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Let’s bank on recovering it

India now has a real chance at getting a grip on slippery money parked in Swiss banks.

india Updated: Jan 23, 2011 22:22 IST

India has managed to gain access to Swiss bank secrets through a tax treaty. Now we must show we are sincere about getting back money that has fled Indian taxes. Swiss banks are assured of secrecy as an offshore tax haven by Bern’s insistence that tax evasion is not a crime, tax fraud is. This has made Switzerland the largest offshore banker to the world, home to an estimated one-third of the $7 trillion dodging taxes worldwide. Indians are, going by some estimates, understood to have stashed away as much as a fifth of this in vaults around Lake Geneva. The fine distinction the Swiss have maintained between tax evasion, a civil offence for which banks can protect client confidentiality, and tax fraud, a crime for which they cannot, has become untenable.

Earlier, if India wanted to go after this money, it would have to — in every single case — let Swiss courts establish that fraud had been committed. The new tax treaty allows for information to be shared even if no Swiss law has been violated. Switzerland has signed similar treaties with 30-odd nations, including India, since Washington threatened to take UBS, Switzerland’s biggest bank, to the cleaners if it did not divulge data on clients thought to be evading around $100 billion in US taxes. The Swiss capitulation was swift: UBS holds more in deposits than Switzerland’s GDP.

The pressure that governments can today bring to bear on Swiss banks is, ironically, aided by a desire by the banks themselves to become more transparent. UBS has spearheaded the trend of investing in ‘onshore’ branch networks across the globe in the belief that, while the days of the numbered account may be numbered, the professional standards set by Swiss banks would find a worldwide clientele. As their onshore business grew, the banks became more susceptible to local jurisdictions.

The Swiss have always been more than willing to aid probe into tax fraud. But unearthing money that is dodging taxes is not an activity for the faint-hearted. Plug one hole and the money flees to another, possibly, deeper one. The Swiss have been far more than forthcoming when criminality has been suspected. The same cannot be said of the other places of refuge for funny money. In an ideal situation, the world should make a concerted attempt to flush it all out at one go.