Black Money - A Recapitulation

Income earned without reporting to the government (without paying taxes) is called Black Money. Illegally earned money becomes black. Black money includes embezzled government funds, private money hidden from tax collectors, and the profits of illegal enterprises. Black money is concealed in form of gold, land and building, apartment, big bazaars, farm houses, private professional colleges.

Black money is a major source for corruption. The Black Money is not accounted by the system and therefore its circulation in the system will have destabilizing effect. Many illegal activities are conducted around the black money. A parallel economy based on Black money is called Black Economy.

Hawala is an alternative or parallel remittance system. Hawala system is called underground banking. A unique feature of hawala transaction is that it is built over trust. Unlike traditional banking hawala makes minimal (often no) use of any sort of negotiable instrument. Transfers of money take place based on communications between members of a network of hawaladars, or hawala dealers and in most of the cases actual money transfers does not take place between the Hawala dealers.

In 2006, the most recent Global Financial Integrity study, shows that the average amount stashed away from India annually during 2002-06 is $27.3 billion (about 136,466 crore). Similar amounts ofBlack money is generated every year. This money is preserved in Swiss banks and in different tax and secret shelters. The share of Swiss banks in black money being a third of the global aggregate. It has been estimated that in India, about 1.4 trillion dollars of Black money is generated from Independence. Out of this about $500 billion have been hoarded in Swiss banks.

Organisation for Economic Cooperation and Development (OECD) is a Paris-based group of 34 countries. These countries accounts for nearly 80 percent of world trade. Although India is not a member of OECD, it has close relations with it and has joined its multilateral platform initiative to check tax evasion and money laundering. G20 and OECD are putting enormous pressure on tax havens like Switzerland, Luxembourg and Ausria including threat of sanctions, to change opaque laws and share information that will help countries like India trace huge sums of black money stashed abroad.

The root cause of corruption and black money is greedy individuals and private companies. Political parties who are in charge of Governments realize that black moneys are amassed by people who were responsible for bringing them to power.

International legal framework for recovering more of these funds is slowly emerging with the signing of the UN Convention Against Corruption (UNCAC) by 140 countries. India recently ratified the treaty, which binds countries to adopt a standardized set of laws for handling corruption. Without these standards in place, countries like Switzerland may be disinclined to help recover stolen assets. It will take a couple years at least to implement UNCAC, says a Western diplomat.

Many experts around the world feels that States are not willing to tackle corruption and take action to recover assets. Moves are afoot to interpret UNCAC in a way that allows private citizens – not just governments – to initiate legal proceedings to recover black money on behalf of victim states. But some government representatives rejected that interpretation saying “these are government dues, so government has to do it.”

Acording to the Indian Government, the government is spending $1.7 million to figure out just how much black money is at home and abroad. On top of ratifying UNCAC, India has signed Tax Information Exchange Agreements that can penetrate bank secrecy with 27 countries. The finance ministry says it is prosecuting black money cases totaling some $17 million from accounts in Germany. At home, the ministry claims recovering $6.7 billion in unpaid income tax and detection of $12.4 billion in other tax scams over the past two years. Experts say, however, that implementation of UNCAC should surmount most hurdles to asset recovery – so long as a country’s government keeps working to recover black money.

Many people are not convinced of Government sincerity. There are a couple of reasons for this mistrust. Recently, a series of corruption cases have been exposed. Commonwealth and the 2G scam, the bigger ones among them were carried out by the people who were involved with the government. Role of money in winning elections is very well known. Major political parties are not able to reverse the trend. Governments, typically run by these parties, are not able to initiate anything significant in tackling corruption. They are also seen as scuttling the adoption of newer measures proposed by NGOs into the legal system.

Anticorruption activism is gaining momentum. Anna Hazare and his team successfully staged a protest and entered the committee to draft Lokpal (anticorruption) bill. Baba Ramdev is creating awareness among people about the need to bring black money back to India. He is also protesting against government to initiate actions immediately. One of the big Social organization RSS has passed resolutions and are ready to participate in anti corruption movements. All political parties are vocal in exttending their support against corruption. Recently, Baba Ramdev spoke of raising an army of youths – unarmed. Statements made at an April convention held by Transparency International India at the Habitat Center, were much more critical. One speaker, a formear income tax commissioner named Vishwa Bandhu Gupta, lamented that during the 2001 terrorist attack on Parliament some policemen gave their lives to save these scoundrels. He claimed another problem was that most Indian media has been bought off. Many in the audience cheered and offered drastic remedies. One suggested it was time for the Army to take over and clean house. Another spoke of creating a paramilitary army to target the corrupt.Feeding off such energy, Mr. Gupta suggested it was time to boycott Switzerland, a country where Indians suspect much of the black money is stashed in secret accounts.