Grey areas in recovering black money stashed in foreign banks

The SIT for recovering illegal money has several legal hurdles to negotiate, but the search is not without hope. Gaurav Mukherjee writes.

On May 29, the NDA government set up a Special Investigation Team (SIT) granting it vast powers in relation to the “investigation, initiation of proceedings, and prosecution of all known instances of stashing of unaccounted monies in foreign bank accounts by Indians”.

Public imagination has been fired by the prospect of repatriating illicit assets, aided by the BJP manifesto’s promise of ‘bringing back black money stashed in foreign banks and offshore accounts’.

The Centre has, however, told the Supreme Court that all information on black money received from countries with which India has double taxation agreements cannot be disclosed.

Repatriation involves several steps that Indian authorities need to take for tracing illicit assets. This is complicated by the failings of certain avenues available to the authorities.

The first is the Double Taxation Avoidance Agreement (DTAA) between India and Switzerland, which allows for an override of its banking secrecy laws in order to exchange information on bank accounts, but only in cases where a tax liability is reasonably foreseeable.

Establishing reasonable foreseeability requires a complex web of evidence, in the absence of which the DTAA disallows ‘fishing expeditions’ into bank details by tax authorities.

The other avenues are the OECD Framework for Automatic Exchange of Information in Tax Matters and Convention on Mutual Administrative Assistance in Tax Matters (CMATM).

The former provides for the automatic exchange of account holder data to tax authorities by financial institutions in members states. With over $2.2 trillion of offshore assets under management Switzerland is under pressure to ratify the CMATM, which provides for spontaneous relay of information by a state on loss of taxable income of another state.

A faint glimmer exists in the form of the United Nations Convention Against Corruption, which allows the seizure of illicit assets pending final judgment.

The Convention addresses difficulties faced by authorities when individuals under investigation move assets between bank accounts and jurisdictions. As long as India can produce evidence of an ongoing criminal investigation under its domestic legislation, Swiss law allows for the seizure of assets through a request for mutual legal assistance.

This allows the Indian authorities time in gathering evidence, which may be used in information requests under the DTAA and judicial proceedings in India.

Gaurav Mukherjee, an advocate, is graduate fellow, School of Policy & Governance, Azim Premji University, Bangalore.

The views expressed by the author are personal