Dodging Money Laundering Issues

When American authorities did not indict HSBC in a money-laundering case, they were apparently swayed by concerns that the criminal charges could “endanger the bank’s prospects” and concurrently “destabilize the global financial system.”

rupees1000The United States and the international community could do without a Lehman Brothers repeat, it was offered.

We all know how a single institution could adversely affect not just the industry but thwart the entire economy.

Obviously, a money-laundering indictment or even a guilty plea over such charges would sound the death-knell for the bank. It could deprive the bank from certain investors like pension funds even land up losing out on its charter to operate in the US. The bank’s record settlement of $1.92 billion with the authorities was a logical given.

Concurrently, despite the number of tax-evasion cases coming to light following “continual pressure from the US authorities,” their Indian counterparts maintain a stoic silence. After all, a lot of money that flows into India from non-resident Indians (NRIs) or from persons of Indian origin (PIOs) may not be accounted for tax purposes in the country of origin.

If at all the Indian government decides to initiate any action in this matter, remittances from NRIs and PIOs would slump dramatically which may well be the reason for India’s hesitance in signing international treaties on tax evasion.

Much like the US where it comes to the issue of money-laundering, the United Kingdom also refuses to tackle the issue by its horns. That despite the UK’s Home Affairs Committee clearly maintaining:

“The Financial Services Authority (FSA) undertake three main types of work in regards to anti-money laundering controls—checking the anti-money laundering systems of authorized firms subject to the Money Laundering Regulations, casework (where something appears to have gone wrong in a firm) and thematic reviews of the industry. They are responsible for enforcing and prosecuting breaches of the regulations.”

The US is “worried” of the trigger any action may have on the prospects of the bank and the economy at large; the UK despite its laws on money laundering having extra territorial application chooses to stay mum for obvious reasons and India doesn’t want to stop appeasing her non-resident “investor.”

In India, three leading banks are in the docks for allegedly trying to “help high profile customers evade income-tax and violate banking laws, IT laws and enforcement laws.”

An investigative website claimed to have conducted a sting operating and collecting hundreds of “incriminating” recordings in which bank executives are seen showing clients ways to launder money. Reportedly, the website had sent a reporter posing as an aide of a minister to three leading banks – ICICI Bank, Axis Bank and HDFC Bank – where bank executives readily offered means for laundering illegal money through banking system.

In response, it has been reported that ICICI Bank has suspended 18 of its employees and HDFC Bank has suspended 20 employees in connection with the matter. Finance Minister P. Chidambaram and Reserve Bank of India will be probing the allegations levied on the three banks as well.

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The sting operation only brings forth the issue of unaccounted wealth that many Indian politicians have stashed away in foreign nations. For years India has unsuccessfully tried to bring back unaccounted money to the country and punish the guilty.

In 2011, Bharatiya Janta Party’s (BJP) Member of Parliament Varun Gandhi had filed an RTI application to seek names of MPs and others who have allegedly hidden illicit money in the accounts of HSBC Bank in Geneva. The reply to the RTI application wasn’t made public. The government was only willing to share that the “investigation is still in progress” with authorities trying to “collect more information.”

In 2011, WikiLeaks founder Julian Assange announced he would reveal the names of Indian politicians holding accounts in Swiss banks the “next year.” However in 2012 no names were revealed. Reportedly, in June 2012, Switzerland revealed details of money held by Indians in Swiss banks. A total of 2.18 billion Swiss francs, amounting to nearly Rs (rupee) 12,740 crore, were held by Indians till the end of 2011.

According to the report published by Switzerland, the total funds held by Indian individuals and entities include 2.025 billion Swiss francs held directly by them and 158 million held through “fiduciaries.” The data was revealed by the Swiss National Bank (SNB) in its annual handbook on Swiss banks.

The aforementioned amount is the “liabilities” figures of Swiss banks and are official figures disclosed by the Swiss authorities. This, however, does not say anything about the “black-money” Indians have stashed there.

Around six months after the list of “liabilities” was made public by the Swiss government, Aam Aadmi Party founder Arvind Kejriwal alleged that there is in total Rs 6,000 crore illicit money that Indians have stashed in various Swiss banks. He also charged that not all the Indian held money in Swiss banks is illegal.

Reportedly, Kejriwal named a few influential people having unaccounted wealth in Swiss banks. Getting unaccounted wealth back in the country is proving to be a big government ordeal. Delhi has claimed that it’s trying to get to the root of the identity of those hoarding unaccounted funds in foreign countries.

To vindicate its stand, the government recently introduced the Prevention of Money Laundering (Amendment) Bill, passed by Rajya Sabha by a voice vote after finance minister P Chidambaram pressed on the need for continuously amending the law to meet new challenges. While this represents a step in the right direction, it can be expected this serious issue won’t go away any time soon.

Gajanan Khergamker is an independent editor and legal counsel with over three decades of experience. He heads DraftCraft – an India-based media-legal think tank. His areas of expertise include policy, inclusion, foreign affairs, law and diversity. His firm’s website is www.draftcraft.in and he can be reached at gajanan@draftcraft.in. Read other articles by Gajanan.