounts but did not open or deposit money in them.
Tax specialists say the deal could avert tougher penalties of up to 50 percent and criminal charges that could lead to prison terms.
"Although there are accuracy and potential delinquency penalties, the significantly lower penalties on informational returns should be an incentive for many individuals who are considering a voluntary disclosure," said Jim Mastracchio, a Washington lawyer with the firm Caplin & Drysdale.
Mastracchio said the directive provides guidance to tax inspectors and formalizes a policy that may or may not be used for people who volunteer information on offshore accounts.
The action comes as Swiss banking giant UBS Wednesday faces pressure to name about 50,000 Americans holding secret bank accounts in Switzerland.
US senators have accused bankers at crisis-wracked UBS of helping wealthy Americans to flout US tax law through a variety of underhand methods down to encrypted laptops and lies to US customs officers.
Mastracchio said the incentives could bring account holders in to cooperate with US authorities, possibly providing information for a probe into UBS bankers.
JD-U goes after Indian holders of Swiss accounts
New Delhi (IANS): The Janata Dal-United (JD-U) Friday joined the Communist Party of India-Marxist (CPI-M) in demanding that the government should ask the Swiss authorities to divulge the names of Indians who have stashed away ill-gotten money in secret bank accounts there.
JD-U president Sharad Yadav told reporters here: "India tops the list of countries whose citizens have deposited monies in Swiss banks and we must ask the government there to reveal the names."
CPI(M) leader Prakash Karat made the demand last week during the release of his party manifesto.
Without disclosing his source, Mr. Yadav said Swiss banks had "$1,456 billion belonging to Indians, followed by $470 billion belonging to Russians, $390 billion of Britons, $100 billion of Ukraine, and $96 billion of China." About his source, he said: "The source is reliable. This information is also available on the internet."
Mr. Yadav, also convenor of the Bharatiya Janata Party (BJP)-led National Democratic Alliance, said: "We demand that India should do everything possible to get the money back."
"It is unfortunate that our government has not asked the Swiss authorities to reveal the names, while the US has already done so. This inaction raises suspicion that the government is not interested in getting the money back," he said.
Mr. Yadav said with this money the country could increase its foreign exchange reserves "as well as eliminate poverty from the country and repay all debts".
http://www.hinduonnet.com/holnus/000200903271941.htm
‘JD(U) wants $1456 bn from Swiss bank back’
New Delhi, Mar 27: Expressing shock over the reports of 1456
billion dollors of Indian money allegedly deposited in Swiss Bank, JD(U) chief
Sharad Yadav on Friday demanded a thorough probe into it and steps to bring
back the money.
"Government should not only ask the Swiss Bank to reveal the details of
the accounts of Indians but should also do all the needful to bring back the
money and prosecute those Indians, who have their accounts in the Swiss
Bank," party chief Sharad Yadav told a press conference here.
He said if the NDA comes to power it will accord top priority to exposing such
people. Yadav also called upon all political parties of the country to make
their stand public on this issue.
"We are not only raising the issue. We will also include it in our
election manifesto and try to make it the central issue in the election if the
government does not act swiftly," Yadav said.
"It is a naked picture of corruption in the last sixty years of our
independence. The money of the farmers and for the country's development was
looted in which corporates and bureaucrats and above all politicians are
involved," he alleged.
"According to the revelation, India with 1456 billion dollor deposit tops
the list of countries whose money lie in the bank. But it is unfortunate that
while all other countries of the world have responded to the disclosures,
Government of India is yet to respond," he added.
Bureau Report
http://www.zeenews.com/nation/2009-03-27/518560news.html
Colonial and post-colonial loot of peoples’ money (Rs. 250 lakh crores looted from Indians)
During the colonial regimes, the colonial rulers looted peoples’ money. This is well documented in the case of India.
The post-colonial era after the so-called independence has resulted in a continuation of the loot by indigenous ruling class and the elite, aggravating the poverty of millions of people.
What was done by the colonial physical presence prior to the 1950’s is now being done through the global financial system for capital flows. The operatives are 72 tax havens across the globe and the crooks of post-colonial nations which have been transformed into criminalized polities. The nature of the free nations’ regime does not seem to matter; both democracies and dictatorships facilitate the ongoing public loot.
One estimate of India’s illegal tax flows into Switzerland banks alone is estimated to be Rs. 75 lakh crores (equivalent of Rs. 1 lakh for 75 crore people of Hindusthan). This estimate does not include the estimates of capital flows held in other 71 tax havens of the globe.
I have summarized below some snippets of the nature of the financial slavery imposed by the global financial system rivaling the colonial slavery systems and impoverishing the already impoverished nations like India and many African nations.
If India’s cash flow contributions in Swiss banks alone is estimated to be $1.456 trillion, four other nations: Russia, UK, Ukraine and China account for only $1056 billion. The ratio between India and these four nations is: 1.37: 1
One estimate of the total public loot so held in tax havens is $11.5 trillion. Adopting the same ratio of 1.37: 1 (India vis-à-vis four other nations), we can compute that India alone should account for about $5 trillion public loot held in tax havens outside India. In Indian rupees, this is equivalent to Rs. 250 lakh crores (that is, Rs. 2.5 lakhs for every one of 100 crore Indians).
This level of dirty money has been facilitated by a number of strategies adopted by politicos and policy-brass. The most glaring example is the scheme for Participatory Notes (mostly based in Mauritius) provided for resident Indians to launder their rupees into dollars and transfer the monies generated in money-market/stock-market operations into tax havens.
How to get this public loot back into the country and distribute the monies to the poor 100 crore people of India who are the real owners of this wealth?
This, in my view, is the most serious political challenge which should be debated during the ongoing Parliamentary elections by the politico’s themselves (despite their criminal aptitudes).
Sure, there will be many pundits who will offer many solutions such as the problem of corruption, problem of excessive government control over the commanding heights of the economy, the exploitation by the rich of the poor and so on.
One solution can be tried out immediately. When Marcos’s wealth stashed away in Switzerland was identified, the Philippines Government demanded of the Swiss banks to freeze the bank accounts and remit the monies to the Government. This was complied with under Swiss laws. India should enact an emergency measure (ordinance) under the Benami Transactions (Avoidance) Act of 1988 and declare the assets held in Swiss bank accounts as benami transactions which should be returned forthwith to Government of India. The onus should be on the account holders to prove that the monies held in their names in Swiss bank accounts constitute legal capital flows out of India.
Similar steps should be taken with other 71 tax havens, without waiting for the Developed Countries to take the initiative. There is skepticism if Obama and other G-7 are really keen to resolve the serious financial problem created by the existence of tax havens. See the notes appended below.
The price of freedom is public awareness. It is the responsibility of every Hindusthani to take a vow to rid the nation of the looters and find a space to park the waste (comparable to the search for parking nuclear waste and detoxing the garbage). Hopefully, the election process should help reach out to every voter and education him and her about the enormity of the problem and the urgency of the solution to be administered by the elected representatives of the once colonized nation.
Jan 2009. Report Global Financial Integrity on illicit flows from developing countries. "In 2006, the most recent year of the GFI study, developing countries lost an estimated $858.6 billion – 1.06 trillion in illicit financial outflows." http://www.scribd.com/doc/13661438/Illicit-Financial-Flows-From-Developing-Countries
The Precarious State of Public Finance (Jan 2008) by Jens Martens of the Global Policy Forum Europe, looking at tax evasion, capital flight and the misuse of public money in developing countries – and what can be done about it. http://www.scribd.com/doc/13661212/Martens-Precarious-Finance-2007
The Tax Justice Network made a submission to the UN Tax Committee at a meeting in September 2007 in Rome. http://www.scribd.com/doc/13661275/Spencer-UN-Experts-0709-FFD
Recent research on 40 African countries has shown, for example, that the accumulated stock of capital flight from 1970-2004 was about $607 billion as of end-2004, compared to external debts of "only" $227 billion. Sub-Saharan Africa, it concludes, is a net creditor to the rest of the world: its external assets, measured by the stock of capital flight, greatly exceed external liabilities, as measured by the stock of external debt. The difference is that while the assets are in private hands, the liabilities are the public debts of African governments and, through them, their their people. http://taxjustice.blogspot.com/2008/04/six-hundred-billion-drained-from-africa.html
The book (2005): “Capital Flight And Capital Controls In Developing Countries“
Edited by Gerald A. Epstein, Professor of Economics and Co-Director, Political Economy Research Institute (PERI), University of Massachusetts-Amherst, US
About the book
“Capital flight – the unrecorded export of capital from developing countries – often represents a significant cost for developing countries. It also poses a puzzle for standard economic theory, which would predict that poorer countries be importers of capital due to its scarcity. This situation is often reversed, however, with capital fleeing poorer countries for wealthier, capital-abundant locales. Using a common methodology for a set of case studies on the size, causes and consequences of capital flight in developing countries, the contributors address the extent of capital flight, its effects, and what can be done to reverse it.”
|
Raymond Baker gives an idea of the scale of the problem of capital flight from poor countries, and the role of the offshore world in promoting it. He has also authored a book: Capitalism's Achilles Heel. The Ugliest Chapter in Global Economic Affairs Since Slavery |
Raymond Baker
Director, Global Financial Integrity (June 2007)
I want to talk about two things this morning. One, the international structure that supports the flow of illicit money across borders, and two the harmful impact these illicit flows have on economic growth and poverty alleviation in poorer countries.
To begin, let’s get a simple picture of global poverty and inequality fixed in our minds.
What we have here are two bar charts depicting the two usual ways of measuring global income. One is based on purchasing power parity and the other on currency exchange rates. In each bar chart each color represents 20 percent of the world’s population. The size of the color indicates the portion of global income flowing to that 20 percent grouping. Look at how much of global income flows to the top 20 percent, or quintile, and how little of global income is available to the bottom 80 percent. Seventy to 90 percent of global income belongs to the top 20 percent, leaving only ten to 30 percent of global income for the bottom 80 percent of the world.
What I want you to understand about illicit financial flows is that the basic motivation driving this phenomenon is the shift of money from the bottom to the top, from poor to rich. In particular, out of the hands of the 80 percent into the hands of the 20 percent, out of the countries where 80 percent of the world’s population lives into countries where 20 percent of the world’s population lives.
Now let’s focus on the structure that supports illicit financial flows. Illicit or corrupt money is money that is illegally earned, illegally transferred, or illegally utilized. If it breaks laws in its origin, movement, or use it merits the label.
There are three forms of illicit and corrupt money that cross borders—1) the proceeds of bribery and theft by government officials, 2) the proceeds of criminal activities such as drug trading, racketeering, counterfeiting, contraband, and including terrorist funds, and 3) the proceeds of tax-evading and laundered commercial transactions.
Since the 1960s we have built and expanded a global structure to facilitate the movement of illicit money. A few elements of this structure were available before then, but the development of the structure accelerated in the 1960s for two reasons. First, it was the period of decolonization. From the late 1950s to the end of the 1960s, 48 countries gained their independence from European powers. Many political leaders and wealthy businesspeople wanted to take money out of these newly independent counties, a desire which was well serviced by western financial institutions. Second, corporations began to spread their flags across the planet. Certainly there were international companies before the 1960s, but typically an international oil or trading company had overseas branches in only 12 or 15 countries. The great thrust to expand all over the globe took off in the 1960s and has continued up to the present. Most of these corporations utilize tax evading techniques to relocate profits across borders at will. For these two reasons—decolonization and the spread of multinational corporations—the 1960s marked the point at which the expansion of the illicit financial structure took off in earnest.
There are a number of interrelated parts of the illicit financial structure.
Tax havens – These are places where you can set up an entity—a corporation or partnership or trust fund—and then you can sell to that entity and that entity can sell to other entities, and you can structure the pricing in such a way that all or most of the profits are earned in the tax haven entity, and it doesn’t have to pay taxes or pays only minimal taxes on those profits. There are now 72 tax havens around the world.
Offshore secrecy jurisdictions – These are places, usually located within tax havens, where you can set up these entities behind nominees and trustees such that no one knows who are the real owners and managers of the business.
Disguised corporations – These disguised entities now number in the millions across the globe.
Flee clauses – Many of these disguised corporations are equipped with flee clauses. Thus, the nominee directors and fake owners can have the entity flee from one secrecy jurisdiction to another should anyone come knocking on the door trying to find out who are the real owners or managers of the business.
Anonymous trust accounts – You can also set up trust accounts behind nominees and trustees, disguising both the donor and the beneficiary of the trust.
Fake foundations – You can set up a charitable foundation, donate money to this charitable entity, and designate yourself the beneficiary of the charity of the foundation.
False documentation – Used in all sorts of trade and capital transactions.
Falsified pricing – This is by far the most commonly used element in the illicit financial structure—falsifying prices on imports and exports in order to shift money across borders.
Money-laundering techniques – Many specialized devices have been created to facilitate the disguised shift of illicit funds across borders.
Holes left in western laws – Gaps in legislation facilitate the movement of money through the illicit financial structure and ultimately into western economies.
All three forms of illicit money—the bribery component, the criminal component, and the commercial component—use this structure. It was developed in the West originally to facilitate the movement of flight capital and tax-evading proceeds out of one place and into another place. In the mid and late 1960s and 1970s, drug dealers stepped into these channels to shift their proceeds across borders into the legitimate financial system. In the 1980s and 1990s, seeing how easy it was for drug dealers to move their profits, other kinds of racketeers stepped into these same channels to move their illicit proceeds across borders. In the 1990s and in the current decade, again observing how easy it was for the drug dealers and racketeers, terrorists stepped into these same channels to shift their proceeds around the world.
Drug kingpins, criminal syndicate heads, and terrorist masterminds did not invent any new ways of moving their illicit proceeds. They merely utilized the mechanisms that we had created for the purpose of moving flight capital and tax-evading money.
Perhaps you are thinking that anti-money laundering laws are designed to address this. Well, yes and no. Many nations have major holes in their anti-money laundering laws. Take the United States for example. We bar only the incoming proceeds of drugs, bribery, and terrorism. It remains legal to bring into the United States the proceeds of other forms of foreign crimes, including racketeering, handling stolen property, credit fraud, counterfeiting, contraband, slave trading, alien smuggling, trafficking in women, environmental crimes, and of course, all forms of tax-evading money. Without trying to cover each country in Europe, suffice it to say that no western nation does a good job of enforcing its anti-money laundering regime.
For the first time in the 200-year run of the free-market system, we have built and expanded an entire integrated global financial structure the basic purpose of which is to shift money from poor to rich.
I estimate that something on the order of $1 trillion to $1.6 trillion of illicit money moves across borders annually. These estimates are conservative and are developed with some care in my book, Capitalism’s Achilles Heel, utilizing both top down and bottom up approaches. Other analysts think these estimates are considerably short of the real global totals.
This $1 trillion or more per year of illicit money that moves across borders and the structure that facilitates its movement is the biggest loophole in the global economic system.
Now let me turn again to poverty and inequality. This $1 trillion or more a year of illicit money that flows across borders and the structure that facilitates its movement is not only the biggest loophole in the global economic system. It is also the most damaging economic condition hurting the poor in developing and transitional economies. It drains hard-currency reserves, heightens inflation, reduces tax collection, worsens income gaps, cancels investment, hurts competition, and undermines trade. It leads to shortened lives for millions of people and deprived existences for billions more. Within the economic realm, as distinguishable from political affairs or environmental constraints, nothing approaches the harmful effects caused by massive outflows of illegal money from poor nations into rich nations.
Of the $1 to $1.6 trillion of illicit money that I estimate crosses borders annually, I further estimate that half—$500 to $800 billion a year—comes out of developing and transitional economies. These are countries with the weakest legal and administrative structures, the largest drug and criminal gangs, and, far too often, political and economic elites who want to shift their money abroad.
The cross-border component of bribery and theft by government officials is the smallest, only about three percent of the global total. The criminal component constitutes about 30 to 35 percent of the total. And the commercially tax-evading component, driven primarily by falsified pricing in imports and exports, is by far the largest, at some 60 to 65 percent of the global total. I am the first to state that these are orders of magnitude, but they nevertheless serve to illustrate the scope of the problem.
Now, cross-border illicit financial flows force us to address some prevailing myths and erroneous assumptions we often make in economics.
First, many people think that outflows of illicit money are just a temporary phenomenon, and when economic and political conditions become normalized this illicit money will return to countries of origin. Not correct. By far the greater part of illicit money streaming out of developing and transitional economies— some 80 to 90 percent of it—is a permanent outward transfer. The little bit that does come back almost always returns as foreign direct investment—FDI—having gone abroad and acquired a foreign nationality as a company or partnership or investment fund. Then, of course, after investment locally, it is intended to go abroad again in the form of interest and principle on loans or dividends on share capital.
Second, some people argue that we can’t distinguish between legal and illegal capital flight. On the contrary, there is a very clear difference. Legal transfers stay on the books of the company or individual making the transfer. Illegal transfers are designed to disappear from any record in the country from which the money comes. For example, many bank accounts opened by foreigners in Europe and the United States contain the instruction, “Hold all mail.”
Third, the little account known as “errors and omissions.” Many people think this balancing account in national statistics shows flight capital going out of a country. In fact it shows very little of it. It does not record any of the trade mispricing, which is the biggest component. When a transaction is mispriced for the purpose of shifting money across borders, this mixes capital with trade, and the capital component does not appear separately on the commercial invoice. This explains how literally trillions of dollars have escaped across borders with hardly anyone taking notice.
Fourth, illicit financial flows make the most basic data we collect on developing and transitional economies inaccurate. Trade mispricing misstates the value of imports and exports. Capital transfers are unrecorded. And as a result, GDP is misstated. The cumulative effect of these errors is enormous. Furthermore, illicit financial flows make all our data on global inequality wrong. We are substantially under-recording the income of the rich. No one can accurately assert that the global income gap is narrowing. It may be, but we will not know this until we do a much better job of estimating the hidden income of the rich, particularly that tucked away in tax havens globally and in private banks in Europe and North America.
Now, let’s go further and consider the impact of this estimated $500 to $800 billion of illegal money coming annually out of poor countries.
1) It eviscerates foreign aid. Through most of the 1990s and into the current decade, aid has been running about $50 to $80 billion a year from all sources. Consider the comparison: $50 to $80 billion of aid in; $500 to $800 billion of illicit money out. In other words, for every $1 that we have been generously handing out across the top of the table, we in the West have been taking back some $10 of illicit money under the table. There is no way to make this formula work for anyone, poor or rich.
2) Consider the effect on specific countries. The Tax Justice Network estimates that the amount of money domiciled in tax havens, ultimately sent on to the West, is $11.5 trillion. Think of this in terms of individual countries. Russia has probably experienced the greatest theft of resources that has ever occurred in a short period of time—an estimated $200 to $500 billion since the beginning of the 1990s. This was accomplished by underpricing exports of oil, gas, gold, diamonds, aluminum, tin, zinc, pulp, timber, and other commodities. China is pushing these numbers and may have exceeded this level already. Again, the technique is underpricing of exports out of China, with the balance of the price accumulating in foreign subsidiaries and lodged in foreign bank accounts. Nigeria has probably experienced the greatest illegal outflow as a percentage of GDP. Here we have an oil-rich country of 140 million people with 70 percent of its population— that’s 100 million people—living on $1 to $2 a day. Congo has had the longest rip-off of any country, going on for two centuries now. The best available estimate of incremental deaths in Congo, above normal mortality rates, since 2000 is 4.5 million. Illicit money flowing out of poor countries kills people. In Venezuela, the fight between HugoChavez and his state-owned oil company, PDVSA, is over the question of who will control oil revenues. For more than 20 years, the overseers of Venezuela’s oil reserves have shifted proceeds offshore, using transfer pricing techniques, in order to get revenues out of the hands of politicians and bureaucrats in Caracas.
3) Consider the impact on other global “bads.” Illicit money makes the drug problem insolvable, in the United States and in Europe and in producing countries as well. Illicit money has been the principle driving force in the explosion of global crime over the last 25 years, making cross-border racketeering one of the fastest growing businesses in the world. Illicit money underlies the rise of Al Qaeda, with some $300 million estimated to have passed through the illicit financial structure into bin Laden’s hands in the decade prior to 9/11. Illicit money is the way that Saddam Hussein rearmed after the first Persian Gulf War, buying munitions that are killing Iraqis, Americans, British, and others in that country today. The illicit financial structure enabled A.Q. Khan, the Pakistani nuclear scientist, to buy and sell nuclear materials across many countries. And this phenomenon contributes to a number of failed states. My wife’s NGO, The Fund for Peace, annually produces the “Failed State Index,” published in Foreign Policy magazine. Two years ago the most failed state on the index was Côte d’Ivoire—Ivory Coast. Several years ago I was in the Bank of France, the equivalent of our Federal Reserve Board, talking with the director of West African affairs. He told me that at the time of his death in 1993, the long-term leader of Côte d’Ivoire, Houphouët-Boigny, had assets outside of Côte d’Ivoire valued at $7 billion. I blanched and asked, “Do you mean francs or dollars?” He repeated, “dollars.” This is a small country primarily producing cocoa for export to Europe and the United States to make chocolate, and its long-term leader had accumulated $7 billion in foreign assets. Of course, the country soon descended into utter chaos.
Think what would happen if $500 billion a year, or a reasonable part of it, stayed in the developing and transitional economies rather than coming illegally out. It would alter our shared world for the better, rich and poor alike.
Ten years ago I stepped out of international business and into the think-tank community with a primary goal of getting reality on the table. I had seen more corruption, more money laundering, more financial crime than any one person should see in a lifetime, and I resolved to say what I wanted to say about this overarching reality. Why wasn’t reality already on the table? What is it about this subject matter that is so mysterious or so frightening that we hesitate to go there? Basically is it that we can’t see it or don’t want to see it?
Paul Krugman, the American economist, says that he has come to understand “. . . the remarkable extent to which the methodology of economics creates blind spots. We just don’t see what we can’t model.”
Jack Blum, the well-known money-laundering legal expert and a member of our program’s advisory board, says that these are numbers that “. . . no one wants to know.”
Which is it? We can’t see it, or we don’t want to see it, or a combination of the two, or some other explanation? Whatever the explanation, this is a shortcoming in our analysis of and pursuit of economic development that must be corrected.
This is the reality that we seek to get on the table. Illicit outflows from developing and transitional economies vastly exceed overseas development assistance going into developing and transitional economies. In my estimates, which I and others think are conservative, by a factor of ten to one. More analysis, better analysis in the future may make this a narrower picture or make it a wider picture. But no analysis will make this a pretty picture.
What we need to do is analyze the whole of the financial equation for development—total capital in, total capital out, what’s left over, both the money we can see and estimates of the money that is veiled and hidden.
Within the whole of the financial equation we should include foreign direct investment going into developing and transitional economies. And when we look at FDI going in, we also have to look at visible dividends and loan repayments coming out and invisible transfer pricing taking money out. We also have to look at remittances going into developing and transitional economies, largely by family members living abroad. We also have to look at charitable and foundation money going into poorer countries.
The biggest item we have to consider is this illicit money streaming out of developing and transitional economies. The harm done by illicit financial outflows exceeds the good done by overseas development assistance.
Economic deprivation brutalizes billions of people. This makes it necessary for us to be brutally honest with ourselves. This reality, broadly depicted here, has been going on for decades and cumulatively has moved trillions of dollars out of poor countries into rich countries. This reality, broadly depicted here, propelled by the illicit financial structure that we created in good part of accomplish exactly this end, this reality is, in my reading of history and in my judgment, this reality is the ugliest chapter in global economic affairs since slavery. The poor deserve better from us.
Now let me close with three points.
1) We don't ask you to accept these numbers. We ask you to do just the opposite - to produce your own numbers. We ask the World Bank and other international financial insitutions and the community of development scholars to do your own analyses. If you do it honestly and thoroughly, you are very likely to come up with numbers that are greater than these.
2) Be prepared to produce a range of numbers. Highs and lows. Best estimates and deviations from such estimates. We will not reach certainty about these illicit and hidden flows, just as we do not have certainty about how many poor people there are in the world. But we can reach clarity as to the order of magnitude of the problem and consensus on the importance of the issue.
3) Numbers produced by the World Bank and the development community - your numbers - will bolster the political will to address the issue - curtailing illicit outflows from poorer countries. How such flows can be reduced is another subject. Two quick comments. The goal is to curtail, not stop, but substantially curtail illicit outflows. And curtailing these outflows is a matter of political will; it is not rocket science. We are not asking the international financial institutions or the community of development scholars to solve the problem. We are asking you to put numbers on the problem. What is required is a broad consensus as to the magnitude of the problem and the damage that is wrought by these realitites.
Numbers will drive the policy. Believable numbers will drive this issue onto the political-economy agenda.
It is time, ladies and gentlemen, for the first time, to put the whole of the financial equation for development squarely on the table. This may well be the most important contribution we can currently make toward achieving poverty alleviation, growth, security, and perhaps even contributing to peace for the vast majority of people in our shared world.
http://www.gfip.org/index.php?option=com_content&task=view&id=109&Itemid=74
“Illicit Capital Flows and the Offshore Economy
"The missing piece of the development equation is the impact of illicit capital flight and the associated tax evasion on global poverty"
…Much of the capital flight that occurs in West Africa, for example, involves cash and other portable valuables, including gemstones and high value metals, being smuggled across national boundaries. Trade mis-pricing is an alternative way of shifting capital across national boundaries, particularly when large sums are involved. Trade mis-pricing can be conducted in a number of ways, including mis-invoicing, transfer mis-pricing, re-invoicing through an apparently unrelated trading partner in an offshore territory, and other fraudulent invoicing practices. Abnormally high priced import transactions are used to reduce the taxable profits in the country of import. They can also facilitate money laundering and can be used to disguise illegal commissions hidden in the inflated prices. Investigation of these types of fraudulent activities is made significantly more difficult by the opaque offshore structures used to disguise the identities of the different parties to the transactions.”
http://www.taxjustice.net/cms/front_content.php?idcat=101
Obama bid to stamp out tax havens
Nick Mathiason guardian.co.uk, Wednesday 4 March 2009 15.45 GMT
The world's most secretive tax havens are to be prised open after Barack Obama's new administration endorsed far-reaching legislation to crack down on them.
The decision to force "secrecy jurisdictions" to reveal the identities of the super-rich and major corporations who use them came from the US treasury secretary, Timothy Geithner, at a congressional hearing and will be seen as a blow to places such as Jersey, the Cayman Islands and Switzerland.
"We fully support the legislation … on offshore tax centres, and we look forward to working with you as part of the broader effort to address international tax evasion and close the tax gap," Geithner told the House ways and means committee late on Tuesday.
His commitment was
followed by supportive comments from Gordon Brown during his speech to Congress
yesterday. But the prime minister will come under intense pressure to resist
the move from the City and the tax havens that are UK dependencies or overseas
territories.
Britain
has recently faced international criticism for blocking European measures to
reveal details of those who deposit huge wealth in tax havens. The Guardian's
Tax Gap series last month examined the extent of tax avoidance by big
business.
With an estimated $13tn (£9tn) of untaxed wealth held in offshore centres, taxing them would add $255bn of revenue to governments – more than double the global aid budget to poor countries.
Key measures in the new legislation, now likely to be in force within 12 months, include revealing the beneficiaries of secretive trusts and identifying "offshore secrecy jurisdictions" that "unreasonably restrict US tax authorities from obtaining needed information" as well as severely increasing penalties against tax evaders and closing numerous loopholes.
Senator Carl Levin, who along with Obama introduced similar legislation in recent years only for it to be thwarted by George Bush, said: "President Obama's support for the Stop Tax Haven Abuse Act, as announced by treasury secretary Geithner, is very welcome news and greatly improves the chances of an offshore tax bill becoming law this year. It also sends a strong signal to tax havens that this administration is not going to tolerate the kind of offshore tax abuses that have been draining $100bn a year from the US treasury and that, as a result, offload the tax burden on to the backs of honest taxpayers."
The US underlined its intent last month when it demanded that the Swiss bank UBS surrender the names of 52,000 American account holders in a case that threatens to end centuries of Swiss bank secrecy.
Geithner's comments come as European leaders grow increasingly agitated at how tax havens have fostered secrecy that has contributed to the collapse of banks the world over. "We want to put a stop to tax havens," France's president, Nicolas Sarkozy, said recently. "We want results on this, with a list of tax havens and a series of consequences."
Raymond Baker, director at the Washington-based thinktank Global Financial Integrity, said: "This is a pivotal time in global finance. From the European commission's recent adoption of measures to improve co-operation between EU member states and increase transparency in tax assessment and collection to the G20's stated intent to crack down on tax havens when they meet in April, calls around the world are growing for definitive action on the problem of tax havens."
But Geoff Cook, chief executive of Jersey Finance, which promotes the island as an international finance centre, said: "We believe we have nothing to fear because we are not a secrecy jurisdiction. We co-operate fully with US authorities to exchange information in accordance with our bilateral agreements."
http://www.guardian.co.uk/business/2009/mar/04/obama-tax-haven-crackdown
Tax havens: Can promises to shut them down be believed?
G-20 nations pledge to address this subject at meeting in London next month. Analysts are skeptical.
By David R. Francisfrom the March 23, 2009 edition
White House Chief of Staff Rahm Emmanuel famously said in January, "never let a serious crisis go to waste."
In that same vein of thinking, John Christensen had hoped the global financial crisis would lead to reforms reducing bank secrecy and closing many of the world's 90 or so tax havens. It was, after all, a lack of transparency in banking in the United States that allowed the creation of trillions of dollars of complex derivatives, which contributed to the damaging credit freeze.
But now, the director of Tax Justice Network in London is "feeling pessimistic" that leaders of the world's most powerful nations will tackle the issue seriously at the Group of 20 meeting in London April 2.
In recent days, many officials from various tax-haven nations have pledged to ease secrecy laws that enable citizens of the US and other nations to avoid paying taxes on their investments and savings. It's estimated the US alone loses $100 billion in tax revenues as a result of the flight of capital to tax havens.
To Mr. Christensen, "These initiatives are not worth the paper they are written on," though news of several pledges made the front page of the Wall Street Journal this month. "They are window-dressing," he adds.
Tax havens have existed for decades, and rich industrial nations have not taken stern measures to wipe them out. Reason: Banking industries "have very powerful lobbies," explains Christensen.
After World War II, Switzerland – famous for pocketknives and yodeling, as well as providing the world's largest tax haven – often noted that Jews and opponents of Hitler were able to hide assets safely in the mountainous nation. Christensen regards this as "a clever argument" because banking secrecy also helped Nazis, thieving African rulers, the Mafia, and others to hide their money. "This secrecy actually fosters criminality," he says.
If the G-20 fails to tackle bank secrecy, it could lead to another financial crisis in the years ahead, warns Raymond Baker, another anti-tax-haven activist and director of Global Financial Integrity in Washington. Last November, the G-20 put greater banking transparency on a par with banking regulation reform as necessary to deal with the financial crisis. Now, adds Mr. Baker, G-20 leaders appear to be backing off secrecy reform.
A possible exception is Germany. Last week the German finance ministry in Berlin promised to push for international measures to crack down on offshore tax havens at the London summit.
The issue is bigger than just a bunch of millionaires trying to reduce their tax burden. In the US, the "effective" federal income-tax rate (what is actually paid after all deductions) for the wealthiest 1 percent was 19.4 percent in 2005. In some European nations, the burden on the rich is higher.
Mr. Baker estimates that half of global trade and capital movements, legal and illegal, move through what he calls the world's "shadow financial structure." This system, expanding for half a century, consists of tax havens, secret jurisdictions, disguised corporations, anonymous trust accounts, and fake foundations. This murky setup contributed to the difficulty of appraising the quality of assets held by financial institutions. So major US and European banks no longer trust one another and do less business.
Last week, a task force on "Economic Transparency" from Baker's organization estimated that $1 trillion a year of illicitly generated money is shifted abroad from developing countries through this shadowy framework. This, the report says, constitutes "the most damaging economic condition hurting the poor, undermining poverty alleviation, and delaying sustainable growth." (That sum far exceeds all foreign aid that rich nations send to poorer nations.)
Both the task force and the Tax Justice Network this month have proposed reforms. For instance, the task force urges automatic cross-border exchange of tax information on personal and business accounts, and confirmation of beneficial ownership in all banking and securities accounts (who owns what).
Last Tuesday, Sen. Max Baucus (D), chairman of the Senate Finance Committee, held a hearing on a bill "to detect, deter, discourage offshore tax evasion." If passed, it would greatly damage tax havens.
Considering this legislation, and a possibility of G-20 action, some major depositors in Swiss accounts have been taking out money, reports Harald Malmgren, a Washington consulting economist. They are encountering resistance from banks to these withdrawals, making depositors "fearful" about the safety of their money.
Interestingly, both Baker and Christensen reckon Switzerland could remain a banking giant in the world without secrecy because it has so many qualified economists, accountants, and lawyers.
http://www.csmonitor.com/2009/0323/p15s01-wmgn.html#
Swiss Banking Association report, 2006 details bank deposits in the territory of Switzerland by nationals of following countries:
Top Five countries
India $1,456 Billion (1,45,600 Crore Dollars)
Russia $470 Billion
U.K. $390 Billion
Ukraine $100 Billion
China $96 Billion
Now do the math's - India with $1,456 billion or $1.4 trillion has more money in Swiss banks than rest of the world combined. Public loot since 1947:
Can we bring back our money? It is one of the biggest loots witnessed by mankind - the loot of the Aam Aadmi (common man) since 1947, by his brethren occupying public office. It has been orchestrated by politicians, bureaucrats and some businessmen.
The list is almost all-encompassing. No wonder, everyone in India loots with impunity and without any fear. What is even more depressing in that this ill-gotten wealth of ours has been stashed away abroad into secret bank accounts located in some of the world's best known tax havens. And to that extent the Indian economy has been stripped of its wealth. Ordinary Indians may not be exactly aware of how such secret accounts operate and what are the rules and regulations that go on to govern such tax havens. However, one may well be aware of 'Swiss bank accounts,' the shorthand for murky dealings, secrecy and of course pilferage from developing countries into rich developed ones.
In fact, some finance experts and economists believe tax havens to be a conspiracy of the western world against the poor countries. By allowing the proliferation of tax havens in the twentieth century, the western world explicitly encourages the movement of scarce capital from the developing countries to the rich. In March 2005, the Tax Justice Network (TJN) published a research finding demonstrating that $11.5 trillion of personal wealth was held offshore by rich individuals across the globe.
The findings estimated that a large proportion of this wealth was managed from some 70 tax havens. Further, augmenting these studies of TJN, Raymond Baker - in his widely celebrated book titled 'Capitalism's Achilles Heel: Dirty Money and How to Renew the Free Market System' - estimates that at least $5 trillion have been shifted out of poorer countries to the West since the mid-1970.
It is further estimated by experts that one per cent of the world's population holds more than 57 per cent of total global wealth, routing it invariably through these tax havens. How much of this is from India is anybody's guess.
What is to be noted here is that most of the wealth of Indians parked in these tax havens is illegitimate money acquired through corrupt means. Naturally, the secrecy associated with the bank accounts in such places is central to the issue, not their low tax rates as the term 'tax havens' suggests. Remember Bofors and how India could not trace the ultimate beneficiary of those transactions because of the secrecy associated with these bank accounts?
Is there any one who can save India?
==========
P.
Deivamuthu
Editor, Hindu Voice hinduvoice@mtnl.net.in 26 March 2009
UPA, public loot have bogged India down geopolitically
Editorial
Global Economic Crisis and India's
Geopolitical Concerns
By R Balashankar
The world order seems
distinctly moving towards multi-polarity. This possibility was discounted for
long. It was granted that the centre of gravity was shifting from where it
traditionally was for the last 500 years—from Europe to Asia—but it was
predicted, encouraged by the success of globalisation, that the world will
remain uni-polar at least for another three decades, with the US remaining the
sun around which like satellites all other countries will revolve. It is
interesting that the evolution of this new universe of multiple poles began
from the US
which so far used every power at its command— economic, military and
technological — to keep the world uni-polar.
The dramatic onslaught of deepening global economic crisis shattered the
implicit faith in globalisation which the US and its allies promoted as a tool
of diplomatic hegemony. Now the wave of protectionism, the anti-thesis of
globalisation, has become a core philosophy with the West. The US is leading
the charge. According to the Newsweek (March 11, 2009), as one of the most
dramatic effects of global recession US which was the main destination of
international migration to pursue a dream of better living has ceased to be so;
rather the trend is even starting to reverse itself. Reports talk of at least
six million job losses in that country in the last four months.
How does India
cope with the new situation? Has our geopolitical vulnerabilities increased in
the last five years? Without undermining our economic growth and prosperity can
we make a departure from past follies? Wise men of diplomacy say that
maximization of power and plenty in a globalised world is impossible. These
experts say that to maintain high rate of economic growth we have to sacrifice
our strategic importance. That is, under US hegemony, or call it globalisation,
the foreign policy is subservient to market economy—there is no sovereign
strategic dimension. Countries can have no legitimate interests of their own.
The only interest for a country to serve is US interest and all other interests
are subject to the big power dictate. And this is not the way India wants to
see itself as a great country. The UPA’s failure on the diplomatic front is so
monumental that India,
which considers itself a world power, is today not even recognised a regional
power. Surrounded by hostile neighbours, ever-threatening influx of subversive
illegal migration from all the four sides, India is increasingly becoming
exposed to internal sabotage and external aggression. China has no qualms about weaponising and
nuclearising Pakistan.
The US is arming and funding
Pakistan
like an infatuated lover. The terror workshop of Pakistan
has brought Taliban so close to the national capital that it will take only a
few hours drive for them to reach India. The borders are porous, the
nation is being deliberately weakened. We do not even have a full-time Foreign
Minister for the last three months.
The Indo-US Nuclear Deal which its supporters claimed would change the entire
paradigm of Indian Foreign Policy got stuck in the economic meltdown. It
resulted in India’s traditional
allies getting suspicious and nervous in dealing with India but not
helping it make new friends. The initiative also did not ensure the country a
share in the prosperity booty of the developed world.
These are the issues our experts are discussing in this special Varsh Pratipada
volume. It is often said that the 21st century is India’s century. There is no dearth
of literature in the wake of globalisation, mostly authored by western
scholars, enthusiastically supportive of the new architecture of world economic
order and their Indian chums predicting India’s emergence as a major
economic power by the end of the first half of this century. Emergent India as a
world economic power but a poor second-rate strategic partner of the west.
Indians will get part of the leftover jobs of the west, great Indian idols will
be those whom the Americans will certify as great managers of BPOs, imported US manual
labour and second-rate software whiz kids. And Indians will speak, dress, live
and perish like Americans. Indian languages, culture and lifestyle—even art and
literature will be preserved in digitized form funded lavishly by Western NGOs.
It is all very encouraging. There are millions of educated English-speaking
disciples to the incredible unfolding drama. Because where else do you get the
kind of money? The magic of derivative manipulation? There was no other
preferred destination for Indian graduates for study and Wall Street jobs.
Celebrated Indian educational institutions were like higher secondary schools
for Western universities which thrived on Indian students. Diplomats have not
been able to solve the problem where countries in their efforts to protect
security ended up undermining economic growth or in their effort to protect
prosperity ended up increasing geopolitical vulnerabilities.
Experts say that in the current international system, to borrow a definition
from Ashley J. Tellis, all bilateral relations between the great powers are
going to be “in a state of continuous, reflective and omni-directional
re-equilibration”. Without attempting to make any self-fulfilling prophecies,
this debate is being taken up at a time when the country is preparing to elect
its next government. The Indo-US treaty has unfortunately created a clientelism
mindset in the Indian establishment, as The Indian Express (March 18, 2009)
editorially commented. It said that the Foreign Secretary Shiv Shankar Menon
during his recent visit to the US
justified not taking up the issue of denying Indians HI-B visa on the plea that
it was a “sovereign function” of the US.
The problem here is that after the mega bailout to stimulate its economy, the US does not
want its own money leaking to other economies. So the government is enforcing
“Buy American” clauses and restrictions on job outsourcing on companies
availing the bailout benefits. Simultaneously, as the daily pointed out, the US
administration cleared a $2 billion sale of maritime jets to the Indian
Navy—something that was needed to keep the troubled airplane giant Boeing’s books
looking good. Boeing, General Electric, McDonnell Douglas and General Dynamics
will soon need to renew Indian contracts. Indian government has levers to apply
on all these deals. But it will need political will. And India has to
apply them because globalisation is not a one-way street.
The essence of uni-polar diplomacy is increased economic interdependence.
Economics became the tool for both co-operation and conflict management. Global
tensions were brushed under the carpet in the façade of “engaging” for mutual
economic prosperity. So the developed world coined a new mantra that the way to
deal with rising powers is either to democratise them or increase economic
inter- dependence. This strategy however did not work in Iran, Afghanistan,
Pakistan or even when Russia attacked Georgia.
Still, globalisation is a strategy of containing emerging powers. The US has been efficiently practicing it with China, India,
Russia
and other G-20 countries. The core of this strategy is to make the economic
interaction so deep that it increases the cost of conflict to a point where war
becomes impractical. The idea, they will explain, is not to push some country
down, but to engage it. India
as a new friend of the US,
under George W Bush was bent on reaching out. Thus managing potential rivalry
is an integral part of US
diplomacy.
Compare this with the manner in which Dr Manmohan Singh managed India’s foreign
policy. India
is practically friendless in the region. Even the gruesome
26/11 Mumbai terror attack which shocked the entire world could not be turned
into a diplomatic offensive against Pakistan. A weak, waffling, rogue
state like Pakistan has more
friends in the region than India.
So much so that visiting foreign dignitaries have the audacity to warn India that terrorism will not end as long as Kashmir is not settled. “Out of the box” dialogue, the
UPA started with the hostile neighbour, in the early days of its tenure, has
now turned out supine diplomacy and a huge joke.
In international politics, relations between states will always remain
competitive. It is the agility and vision of the national leadership that make
enduring and fruitful relationship.
The G-20 economic summit in London on April 2 is
also billed as the new US
President’s first diplomatic offensive outside his country to regain the lost
international space for his country. His priority is to win the confidence of
the Islamic world. How will it affect India?
As Kautilya states in the Arthshastra, all states respond to international
competition through a combination of internal balancing, increasing their own
resources from within and external balancing, i.e. creating alliances to deal
with the emerging threat. From essentially self-sufficient economic pattern of
the pre-globalisation era the world had progressed to a stage of absolute
inter-dependence. This analysts called the third wave of globalisation. Here,
purely competitive strategies gave way to subtle arm-twisting. All this
dramatically changed on September 25, 2008, when the US faced the bust of its celebrated
investment institutions. With economy, diplomacy too took a crash. Many
assumptions have changed about the US continuing as the dominant power
in the international system.
True. Dollar still continues as the most important global reserve currency. The
world continues to see the US—despite
the loudly spelled Chinese doubts on US debts—as a desirable destination to
park its resources. US sustained its dominant position by its disproportionate
access to the resources of others. Its ability to sustain labour force growth
was another advantage which it has started losing if the latest reports are to
be believed. The US
could sustain its growth through immigration of high value labour and excessive
input capital from abroad. The situation is changing. The other big advantage
it boasted of was its highly effective national innovation system, a
consequence of its market economy. Observers of US
economy point out one of the reasons for the decline of the economy was that
after internet, the US
did not make any big innovation. Touted as very effective, highly flexible, the
venture capital system, another instrument of its glory, has failed. The US confidence
has shaken, along with it faith in the infallibility of globalisation is also
shaken. This is a new challenge facing Indian foreign policy. Possibly the
repeal of ban on Stem Cell Research would propel another wave of innovation and
growth. It has very large investment and service potential. US military
capabilities are still unmatched. The gap in the technical sophistication
between the US and Europe is actually widening in terms of conventional
precision strike capabilities and the ability to deploy. The US, according to
AshleyTellis (India in Asian geopolitics), maintains these capabilities through
a defence budget that is larger than the defence budgets of at least the next
15 countries in the international system put together and yet those defence
burdens are only about three per cent of US GNP. (Rising India: Friends
and Foes)
Most western analysts have painted India
both as a challenge and an opportunity to the US. The world is not really eager
to see India
emerge a great power. Perhaps that is the reason for the Chinese arming and the
US aiding Pakistan, a natural rival of India. The
foreign hand in the growing social and religious tensions within the country is
not a chimera. The petro-dollar and evangelical funding have for long disturbed
peace in the country. Foreign money and mercenaries have kept Kashmir
a pestering sore. Is the world afraid of or conspiring against India? India is a
large and continental size country with advantages that no other country can
claim. A latent great power. It is steadily developing technical and social
organisational capacities. China
like Japan
is excessively dependent on international market both for resources and revenue
generation. The world recession will hit it harder and longer. This is likely
to limit its ability to play the big challenger. Its self-created
contradictions of market economy and command polity, according to many
analysts, can stymie its high growth in the long term. This is where India stands
out. We are only short of a visionary political class.
http://www.organiser.org/dynamic/modules.php?name=Content&pa=showpage&pid=283&page=2
Hindusthan has to
regain its role as a global economic power
By Dr S Kalyanaraman
Lord Curzon, the late
Viceroy of India, in an address delivered at the great Delhi Durbar in 1901
said: “Powerful Empires existed and flourished here [in India] while
Englishmen were still wandering painted in the woods, and while the British
Colonies were a wilderness and a jungle. India has left a deeper mark upon
the history, the philosophy, and the religion of mankind, than any other
terrestrial unit in the universe.”
R. C. Dutt, author of the Economic History of India explained the
impoverishment of colonial India because of the colonial loot of her wealth: “A
sum reckoned at twenty millions of English money, or a hundred millions of
American money [some other authorities put it much higher], which it should be
borne in mind is equal to half the net revenues of India, is remitted annually
from this country [India] to England, without a direct equivalent. Think of it!
One-half of what we [in India]
pay as taxes goes out of the country, and does not come back to the people.
No other country on earth suffers like this at the present day; and no country
on earth could bear such an annual drain without increasing impoverishment and
repeated famines. We denounce ancient Rome for
impoverishing Gaul and Egypt,
Sicily and Palestine, to enrich herself. We denounce Spain for robbing the New World and the Netherlands to
amass wealth. England is
following exactly the same practice in India. Is it strange that she is
converting India
into a land of poverty and famine?”
Economic and social impact of colonial rule in India is summarised by Angus
Maddison (1971): “British interests were of several kinds. At first the main
purpose was to achieve a monopolistic trading position. Later it was felt that
a regime of free trade would make India
a major market for British goods and a source of raw materials, but British
capitalists who invested in India,
or who sold banking or shipping service there, continued effectively to enjoy
monopolistic privileges. India
also provided interesting and lucrative employment for a sizeable portion of
the British upper middle class, and the remittances they sent home made an
appreciable contribution to Britain’s
balance of payments and capacity to save. Finally, control of India was a key
element in the world power structure, in terms of geography, logistics and
military manpower. The British were not averse to Indian economic development
if it increased their markets but refused to help in areas where they felt
there was conflict with their own economic interests or political security. Hence
they refused to give protection to the Indian textile industry until its main
competitor became Japan
rather than Manchester,
and they did almost nothing to further technical education. They introduced
some British concepts of property, but did not push them far when they met
vested interests. The British educational effort was very limited. There were
no major changes in village society, in the caste system, the position of
untouchables, the joint family system, or in production techniques in
agriculture. British impact on economic and social development was, therefore,
limited. Total output and population increased substantially but the gain in
per capita output was small or negligible.”
Describing the social structure of India at the end of British rule,
Angus Maddison notes that 18 per cent of labour force in non-village economy
accounted for 44 per cent of national income after tax; that 75 per cent of
labour force in village economy accounted for 54 per cent of national income
after tax. British officials and military British capitalists, plantation
owners, traders, bankers and managers who accounted for 0.06 per cent of labour
force took away five per cent of national income after tax. Their allies, the
native princes and zamindars took about three per cent. Thus a total of eight
per cent was appropriated by the ruling class. (Angus Maddison, 1971, Class
Structure and Economic Growth: India & Pakistan since the Moghuls, Taylor
and Francis, Table 3-4). “Little was done to promote agricultural technology.There
was some improvement in seeds, but no extension service, no improvement in
livestock and no official encouragement to use fertilizer. Lord Mayo, the
Governor General, said in 1870, ‘I do nto know what is precisely meant by
ammoniac manure. If it means guano, superphosphate or any other artificial
product of that kind, we might as well ask the people of India to manure
their ground with champagne.” (p. 53 opcit.)
The story of Independent India has been a continuation of the social structure
left by the British colonial regime with the ruling class appropriating a
significant percentage of the national income. The impoverishment of the 65 per
cent of the people dependent upon the village economy is the most serious
impediment to India
regaining its rightful place in the comity of nations as an engine for
increasing total world output. Maddison had shown that “India had the
world’s largest economy in the 1st century and 11th century, with a 32.9 per
cent share of world GDP in the 1st century and 28.9 per cent in 1000 CE. United
India had 22.6 per cent of
global GDP in the year 1700 compared to 23.3 per cent of entire Europe”.
It is possible to regain that stature for India in the world economy. Two
immediate steps should be taken.
The monies held in Swiss Bank accounts by Indians should be nationalised under
Benami Transactions Prohibition Act, 1988 and the onus of proving legitimate
holdings should be on the account holders. Swiss Banks should be asked to remit
the monies into the Indian treasury. Holding benami accounts is a cognizable
offence. This was an Act intended to prohibit benami transactions and to
establish the right of the State to recover property held benami. Under 5 of
the Act, Property held benami liable to acquisition-(1) All properties held
benami shall be subject to acquisition by such authority, in such manner and
after following such procedure, as may be prescribed. (2) For the removal of
doubts, it is hereby declared that no amount be payable for the acquisition of
any property under sub-section(1)
2. The dismal trend of negative growth rate in agriculture should be reversed.
Deposits in Banks located in the territory
of Switzerland by
nationals of following countries:
|
India |
$1456 billion |
|
Russia |
$470 billion |
|
UK |
$390 billion |
|
Ukraine |
$100 billion |
|
China |
$96 billion |
Primacy of agriculture
in the economy of Hindusthan
There is no industrial-services-driven economic model which can provide for
full employment in a situation where 65 per cent of the population is in the
village economy. For the foreseeable future, urban facilities and employment
opportunities have to be provided to this majority population dependent upon
the village economy.
For the quarter ended December 2008, GDP growth by sectors has been presented:
Growth in services 106 per cent of incremental GDP at factor cost, growth in
manufacturing remains flat, growth in mining 2 per cent of incremental GDP,
growth in electricity, water, etc., one per cent and agriculture declines by
nine per cent.
The staggering decline in agriculture has a devastating effect on the standard
of living of the majority of the population dependent upon the village economy.
Farmers’ suicides caused by the inability of the farmers to repay the loans
taken from moneylenders are only the tip indicator of the iceberg. The farm
incomes have to become remunerative and the agriculturist has to get his/her
due share of the national income. This can happen if a National Water Grid is
put in place with assured 24X7 availability of water for irrigation. This Grid
can bring about a veritable revolution in Indian economy. About nine crore
acres of additional alluvial land with assured irrigation facilities can be
created and distributed to 9 crore agricultural families at the rate of 1 acre
per family. This will create the potential to have three or four crops per
year, more than doubling the agricultural production and to feed the world
caught in a deep recession.
This blue revolution accompanied by tough fiscal measures to repatriate stashed
away wealth in Swiss banks and other foreign financial sanctuaries will usher
in a new dawn for Hindusthan and place her on the map of global economy as an
economic powerhouse. Hindusthan should also take the lead in forming an Indian
Ocean Community of 50 Indian Ocean Rim states from Madagascar
to Tasmania
with a potential total GDP of over six trillion dollars as a counter poise to
the European community. The IOC, in the context of the Special Economic Zone
created in the Indian Ocean within a 200-km
zone from the coastline will create opportunities for growth in a world caught
in deep recession. Project such as Trans-Asian
Highway and Trans-Asian Railway should be taken up
to energize the IOC and make it a global socio-economic reality.
Hindusthan has 32 per cent of the world’s thorium reserves (circa 2,25,000
tonnes of thorium metal is available for nuclear power programme) and the
development of fast-breeder reactor technology in Hindusthan, using thorium
blanket has the potential to generate the electricity required to support the
nation’s development imperative. India should also encourage
researches into cold fusion technologies, consistent with her stature as a
space power. Hindusthan’s space technologies and competence in information
technologies can be of significant benefit to the IOC nations. Given her
geostrategic location, Hindusthan has to play a lead role in maintaining the
security of the sea-lanes for navigation across the Indian
Ocean.
(The writer is the Director, Sarasvati
Research Centre and former Sr. Exec., Asian Development Bank.)
http://www.organiser.org/dynamic/modules.php?name=Content&pa=showpage&pid=283&page=8
Indian policy choices in a hostile world By Dr Gautam Sen
India as a great power has to be in the Security Council By MV Kamath
First Nehru then UPA spoiled India’s place in UN Security Council By OP Gupta,
The China Imperative? By Subramanian Swamy
http://www.financialexpress.com/news/are-there-fake-staff-on-satyam-rolls/413199/
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Wednesday January 21, 02:50 AM |
Source: Indian Express Finance |
Are there fake staff on Satyam rolls?
By Arun S
The purported 10,000
fictitious employees on Satyam Computers (SATYAM.BO : 27.75 0) Services' pay-rolls could have been created
to justify the inflated revenues and debtors' position and keep 'per employee
earnings' within justifiable limits, according to accounting experts. Worse,
they could have been created to simply siphon off company funds.
"A company can overstate the number of employees to show more expenses in their accounts. They can increase employee strength, disburse salaries to those accounts and later siphon off those funds. It is theoretically possible. But I am not saying that it happened in the case of Satyam," said Bharat Dhawan, managing director at audit firm Mazars.
"The crucial question is why the auditors have not noticed Satyam' debtors inflated position. It's difficult to justify increased revenue through massive efficiency gains. One possibility is that the employee strength is inflated by about 10,000 employees to keep per employee earnings ratio constant," said a former head of Institute of Company Secretaries of India. According to Satyam's former chairman B Ramalinga Raju's confession, the company has inflated debtors by Rs 2161 crore as at Sept-end, while it reported second quarter revenue of Rs 2,700 crore as against the actual Rs 2,112 crore. Assuming total number of employees at 53,000, which Satyam had claimed, the Rs 2,700 crore of revenue translates into per employee earning ratio of nearly Rs 5.09 lakh in the second quarter.
But at Rs 2,112 crore actual revenue, as per Raju's confession, a 43,000 employee strength translates per employee earning of Rs 4.91 lakh, which is more or less equal to that reflected by inflated revenue and employees data. If the 43,000 employee strength was used in the inflated revenue, then per employee earning comes to around Rs 6.25 lakh.
On June 30, 2008, Satyam had reported an employee strength of 51,643, of which around 150 were given the pink slip in September. When asked about inflated employee figures, ICAI president Ved Jain told FE, "It is a possibility. But only investigations will reveal the real picture." Officials said questions on the veracity of total employee strength are being discussed by the investigating agencies in their meetings. The SFIO under the ministry of corporate affairs is conducting random checks to physically verify the number of employees at Satyam. Experts note that inflating employee numbers are also a way of siphoning off funds to other entities. "This (faking of total employees) could be linked to the allegations of diversion of funds. Funds can be diverted either by creating bad debts or by inflating the number of employees. It needs to be verified on how many fake employees accounts have been opened, the mode of payment of salary and other benefits, and who all withdrew money from these accounts. The sole objective of inflating the number of employees is to take money out of the company," said Rohit Tandon, managing partner at Zeus Law Associates.
Tandon also said if the allegations of creating fake accounts are true, the culprits could face charges of cheating, forgery and falsifications of records, criminal breach of trust and misappropriation of money, besides falsification of tax records.
http://in.biz.yahoo.com/090120/203/6zc8i.html
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Satyam faked employee numbers Satyamgate Imagine there's no people By Nick Farrell @ Tuesday, January 20, 2009 6:16 AM |
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Police
investigating
Satyam Computer Services have confirmed the outsourcing giant was a lot
smaller than it had led people to believe. |
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http://www.itexaminer.com/satyam-faked-employee-numbers.aspx
Satyam may have inflated employee count – report (Jan. 22, 2009)
MUMBAI
(Reuters): Satyam Computer Services Ltd may have up to a fifth fewer staff than
the Indian outsourcing company has said it has, the Economic Times said on
Tuesday, citing an unnamed source familiar with a fraud probe.
The newspaper said the Serious Frauds Investigation
Office believes Satyam's headcount could have been inflated by 15-20 percent to
siphon off money as salary payments to non-existent employees.
"Since a major chunk of the costs were actually
salaries, a minor distortion in the number of employees could change the
personnel expenses significantly," the paper quoted the source as saying.
Asked to comment on the report, a Satyam spokeswoman
told Reuters: "We believe the numbers are accurate at this point of
time."
The Economic Times also said engineering and
construction firm Larsen & Toubro had appointed Japan's Nomura to advise it on a
possible deal with Satyam, in which it already has a stake of about 4 percent.
A spokesman for Larsen said the company does not
comment on market speculation.
The newspaper also said unlisted Aegis, part of India's Essar
Group, was interested in buying Satyam's business process outsourcing (BPO)
business.
"As a group, we constantly look at opportunities
in sectors where we are. We would not like to comment on specific
proposals," an Essar spokesman said.
Manpower expenses constitute more than 60 percent of
total costs at Satyam, and investigators say the ratio of manpower cost to
revenue has remained constant over the past three years despite an increase in
the number of employees, the Economic Times said.
The company's website says it had close to 53,000
staff, including those in subsidiaries and joint ventures as at end-September,
and it has since said that around 2,000 staff have left.
Satyam, India's No.4 software services exporter, was
plunged into crisis after founder Ramalinga Raju resigned as chairman earlier
this month, revealing profits had been falsified for years and $1 billion of
cash on the books did not exist.
http://www.instantnews.net/satyam-may-have-inflated-employee-count---report.aspx
Centre, Maha buy up Raju’s Maytas sharesBy Our Correspondent
Jan. 21: In a curious development, state-run financial companies
IFCI Ltd and Sicom Ltd on Wednesday purchased 24.39 per cent stake,
worth Rs 144 crore, in the Ramalinga Raju-promoted Maytas Infra. These
shares were pledged by his relatives and their companies.
IFCI acquired 17.42 per cent shares, potentially triggering an open offer to the remaining shareholders of the company.
Sicom’s stake in the company would increase to 13.94 per cent after the purchase. “B. Rama Raju (2.69 per cent), Elem Investments Pvt. Ltd (8.50 per cent) and Fincity Investments Pvt. Ltd (8.92 per cent) transferred their pledged shares to IFCI Ltd. and Sicom Ltd.,” Maytas Infra informed the Bombay Stock Exchange (BSE).
Elem Investments Pvt Ltd and Fincity Investments Pvt Ltd are reportedly owned by Mr Ramalinga Raju’s relatives and friends. “The purchase of stake by IFCI could trigger an open offer for other shareholders,” said Mr Ambareesh Baliga of Karvy Securities.
According to norms, if any person or entity buys more than 15 per
cent stake in a company, he has to make an open offer for at least 20
per cent additional shares, for a price which is highest among four
formulae:
* Price at which the shares were bought.
* Average price of past 15 days.
* Average price of past 6 months.
* Price at which the person who makes the open offer may have bought shares in the last one year.
Of these, the open offer price should be average price of last six months. In Maytas Infra’s case, this could be around Rs 400, much higher than its current price of about Rs 100.
Maytas Infra shares have been plummeting daily since January 7, when Mr Raju had admitted to cooking Satyam Computers’ accounts. The stock, which had a volume of just 448 transactions, closed at Rs 100.40 on BSE on Wednesday.
IFCI (formerly Industrial Finance Corporation of India) was set up the Central government while Sicom is a Maharashtra government institution. Both were set up to fund large projects.
Why would state-run companies like Ifci and Sicom Limited buy shares in a company whose shares are most illiquid?
Said Mr Ambareesh Baliga of Karvy Securities, “If the institutions sold the shares in the market, the price could have fallen further, which could have been a double whammy for them.”
The institutions might have seen some value in Maytas Infra, he said.
This purchase supports speculation that government-backed institutions could take over the company, which has around 90 important and politically significant projects in Andhra Pradesh and other states.
Apart from 36.64 per cent stake owned by the Raju family as promoters, their friends and relatives hold 15.57 per cent. This includes 8.92 of Highgrace Investments Pvt Ltd, which is alleged to be owned by Mr Raju’s associates.
January 18, 2009
Indian Executive Is Said to Have Siphoned Cash
NEW DELHI — The founder of Satyam Computer Services, B. Ramalinga Raju, skimmed huge amounts of cash from the company, rather than padding its books as he has claimed, a person involved in the investigation of the company said on Saturday.
Investigators looking into the fraud that has been called India’s Enron have found a “maze” of about 300 companies related to Mr. Raju that were used to “siphon” as much as $1 billion in cash from Satyam, said a senior official involved in the inquiry, who was granted anonymity to discuss developments in the case.
The picture emerging from the investigation of Satyam, one of India’s largest technology outsourcing companies, is vastly different from the one painted by Mr. Raju in a confession that stunned corporate India earlier this month.
Mr. Raju, who was Satyam’s chairman, said in a letter to the company’s board on Jan. 7 that about $1 billion of the company’s cash was “non-existent” and that he had falsified its profits for years to avoid losing control of the company. But the person involved in the investigation said that despite Mr. Raju’s claim that he had padded profits, he relied on hundreds of companies to divert money from Satyam.
These companies are registered to Mr. Raju and members of his family. Figuring out what, exactly, happened at Satyam “is becoming increasingly complicated,” this person said, adding that investigators had not figured out where all the missing money wound up.
In his letter to the Satyam board, Mr. Raju said that a marginal gap in the balance sheet had grown over several years to “unmanageable proportions,” and he said he had dressed up the company’s profits to avoid a takeover. He said he had kept the illusion going with the help of his own shares and loans against his assets, and that neither he nor his brother, B. Rama Raju, “took even one rupee/dollar from the company.”
Instead, the person involved in the investigation said, the entire $1 billion Mr. Raju said was faked might have actually been earned by the company but then skimmed from it.
S. Bharat Kumar, the lawyer for the Raju brothers and the company’s chief financial officer, did not return phone and text messages seeking comment.
The three Satyam executives Mr. Kumar represents are being held in a Hyderabad jail on counts of forgery, breach of trust and cheating. On Saturday a Hyderabad judge ordered the executives to be placed in police custody for four days to be questioned.
India’s prime minister, Manmohan Singh, on Saturday called the events at Satyam “a blot on our corporate image.” Satyam’s decline “indicates how fraud and malfeasance in one company can inflict suffering on many and can also tarnish India’s image more broadly,” Mr. Singh said.
The Satyam fraud has shocked India in part because Satyam, like most Indian technology companies, was seen as a corporate governance leader. Satyam’s auditor, Price Waterhouse, a unit of PricewaterhouseCoopers, signed off on the company’s financial statements for years and is now being investigated by India’s accounting board.
A new, government-appointed Satyam board met Saturday to discuss how to alleviate a severe cash squeeze at the company and to fill the vacant management positions. Board members had said previously that Satyam might ask some of its 600 customers, which include General Electric, General Motors and Nestlé, to pay bills early.
Satyam has some 17 billion rupees ($350 million) in payments pending from customers, the new board said last week.
The board has not named a chief executive or chief financial officer and said it would meet weekly until one was found.
http://www.nytimes.com/2009/01/18/business/worldbusiness/18india.html?_r=1&scp=2&sq=satyam&st=cse
How come Maytas (anagram of Satyam) came out of the blue for Raju's younger son?
10 Jan 2009, 0252 hrs IST, TNN
HYDERABAD:
Dropping the man they both promoted like a hot potato, chief minister Y S
Rajasekhara Reddy and his predecessor N Chandrababu Naidu sought to blame the other
for encouraging B Ramalinga Raju, the former chairman of Saytam Computer
Services who is at the centre of the biggest corporate scam in Indian history.
When asked about the scam and what the state was doing about Satyam,
Rajasekhara Reddy, who was in Chennai to take part in the Pravasi Bharatiya
Divas, told the media there: "Ask Naidu, as it was he who had promoted
Raju." In Hyderabad,
Naidu admitted to the charge" "Yes, I did promote Raju as I did many
industrialists from the state. But it is this chief minister and his government
that has awarded crores and crores of rupees worth contracts to Maytas Infra,
Satyam's sister concern," he said and demanded a thorough probe into the
deals.
But in an oblique admission that both the TDP government before and the
Congress government now had had deep links with the tainted industrialist, YSR
and Naidu reached for the rulebook when asked as to what should be done with
Raju. "The law should take its own course," said the chief minister,
while Naidu said: "The law is there and Sebi is also empowered to act.
Action should be taken as per the law and nobody is above it."
State government sources told TOI that neither YSR nor Naidu would want to
scream for Raju's head as that can expose all the 'help' that these government
had given to industrialists like Raju. "It is a politician-industrialist
nexus aided by bureaucrats which has resulted in a lot of wrongdoings.
Therefore, there will be a clear absence of political will in prosecuting
Raju," said one official.
In fact, after the YSR government took over in 2004, it had renewed all the
land deals that the Naidu regime had entered into, save the IMG Bharata case
which is now embroiled in a legal tangle. The Congress regime had cleared the
deals involving prime land in Ranga Reddy district on the outskirts of Hyderabad that Naidu had
given to IT firms and real estate developers among others.
Meanwhile, the other political parties in the state seem to be suddenly waking
up to the seriousness of the Satyam scam. CPI's K Narayana on Friday demanded
that Raju should be jailed for the fraud he has committed. The BJP has already
demanded a CBI probe into the scam including the projects that the state has
tied up with Maytas.
R Vaidyanathan (DNA, Saturday, January 10, 2009 3:35:00 AM)
The first casualty of any
election is Satyam (the Truth).
Financial wizards, accounting tigers and company law gurus are all having
discussions on the fall and fall of the Raju kingdom. There are debates about
international financial reporting standards — since Satyam was one of the first
companies to adopt this — besides audit committees, independent directors and
the role of regulators such as Sebi.
Either these experts are all from Mars and know nothing about the political
economy of our country, or they are really shy of talking about it.
Let us assemble the facts first.
Fact 1
Tirumangalam is a constituency in Tamil Nadu where a by-election took place on
Friday for electing an MLA. Reports suggest that each voter is given at least
Rs 500 in cash. The local minister and son of the current chief minister has
been accused of distributing cash and caught on camera. The state election
commissioner bemoans that Tamil Nadu is “excelling” Bihar
and UP in electoral malpractices.
The recently concluded elections for eight MLAs in Karnataka saw politicians of
every party giving cash in the form of donations on aarti plates and the amount
was never less than Rs 100. A number of women were keen to do aarti to politicians
of all sizes and shapes, not because they loved them as much as because they
expected cash on the plates. Elections are becoming obscenely expensive and
electors expect cash — at least Rs 1,000 as one elderly lady voter mentioned in
Tirumangalam.
Post-election bribes using the state exchequer, such as free rice or free TV,
are fine, but electors these days say give us hard cash while canvassing. This
is celebrating democracy in the most effective way!
This implies that the amount required for the coming Lok Sabha election is mind
boggling. The major parties are not in power in all the states, unlike the
sixties when the Congress alone was the ruling party in every state. Already,
we find forced collection of cash by the UP chief minister from the usually
corrupt departments and even allegations of murder charges against one of her
MLAs.
DMK has always kept the telecommunication ministry with it, perhaps for the
last 15 years, whether it is the NDA or the UPA government. There are
allegations that the telecom ministry has lost nearly Rs 80,000 crore due to
the spectrum allocations and correspondingly, the politicians have gained.
DMK has also always held the ministry of roadways. The Delhi High Court
recently pulled up the ministry for tardy work and for having five chairmen in
two years.
Same is the case in every state and every political party wants cash to fight
the coming elections, in multiple crores.
Fact 2
Real estate is mainly under the control/ regulation of the state government. It
is a scandal from the word ‘go’.
In Karnataka, there is a fascinating project called Nandi Infrastructure
Corridor (the company is called NICE), which is to connect Bangalore
with Mysore
with a superfast expressway and develop townships along the route. The number
of court cases, allegations and counter allegations etc pertaining to this
project is mind boggling.
Former prime minister Deve Gowda has brought out a large book only on this
project and how it is full of corruption. The opponents accuse him of being
vindictive since his bribe demands have not been met. Similarly, the real
estate/ infrastructure projects are known to be obtained by being in the “good
books” of politicians who have the power to approve it. Whether it is a road
project or airports or expressway or metro rail, the situation is alarming.
That is the reason we find many infrastructure projects do not have enough
takers.
The government’s ambitious highway projects under the public-private
partnership mode are in serious trouble. Construction companies have either not
put in bids or have withdrawn from 20 such projects, under the build, operate
and transfer (BOT) scheme.
According to a report in a prominent business daily, large construction
companies like Larsen & Toubro, Hindustan Construction, Nagarjuna
Construction, Maytas Infra (promoted by Satyam Computer boss Ramalinga Raju),
DLF Infrastructure, Gammon India
and GVK Industries have withdrawn from over 15 highway projects planned in
various parts of the country.
The report said five highway projects worth nearly Rs 3,000 crore have failed
to find a single bidder in the last two months. These companies find BOT
projects unviable due to high interest costs, which have squeezed profit
margins, besides faulty traffic projections and the stiff penalty clauses if
the project is delayed for reasons not under their control. In most of these
projects, the companies that have withdrawn from the bids were already amongst
the top six players selected during the technical qualification stage. This could
leave only smaller construction companies with little experience in the fray.
Unfortunately, no newspaper will speak about the huge bribery involved in
getting many of these projects. We are a shy nation, whether in giving or in
taking. With politicians becoming rapacious due to the forthcoming elections,
the “bribe tax” has phenomenally increased and hence no major project can be
viable from the point of view of major firms. Some upstarts or completely bogus
contractors can only undertake such projects where the width, thickness or even
the length of the road can be compromised.
Fact 3
The companies which Satyam wanted to acquire are in real estate and
infrastructure, such as roads, ports, metro and power. The original proposal
(later withdrawn) was to acquire Maytas Properties and 51% stake in Maytas
Infra for $1.6 billion (about Rs 8,000 crore). Satyam would acquire 100% stake
of promoters in Maytas Properties, a private entity, with immediate effect for
$1.3 billion. With regard to Maytas Infra, Satyam would buy 31% from the
promoters (at Rs 475 a share) and 20% from the public at (Rs 525). At that
time, Satyam was supposed to be sitting on a cash pile of Rs 8,235 crore.
The deal raised the eyebrows of analysts as both the firms are led by the sons of
Raju. While Maytas Properties is headed by his younger son, Teja Raju, the
elder son leads Maytas Infra. Of the proposed Rs 8,000-crore buyout, Rs 6,500
crore would go to Maytas Properties alone.
At that time, it was said that Maytas Properties owned a land bank of 6,800
acres in top cities with a potential of developing 245 million sq ft, compared
with DLF’s land bank of 10,000 acres. With regard to Maytas Infra, the
valuation was supposed to be based on Sebi guidelines. It holds an order book
of Rs 11,554 crore, including the Rs 12,000 crore metro rail projects. Because
of a hue and cry by institutional holders, primarily of the company’s ADRs, the
decision was withdrawn.
Surmises
Had there been political pressure, which we surmise; for providing funds for
the coming elections from politicians to whom the owner might be beholden in
the last two decades of “growth,” then that would have caused this problem.
Case one: The company did have cash and this was the reason for politicians to
want to encash the past IOUs and Raju was not able to give it from the main
company and hence decided to shift it to the infrastructure and real estate
pool to meet the obligations. But the so-called investors’ activism killed that
route.
Case two: The company did not have cash and hence when politicians demand to
encash past IOUs, the owner is not able to do anything. Thought he can shift
the “cash fiction” to the infrastructure and real estate pool and somehow meet
the demand later. To quote from his unsigned letter to board members, “The
aborted Maytas acquisition deal was the last attempt to fill the fictitious
assets with real ones. Maytas’ investors were convinced that this a good
investment opportunity and a strategic fit. Once Satyam’s problem was solved,
it was hoped that Maytas’ payments can be delayed. But that was not to be.” The
clue to this puzzle is the existence or otherwise of the cash.
In such a context, it is important that we turn corporate governance on its
head and impose stringent conditions on promoters to be present and swear that
the resolutions related to their interest is as per laws and norms. Currently,
they are absent and the independent directors are the party to deciding it.
In the American context, the entire governance issue is related to protecting
shareholders from the rapacious managers or executives of the firm. The entire
genre of agency theory in the eighties is based on this. In India, the
issue is different. Here, we need to protect shareholders from the promoters
and politicians. Hence, the law should be amended to explicitly make promoters
responsible on those resolutions connected with them with preferably a sworn
affidavit.
New age entrepreneurs who have grown in the eighties in various states are all
beholden to politicians in regional or national parties. There are many more
IOUs pending.
Raju mentions in his unsigned letter to his board of directors that “it was
like riding a tiger, not knowing how to get off without being eaten.” He may
not be talking of accounting tigers but about political tigers. We can expect
many more revelations from other corporates before the forthcoming elections.
Happy viewing.
The writer is professor of finance and control, Indian Institute of Management - Bangalore, and can be reached at vaidya@iimb.ernet.in. Views are personal.
http://www.dnaindia.com/dnaprint.asp?newsid=1220269
Satyam: have the funds been siphoned off?A Saye Sekhar and M. Rajeev (The Hindu, Jan. 9, 2009)
Investigating agencies must look into this aspect: analysts
Doubts being raised about the source of Maytas’ investments in real estate
Were funds were siphoned off from Satyam Computers, analysts wonder
HYDERABAD: Several questions are being raised whether Satyam Chairman B. Ramalinga Raju has really spilled all the beans in his confessional statement on the Rs. 7,000-odd crore scam in the IT company
Mr. Raju has admitted the widening gap between the actual operating profits and those shown in the accounting books ‘for several years now’. But, he has glossed over the fact that Satyam raised about Rs. 2,000 crore from American Depository Receipts in 2001 and its continued acquisitions in line with its claims that it was looking to take over firms with a valuation of over $50 million.
The handsome profits shown in the books notwithstanding, Mr. Raju, claimed that the contract margin of the company was as low as three per cent against a market average in excess of 20 per cent. “When Satyam is no less than that of Wipro, Infosys and TCS, why will the company accept contracts with such low margins? Mr. Raju is obviously not into charitable acts,” a senior official in the Government remarked.
Industry analysts agree with the view and suggest that the investigating agencies must find out whether funds were siphoned off from Satyam Computers. Doubts are also being raised about the source of investments made in real estate by Maytas Properties, a privately owned firm of Mr. Raju’s family, in purchase of land in all major cities in the south, creating a land bank of 6,800 acres.
An analyst wondered how an auditors like PwC with a global reputation failed to raise questions about the fudging of figures. “They should have raised questions when Maytas Properties was declared as the most precious asset of Mr. Raju’s family with an estimated value of $1.3 billion compared to Maytas Infra ($0.3 billion) when Mr. Raju announced the decision to acquire them,” he said.
http://www.hindu.com/2009/01/09/stories/2009010959241700.htm
Land grab asatyamThe asatyam of Satyam is Maytas. It is a land-grab operation involving the State and some corporate sharks. Read on...
kalyanaraman
‘AP govt sold land at low prices to Satyam, Maytas’
EAS Sarma, Former Secretary of Economic Affairs, said Satyam and Maytas were in the list of companies favoured by the Andhra Pradesh government. He informed CNBC-TV18 that Satyam and Maytas allotted land at low prices. "About 50 acres of land worth Rs 300 crore was given for Rs 1 crore to Satyam."
He urges regulators to look for a conflict of interest and insider trading. The procedure for allotting the Hyderabad Metro bid was not in accordance with competitive bidding, Sarma alleges.
Here is a verbatim transcript of the exclusive interview with EAS Sarma on CNBC-TV18. Also watch the accompanying video.
Q: Your view apparently seems to be that there have been very serious regulatory lapses in this whole Satyam episode, could you please detail them out?
A: I think so, because I wrote to the Department of Company Affairs on December 17 for instituting a very quick inquiry. In Andhra Pradesh, Satyam Computers and Maytas are two favoured companies of the state government. In many cases they did not follow competitive bidding procedures and gave them a huge chunk of urban land; very valuable land at cheap rates and give them huge projects service.
When I wrote this letter to the Department of Company Affairs there was no reply. I wrote to the Chairman of Sebi on December 18 saying that this entire matter should be inquired into; the role of Directors, the role of promoters and the role of politicians in the whole thing. When I did not get a reply, again by the end of the month I wrote a letter to the Secretary of Economic Affairs to get the matter examined and wondered why the Sebi did not act immediately even till the end of the month.
I repeated my request, I suggested to the Department of Company Affairs that the role of this independent Director is extremely important. I even suggested the methods of selecting independent Directors. Yesterday, I wrote a detailed letter to Chairman of Sebi, to the Department of Company Affairs and the Secretary of Economic Affairs once again. I raised a number of important issues. In this particular case the track record of Satyam right from 2002, when their accounting practices were questioned there was an inquiry started by Department of Company Affairs but the enquiry was stopped mid-way for some reasons I don’t know of. Later, this same auditor PricewaterhouseCoopers (PWC) audited Global Trust Bank, which crashed and many investors lost their money. Then subsequently of course everybody knows that World Bank banned them in February 2008 and the independent Directors would have known thi. and when PwC as an auditor the term was extended year after year, the Directors should have questioned that- normally they change the auditors and that was not done.
So, in this particular case the regulators should now look at the following issues; one is conflict of interest. We heard that one of the Directors has co-opted this promoter, as a Director on his institution and he received some donation for the institution. Similarly, there could be other instances of conflict of interest and he second thing is insider trading. So, in all this cases the way Sebi acted very late, they have send their team only yesterday I think, after the whole system collapsed. So, I believe that the regulators role and delays have to be questioned and probed.
Sebi, MCA ignored warnings: Ex-secy
Palak Shah / Mumbai January 9, 2009, 0:42 IST
Former economic affairs secretary E A S Sarma has written to the Securities and Exchange Board of India (Sebi) questioning the delay in investigating Satyam Computer even after he had alerted the regulator “well in advance” about certain irregularities in the company’s books of accounts after the Maytas deal was called off last month.
“This is really a mockery of the system. Sebi had given a clean chit to Satyam a few days ago on the grounds that it found no irregularities in Satyam trying to acquire Maytas Infra. If this is the case, than even the regulators’ role is under scanner,” Sarma told Business Standard. According to Sarma, who resigned from the Indian Administrative Service after he was transferred from the finance ministry, the stock market crash of January 8 and a sharp fall in Satyam’s share price, which caused significant losses to the investors, could have been avoided had the regulator acted “smartly and promptly”.
In two letters dated December 17 and December 18, 2008, Sarma had alerted Sebi about complaints regarding the accounting practices of Satyam Computer that were sent to the ministry of company affairs (MCA) on several occasions earlier.
“I wrote nearly eight letters to Sebi alerting them about Satyam’s fraudulent practices and the company’s connivance with local politicians but none of the letters elicited any response from the regulator.
“Sebi remained silent about the issue even while I mentioned to them that MCA launched a fact-finding probe. But the fact is that the MCA probe too was very slow and only on paper,” he said.
Sarma says that Satyam had come under the regulatory scanner in August 2002, when there were complaints about the faulty accounting practices.
“There should be a concentrated effort by the government and a single agency should be appointed to probe all the land deals in Andhra Pradesh as majority of them have been through fraudulent means and either Satyam or Maytas have been the beneficiaries,” he said.
Yesterday, Sarma wrote to Sebi saying that “to avoid any further mayhem”, the regulator should not delay investigating all the companies which were audited by Price Waterhouse otherwise it will cause a systemic breakdown.
http://www.business-standard.com/india/news/sebi-mca-ignored-warnings-ex-secy/00/06/345665/
Satyam
faced fund managers’ fire on Maytas deal
Posted online: Dec 19, 2008 at 2351 hrs
FE obtained the transcript of a teleconference between the Satyam Computers’s CFO Srinivas Vadlamani, chairman B Ramalinga Raju with fund managers and analysts. Excerpts:
Q: I’m actually very baffled that this transaction has been described as one that will cause delight of stakeholders. As an individual representing my clients I have everything but delight, I’m actually deeply shocked by this transaction. Could you please explain how many independent directors are on the board and how they voted at this board meeting to approve this transaction?
Srinivas Vadlamani: Basically it is a unanimous decision, it is not been put to vote because whatever overall growth prospects we are looking at we thought this is the time to diversify into a another growth area. So we thought that at a business model level derisking it— diversifying into another growth area, these are right decision rather than using this money to acquire another IT asset. So, that is broadly the thinking and it was unanimously passed at the board meeting.
Q: Well, Maytas Infrastructure is a listed company, right?
Srinivas Vadlamani: Yes.
Q: Can you tell me what’s the price it was listed at?
Srinivas Vadlamani: It was listed at around Rs 340 or something—I don’t exactly remember.
Q: And what is the current share price sir?
Srinivas Vadlamani: It is around Rs 480.
Q: Right I see, because infrastructure is an area that has suffered quite dramatically in India, if you look at the way order books have been affected, if you look at the share prices of the infrastructure companies, if you look at the industrial production numbers last reported for India they are actually negative. So it seems to me there is a very high correlation between your company’s problems and infrastructures performance. I am not sure how the diversification would work in this rather tough environment because every industry and company seems to be facing equally difficult timing.
Q: Could you give us what the value— what the advices on this front and what is the valuation logic behind the overall thing? And would it require shareholders’ approval because being an IT services company, it does not seem to be in synergistic with the existing business?
Srinivas Vadlamani: This doesn’t require the shareholder permission and coming to your other question on the valuations, now they can help of a Big Four firm and coming of at the valuations and also the valuations of Maytas Infra is based on these heavy guidelines.
Ramalinga Raju: If, I may add to what Srinivas has said. In the earlier observation, a comment has been made that the prices in the infrastructure space are fairly explicit at this time. And then that is very much the case while in the IT industry the share prices have come down that has been more so in the infrastructure space. We had to make a judgment going forward as to what kind of strategies we would adopt such that we are able to not only maintain given growth but also risk mitigate the risk. So those were the considerations for us to have taken this decision and from the—our point of view of Maytas Infra and Properties while there may be opportunities available for this end. It so happens that Maytas for example Maytas Infra is older than Satyam. It’s used to be called Satyam construction and it was started about three years before Satyam itself. And both Maytas Properties and Maytas Infra have gone above their business adopting in a sense that for example Satyam would have adopted in that sense there is a very high degree of light-mindedness in the amount in which one pursue businesses. And therefore, we believe that the integration would be much better and that there is a clear white space in the infrastructure.
Q: I just wanted to know who were the valuers for this deal and why the management didn’t think of returning the money to shareholders rather than paying back to the promoters of the company?
Srinivas Vadlamani: The evaluations have been assisted by a Big Four firm. We will not be able to disclose the name, but Big Four firm has – have assisted us.
Q: Do you want to disclose the name to shareholders of the company?
Srinivas Vadlamani: No, basically even some of these things, we need the clearance before actually we...
Q: No, I just want to know who were the valuers of the company and why you didn't return money to shareholders of the company, you paid some money to promoters of the company?
Ramalinga Raju: No, if I may please offer my comment, a company at any given time would be faced with many choices and one of the choices could be to in a way pay out in a way payout a dividend or buyback or any other things that was available as options. And now in our judgment, we believe that this is a good diversification strategy….
Q: All this money go to promoters of the company?
Ramalinga Raju: No, it's not— it has simple as that in the sense that there are investors that are...
Q:Who the investors are the stakeholders in Maytas Infra and Maytas properties? Will this money go to the company or the stakeholders of Maytas Properties?
Ramalinga Raju: See this Maytas Infra as you know the....
Q: Will Satyam’s payment for acquisition go to the promoter stakeholders of Maytas Properties or for their company?
Ramalinga Raju: See this is a 100% acquisition and therefore now this is a secondary.
Q: That means this money will go to the promoters of Maytas Properties or will this go to Maytas Properties?
Ramalinga Raju: This money will go to the promoters of Maytas Properties.
Q: We are completely shocked and we would like to present our note of dissent in front of all the participants.
Q: Most violation of the corporate governance practices, if you did – cannot see any opportunity in pursuing any acquisition or further growth in IT you should have returned the money to shareholders. You had no business, wasting money and paying back the promoters of Satyam and promoters of Maytas Properties.And let the shareholder of Satyam decide whether to put the money into Maytas Properties or Unitech or DLF or Maytas Infrastructure?
Srinivas Vadlamani: But the – see look at the value...
Q: Let the shareholders take the decision. And why you are not taking this proposal to Annual General Meeting or Extra-Ordinary General Meeting. Why you are passing it unilaterally?
Ramalinga Raju: See this is what we have done and it is based on an assessment of value that we have seen.
Q: But why, you are pursuing value only of the promoter of Satyam. Why you could not look at any real estate property outer, out of – outside the group. Unitech is available at may be lesser valuation or some other companies available at still there are 100 companies which are available at...
Q: So, let this decision be taken by the shareholders of Satyam in the General Meeting.
Ramalinga Raju: See the point is this is a decision has been made based on judgments that have been...
Q: Understand, but the minority shareholders wealth is getting affected by this?
Ramalinga Raju:It is not – it is not about promoters, it is incidental that, that is so.
Srinivas Vadlamani: One more point here, suppose if the same money we have used to acquire another IT asset, same thing would have happened is it not?
Q: Money would not have flown to promoters of Satyam. This $1 billion or whatever that money is flowing to promoters of Satyam who are also promoters of Maytas Properties.
Ramalinga Raju: And, if the valuation is right, what is wrong with that?
Q: No turning them, and we don't want to pursue real estate. As a shareholder of Satyam we are not interested in the company getting diversified into the unrelated business.: So, this is our defence, you may be right that yes, you have done the right thing and we may be wrong, but our contention is that take this decision in the general meeting by having the consent of all the shareholders rather than only the Board.
Q: No foreign investor in the country will track any Indian company after your move. Do you understand the implication of this move, sir?
Ramalinga Raju: See what we have done is based on an assessment of value that we have seen.
Q: But why you are pursuing value only of the promoter of Satyam. Why you could not look at any real estate property outside the group.
Ramalinga Raju: No, see we have to take decisions from time to time and when an evaluation is done and decisions are taken which involve third parties as well, it is something that is to be seen as being done in the normal course of business.
Q: From a financial perspective because I actually cover both infrastructure companies and IT services companies, typically margins tend to be low in that particular business, is it safe to say that this is going to be margin dilative move?
Srinivas Vadlamani: In the case of Maytas Infra the margins are dilative. The profit after tax is roughly around 7%, but when it comes to Maytas Properties the PAT is almost 20 to 25%. So, from that point of view, we will not be seeing much of a dilution, but at the EPS level we will see some kind of a dilution only for the first year, second year onwards we will see huge improvement in the earnings per share.
Q: I guess probably what most of the market is wondering why would you reduce a very strong balance sheet by a non-core business, that’s going to be margin dilative, even if it is a defensive move, usually it would probably make sense to, especially in this particular environment to hold on to that balance sheet or hold on to that cash and then probably on top of that there is some family relationships within both companies, which makes the move a little bit more curious. So, I wondered if you could just perhaps talk a little bit about I know you talked about the offshore market being difficult one, but markets across the globe are pretty difficult, I wondered if you could talk a little bit about any of the synergies that you see in this non-core business and how you plan on moving those margins higher.
Ramalinga Raju: Yeah, let me offer some broad comments, just as a thesis behind the thinking for this move. We believe that there are opportunities which we have to continue to pursue in the IT and BPO space, the equivalent process that we have done in the past and that we should maintain, continue to maintain our leadership position. That is one. The second thing is that we had some choices to make. We could distribute the available funds, we could buy back shares or we could to acquisitions. Now, when it came to acquisitions, we’ve been looking into various options that were available to us over a long period of time and we were quite concerned about acquiring IT companies, which were sizable particularly coming from developed country markets, because we have seen over a period of time that the cost structures were high, competencies are not necessarily any higher than what organisations like Satyam have built, and even leadership was not the main differentiator.Now, among these few choices that we had of either the distributing the cash or buying back the shares or resorting to some kind of acquisition of an asset, we believe that the asset that we can acquire in the infrastructure space particularly at a time when the country is talking about $500 billion of infrastructure spend over the next few years, particularly in the background of China over the last 10 or 20 years having built physical infrastructure, which, while it is much needed in India has not growing at the same degree. Therefore we clearly expect that a lot would happen there. Now as compared to 40 or 50 companies in China of given size and infrastructure space, there hardly a couple of those in India, which have the same capability. So, we believe that we could parallelly establish a leadership position in the infrastructure space. Now, in the next 4 to 5 years, we expect the combined Satyam and Maytas to have a balanced proportion of something like 50% in the IT services, and about 50% in the infrastructure space being the - being the revenues.
Q: I was wondering if you could talk a little bit about what the synergies.
Ramalinga Raju: As far as synergies are concerned, one of the primary things is that we would be having a significant four ACEs made into infrastructure-related services. And in fact, we are already servicing Maytas Infra and we expect a longer-term relationship yielding much better revenues, we will have a couple of airports and ports and other things that have been pursued. Therefore, the infrastructure space there will be services opportunities that we can access particularly in the developing country markets. And second thing is that we believe that as we establish a leadership position in the infrastructure space in emerging markets particularly out of India and few other countries, there is a need for more process driven, technology driven infrastructure organisations to be in place and we believe that the support that Satyam can provide for such an organisation to be built would be high.
http://www.financialexpress.com/news/satyam-faced-fund-managers-fire-on-maytas-deal/400195/4#