As reports from Swiss Banks poured in suggesting deposits by Indians in Swiss Banks currently rising to the record high in the last 13 years, the Finance Ministry sent a missive to Swiss authorities on June 19, 2021 “to provide relevant facts along with possible reasons”. What is the truth of funds parked by Indians rising so dramatically from 6,625 crore in 2019 to 20,700 crore by the end of 2020? An in depth report by BHARAT HITESHI
The issue of alleged black money in Swiss banks has been a political hot potato in India. The Swiss National Bank (SNB) data released on June 17 showed that the Swiss bank deposits by Indians increased by 286 per cent in 2020 as compared to 2019. The surge in Indian money held with Swiss banks comes as a surprise given India’s continuing clampdown on suspected black money stashed abroad, including in banks of Switzerland that used to be known for their famed secrecy walls for years.
Ironically, the surge has been noticed during a pandemic induced by coronavirus, a virus that grew stealthily to become one of the deadliest viruses killing people and hitting almost every sector of business, industry, livelihoods and incomes. This was the time when in its latest Centre for Monitoring Indian Economy (CMIE) report revealed that the economy was so bad that even salaried jobs across India registered a sharp decline in 2020-21 to the tune of 9.8 million. India had a total of 85.9 million salaried jobs in 2019-20 which, by the end of March 2021, reduced to 76.2 million.
As per the SNB, there were 243 banks in Switzerland at the end of 2020. Even, the data from the Bank for International Settlement, which indicates deposits by individuals in Swiss banks, showed that deposits by Indian individuals in Swiss banks rose by 39 per cent in 2020 as compared to 2019. The data becomes significant because before assuming power in 2014, the BJP had publicly claimed that Indians were hiding $250 billion ( 17.5 lakh crore) in Switzerland’s banks alone and it had promised to bring back the black money stashed away in foreign banks and had said that every Indian would get 15 lakh as a result.
However, data released now indicates that funds of Indians in Swiss Banks have risen to over 20,700 crore (CHF 2.55 billion) at the end of 2020 from 6,625 crore (CHF 899 million) at the end of 2019, reversing a two year declining trend. It has also been stated that this is also the highest figure of deposits in the last 13 years.
Caught unaware, the Ministry of Finance says these official figures reported by banks to Swiss National Bank (SNB) do not indicate the quantum of much debated alleged black money held by Indians in Switzerland. Further, these statistics do not include the money that Indians, NRIs or others might have in Swiss banks in the names of third–country entities.
It is pertinent to point out that India and Switzerland are signatories to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MAAC) and both countries have also signed the Multilateral Competent Authority Agreement (MCAA) pursuant to which, the Automatic Exchange of Information (AEOI) is activated between the two countries for sharing of financial account information annually for calendar year 2018 onwards. India and Switzerland have in place a Double Taxation Avoidance Agreement (DTAA) and a protocol amending the agreement in place. Based on the provisions of DTAA, the two countries exchange information on a request basis, which is foreseeably relevant to the administration or enforcement of the domestic laws concerning taxes covered by the agreement. India and Switzerland are signatories to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MAC) and both countries have also signed the Multilateral Competent Authority Agreement (MCAA) pursuant to which the Automatic Exchange of Information (AEOI) is activated between the two countries for sharing of financial account information effective from January 1, 2018 with first transmission in 2019.
Exchanges of Financial Account information in respect of residents of each country have taken place between both countries in 2019 as well as 2020. It is as such surprising that the existing legal arrangement for exchange of information of financial accounts which should have a significant deterrent effect on tax evasion through undisclosed assets abroad, there actually is an increase of deposits in the Swiss banks out of undeclared incomes of Indian residents.
SURGE EXPLAINED?
The Finance Ministry says that factors that could potentially explain the increase in deposits:
Increase in the deposits held by Indian companies in Switzerland owing to increased business transactions Increase in deposits owing to the business of Swiss Bank branches located in India
Increase in Inter- bank transactions between Swiss and Indian Banks
A capital increase for a subsidiary of a Swiss Company in India andIncrease in the liabilities connected with the outstanding derivative financial instruments
The Government claims to have taken various proactive steps against the black money stashed abroad. These steps include, inter alia as per the statement of Shiv Pratap Shukla, Minister of State for Finance in Rajya Sabha, a enactment of a comprehensive and a more stringent new law- the Black Money (Undisclosed Foreign Income and Assets)and Imposition of Tax Act, 2015 that has come into force from July 1, 2015. Apart from prescribing more stringent penal consequences, this law has included the offence of willful attempt to evade tax etc. in relation to Undisclosed Foreign Income and Assets as a Scheduled Offence under the Prevention of Money-laundering Act, 2002 (PMLA).
The Government gave a one-time compliance window of three months for providing an opportunity to taxpayers to make declarations of their undisclosed foreign assets before they were subjected to more stringent provisions of the new law that is the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. 648 declarants filed declarations up-to 30.09.2015, which was the last date of filing such declarations, disclosing undisclosed foreign assets worth 4164 crores. About 2476 crore had been collected as tax and penalty in such cases.
The Government claims to have taken pro-active and effective steps whenever any credible information has been received with regard to black money stashed abroad, whether in HSBC cases, ICIJ cases, Paradise Papers or Panama Papers. These steps include the constitution of the Multi Agency Group in relevant cases, calling for definitive information from foreign jurisdictions, bringing the black money to tax under relevant law, launching prosecutions against the offenders etc.
However, despite all these tall claims, the Swiss Banks continue to be a safe haven for keeping black money despite an automatic exchange of information in tax matters between Switzerland and India in force since 2018? As Swiss Banks needed big deposits and depositors needed secrecy, it was a good symbiotic relationship. But now India and Switzerland are signatories to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters and Multilateral Competent Authority Agreement. These instruments enable automatic exchange of information between the two countries. Since the signing of these pacts, exchange of financial account information for citizens of both countries has taken place in 2019 as well as in 2020. Little doubt that Swiss Banks are not the only destination where Indian depositors run to. There are a number of ways huge amounts of money are channelized and secured like offshoring , layering and consolidation.
Leading International Accounting Firms play a lead role as middlemen in helping rich clients set up trusts and companies in remote inland based destinations. Offshore tax havens like British Virgin Island, Cyprus, Macao,Guernsey, Isle of Man etc. are reportedly considered as other destinations for black money.
Yet Swiss Banks continue to be preferred destinations for parking funds by Indians as deposits by Indians had risen to over 20,700 crore at the end of 2020 from 6,625 crore at the end of 2019, reversing a two-year declining trend. And mind it this is also the highest figure of deposits in the last 13 years. Funds parked by Indian individuals and firms in Swiss banks, including through India-based branches and other financial institutions, jumped to 2.55 billion Swiss francs (over 20,700 crore) in 2020 on a sharp surge in holdings via securities and similar instruments, though customer deposits fell, annual data from Switzerland’s central bank showed.
The aggregate funds of Indian clients with Swiss banks actually stood at a record high of nearly 6.5 billion Swiss francs in 2006, after which it has been mostly on a downward path, except for a few years including in 2011, 2013 and 2017, as per the Swiss National Bank (SNB) data. According to the SNB data, the total funds held by Indians directly with Swiss banks rose to CHF999 million Swiss franc (Rs 6,891 crore) in 2017, while the same held through fiduciaries or wealth managers increased to CHF16.2 million ( 112 crore). These figures stood at CHF664.8 million and CHF11 million, respectively, at the end of 2016. The Indian money in Swiss banks included CHF464 million ( 3,200 crore) in the form of customer deposits, CHF152 million ( 1,050 crore) through other banks and CHF383 million ( 2,640 crore) as ‘other liabilities’ such as securities at the end of 2017.
The funds under all three heads had risen sharply, as against a huge plunge across all categories in the previous year, the SNB data showed. The funds held through fiduciaries alone used to be in billions till 2007 but began falling after that amid fears of regulatory crackdown. The total funds held by Indians with Swiss banks stood at a record high of CHF6.5 billion (Rs 23,000 crore) at 2006-end, but came down to nearly one-tenth of that level in about a decade.
Since those record levels, this is only the fourth time when there has been a rise in Indians’ money in Swiss banks, in 2011 (12%), 2013 (43%), 2017 by 50.2% and now by 286 % from 6,625 crore in 2019 to 20,700 crore by the end of 2020.
Indeed, the latest data from Zurich-based SNB comes as a surprise although these SNB’s official figures also do not include the money that Indians, NRIs or others might have in Swiss banks in the names of entities from different countries.
A number of strategies had been deployed by the government to combat the stash-funds menace, in both overseas and domestic domain, which included enactment of a new law, amendments in the Anti-Money Laundering Act and compliance windows for people to declare their hidden assets. The Income Tax department had detected suspected black money running into thousands of crores of rupees post investigations on global leaks about Indians stashing funds abroad and has launched prosecution against hundreds of them, including those with accounts in the Geneva branch of HSBC.
The latest data shows that the biggest difference has been a surge in ‘other amounts due to customers’ from India, which rose over six times from CHF 253 million at 2019-end. All four components had declined during 2019.
These are official figures reported by banks to the SNB and do not indicate the quantum of the much-debated alleged black money held by Indians in Switzerland. These figures also do not include the money that Indians, NRIs or others might have in Swiss banks in names of third-country entities.
According to the SNB, its data for ‘total liabilities’ of Swiss banks towards Indian clients takes into account all types of funds of Indian customers at Swiss banks, including deposits from individuals, banks and enterprises. This includes data for branches of Swiss banks in India, as also non-deposit liabilities.
On the other hand, the ‘locational banking statistics’ of the Bank for International Settlement (BIS), which have been described in the past by Indian and Swiss authorities as a more reliable measure for deposits by Indian individuals in Swiss banks, show an increase of nearly 39 per cent during 2020 in such funds to $125.9 million ( 932 crore).
This figure takes into account deposits as well as loans of Indian non-bank clients of Swiss-domiciled banks and had shown an increase of 7 per cent in 2019, after declining by 11 per cent in 2018 and by 44 per cent in 2017. It peaked at over $2.3 billion (over 9,000 crore) at the end of 2007.
INFORMATION EXCHANGE
DUBIOUS DISTINCTION
While the UK topped the charts for foreign clients’ money in Swiss banks at CHF 377 billion, it was followed by the US (CHF 152 billion) at the second spot. Others in the top 10 were West Indies, France, Hong Kong, Germany, Singapore, Luxembourg, Cayman Islands and Bahamas.
India was placed at 51st place, ahead of countries like New Zealand, Norway, Sweden, Denmark, Hungary, Mauritius, Pakistan, Bangladesh and Sri Lanka. Among BRICS nations, India stood below China and Russia, but above South Africa and Brazil. Others placed above India included Netherlands, UAE, Japan, Australia, Italy, Saudi Arabia, Israel, Ireland, Turkey, Mexico, Austria, Greece, Egypt, Canada, Qatar, Belgium, Bermuda, Kuwait, South Korea, Portugal, Jordan, Thailand, Seychelles, Argentina, Indonesia, Malaysia and Gibraltar. The countries for which Swiss banks reported a decline in amounts due to clients included the US and UK, while the money parked by individuals and enterprises from Bangladesh also declined during 2020.
It was in 2019 that India received for the first time the first tranche of Swiss bank account details and it was touted as a major success of the Modi Government’s fight against black money. However, the data was still shrouded by the confidentiality clause. The full names that figured prominently in the Swiss government federal gazette include Krishna Bhagwan Ramchand, Potluri Rajamohan Rao, Kalpesh Harshad Kinariwala, Kuldip Singh Dhingra, Bhaskaran Nalini, Lalitaben Chimanbhai Patel, Sanjay Dalmia, Pankaj Kumar Saraogi, Anil Bhardwaj, Tharani Renu Tikamdas, Mahesh Tikamdas Tharani, Savani Vijay Kanaiyalal, Bhaskaran Tharur, KalpeshbhaiPatel Mahendrabhai, Ajoy Kumar and Dinesh Kumar Himatsingka, Ratan Singh Chowdhury and Kathotia Rakesh Kumar.
ABBREVIATIONS
Of course, there are some names mentioned in the Swiss Government federal gazette, but still, there were many more cases where only initials had been disclosed for Indian nationals and these include only abbreviations or initials such as NMA, MMA, PAS, RAS, ABKI, APS, ASBK, MLA, ADS, RPN, MCS, JNV, JD, AD, UG, YA, DM,SLS, UL, SS, RN, VL, UL, OPL, PM, PKK, BLS, SKN and JKJ.
Interestingly, several of these persons and their companies are said to be based in Kolkata, Gujarat, Bengaluru, Delhi, and Mumbai. Large numbers of Indians who had been issued notices include people whose names figured in the HSBC and Panama lists, as also those being probed by the Income Tax Department and the Enforcement Directorate among other agencies.
The Swiss delegation led by Nicolas Mario Luscher, Deputy Head of Tax Division, State Sectt for International Finance had sometime back held a meeting with Revenue Secretary Ajay Bhushan Pandey and senior tax officials of Central Board of Direct Taxes (CBDT). The automatic exchange of financial account information (AEOI) under Common Reporting Standard (CRS) was the result of these deliberations.
Experts point out that of late Switzerland has been trying hard to change public perception about Swiss banks as being a safe haven for stashing black money overseas. During elections in India, political parties to gain brownie points to nail rivals raise the issue. Of late, India and Swiss have strengthened their bilateral economic ties to increase cooperation when it comes to bringing to book the people with dubious records, especially in amassing illicit wealth. The top agenda on both countries’ lists, of course, is black money by Indians in Swiss banks. India is now among the 75 countries with which Switzerland’s Federal Tax Administration (FTA) has exchanged information on financial accounts within the framework of global standards on AEOI. The AEOI comes into picture only in the case of accounts in the name of Indians.
The AEOI is currently applicable in Switzerland and also there is an authority called the Global Forum of the Organization for Economic Cooperation and Development that oversees the EOI implementation. The Federal Tax Administration has by far passed on information about around 3.1 million financial accounts to the partner states and received information on around 2.4 million from the partner states.
The information exchange is governed by strict confidentiality clauses, and the FTA officials refused to disclose specific details on the number of accounts or about the quantum of financial assets associated with the Indian clients of Swiss banks. The AEOI only relates to accounts that are officially in the name of Indians and they might include those used for business and other genuine purposes.
The exchanged details include identification, account and financial information. These include name, address, state of residence and tax identification number, as well information concerning the financial institution, account balance and capital income.
Under the Swiss laws, foreign clients of Swiss banks are given an opportunity to appeal against proposed sharing of their details within 30 days (only 10 days in some cases) after a country with a mutual assistance treaty, or party to the multilateral information exchange framework, seeks the details while giving sufficient proof of suspected financial wrongdoings. While the Swiss government federal gazette notifications are made public when a foreign client is given an appeal opportunity, in some cases their full names are redacted due to some secrecy clauses and only a few details such as their initials, date of birth and the nationality are made public. An analysis of such weekly notifications issued since the beginning of this year showed that Indian nationals have figured among these notices virtually every week, though full names have been redacted in a majority of the cases.
PROSECUTION CRUCIAL
The data received by India can be quite useful for establishing a strong prosecution case against those who have any unaccounted wealth, as it provides entire details of deposits and transfers as well as of all earnings, including through investments in securities and other assets. However, there are allegations that many natives might have closed their accounts after a global crackdown on black money led to Switzerland buckling under international pressure to open its banking sector for scrutiny to clear the long-held perception of Swiss banks being safe haven for undisclosed funds.
The ball now is in the court of the prosecution. It must use the data received to trace unaccounted wealth and bring it to the book. Those who figured in the HSBC list, Panama and Paradise papers and now in the Swiss bank list must be brought to book. Although a large portion of the first tranche of data relates to accounts that have been already closed due to fear of action, it can be quite useful for establishing a strong prosecution case against those who had any unaccounted wealth in those accounts.
