By P.K.Balachandran/Daily Mirror

Colombo, January 28: The problem of recovering the billions of dollars stashed away in safe havens abroad, is universal, with both developed and developing countries facing it. But governments which have made determined efforts to recover them have succeeded significantly.

The richer countries with efficient and committed administrative structures, and having an active and goal-oriented foreign policy, have succeeded in getting stolen or undeclared assets substantially. But countries in the Global South, with their structural deficiencies and political and moral infirmities, have not.

Asset recovery, as outlined in the UN Convention against Corruption (UNCAC), refers to the process by which the proceeds of corruption transferred abroad are recovered and repatriated to the country from which they were taken or to their rightful owners.

A precise account of the proceeds of corruption circulating the globe is not possible, but the World Bank estimates that developing countries alone lose US$ 20 to 40 billion each year due to corruption.

This is doing grave injustice to their poverty-stricken populations. The hidden money could be spent on tackling poverty, providing decent public services and achieving the Sustainable Development Goals. But due to legal and institutional complexities and lack of cooperation between States, it is all too easy for the corrupt to hold on to their ill-gotten gains.

Between 2010 and 2012, only US$1.4 billion assets were frozen and US$147.2 million were returned eve by the OECD (or advanced) countries. There has always been a huge gap between what went missing and what was recovered.

According to the Wall Street Journal (WSJ) roughly 60% of the cash that the big US corporations had made were banked in countries where it was earned. WSJ says that Whirlpool Corporation had 85% of its cash offshore. Microsoft Corp. had about 87% overseas. Truck-parts supplier Wabco Holdings Inc. had only 3% of its cash in the US.

Typically, these companies had already paid the local taxes in the countries that had earned from, and did not want to shell out an additional tax by transferring the money back to the US.

In 2023, Daily Mirror reported that Sri Lanka was battling to bring back US$ 36 billion illegally kept overseas. It was more than a third of the island nation’s economy of US$ 81 billion. An estimated US$ 150 billion is believed to have been stashed abroad by Bangladeshis. According to Pakistani financial expert, Syed Shabbar Zaidi, around US$ 150 billion is stashed away by Pakistanis abroad in the form of cash, properties and other assets. About U$ 100 billion of that has no money trail. Estimates of Indian money stashed abroad vary from US 500 billion to over US$ 1 trillion.

The economies of the Global South being built around crony capitalism, governments are constrained and officials’ hands are tied.

Solutions are many, but what is gravely wanting in implementation. An article published by the Bush Centre suggested that the US government should not tax overseas profits at all. If there is no tax, the money will flow into the country and if invested in it, it could expand industry and create jobs. Government could also have a one-year tax holiday on overseas cash that is used for business investment within the US.  

Indian expert Nagesh Kini writing in Sucheta Dalal’s blog, points out that in 2011, India and Switzerland entered into a Double Taxation Avoidance Agreement with retrospective effect. That should have given the Indian authorities chances to ferret out tax evaders. Yet not one agency, including the government and tax mandarins, could correctly estimate the quantum of black money in India.

The Swiss authorities were ready help, but needed concrete evidence and not vague allegations against their clients, as Global South government tend to make.

Western governments have been more professional, Kini says. The French got back 500 million pounds from approximately 300 billion pounds to be repatriated to France. The UK Treasury envisaged bulk deals involving a flat 50% levy on assets as ‘retrospective’ fees on unpaid taxes. It called upon the Swiss to tax the bank accounts of British nationals and pass on the money so collected to the UK Treasury without disclosing names. The UK conservatively estimated to get 9 billion pounds through this method.

There is a dire need in India to increase the cost of non-compliance. The punishment ought to be imprisonment, in addition to monetary penalty, as in the USA, Kini says.

Ajit Doval, currently India’s National Security Advisor, wrote about this issue in a blogpost on 21 February 2011: He said: “The (Indian) State is seen as lacking both the capacity and the intention to reform the system or deter the wrong doers. A nexus between the black money and those exercising power is suspected by the people, weakening the national will and raising the level of public cynicism.”

“Contrary to expectations, liberalisation and economic growth, rather than abating, has multiplied the phenomenon of black money manifold. The Global Financial Integrity (GFI) had estimated that more than two-third of the Indian money stashed abroad had been generated in the post liberalisation period after mid-nineties.”

Doval went on to say that India “will have to design a well thought out multi-pronged strategy ranging from enacting appropriate laws, empowering its investigative and intelligence agencies, using political and diplomatic pressure and leveraging its new found economic clout to achieve its goals. Most importantly, a political consensus and national will have to be created to achieve this national objective.”

He further suggested that India should take cognizance of reports of the IMF and GFI and enact a penal law so that all the defaulters could be treated as “criminals.”

“On the strength of this law the government should declare itself as the sole owner and beneficiary of all Indian monies, assets and bank accounts held abroad by or the dependants of Indian nationals without due declaration to the Indian authorities.”

“Government can ask foreign governments and the foreign banks, like the Swiss banks, to recognize the Indian government as the beneficiary of the undeclared wealth and freeze the accounts till owners of the wealth are able to prove that they had acquired it by fair means and from legally valid sources.”

Indian political leaders need to recognise that India is already a leading economy and an emerging geo-political power, Doval said. Once this is internalized and projected abroad, foreign entities will cooperate and not take India’s demands lightly. The present and potential power of India should be leveraged, like US and Germany do, to reclaim the black monies of its nationals stashed abroad.

The Financial Action Task Force (FATF) is the global money laundering and terrorist financing watchdog. It sets international standards that aim to prevent these illegal activities and the harm they cause to society. The FATF is working on areas such Asset recovery, Corruption, Digitalisation, and Terrorist Financing.

India is a key member of the FATF. And yet no real effort is made to eradicate back money and money laundering. Perhaps the Global South countries are concentrating more terror financing than money laundering per se. Their leaderships depend on the ill-gotten wealth of their businessmen supporters.

Black money has been a persistent and leading issue in the politics of the Global South countries. Making allegations about making tons of black money and keeping them in bank accounts in Switzeland or tax havens abroad is a routine way to tarnish the image of a political rival. But rarely ever are these allegations seriously pursued. Even if a person is arrested and kept in judicial custody he would either be bailed or treated like royalty in jail.

Pursuing black money or recovering money hidden abroad is just political pantomime in the Global South.

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