The era of bank secrecy is over,” declared a 2009 G20 communique — except it isn’t, apparently. While black money worldwide has likely decreased following amnesty schemes and stepped-up enforcement in the last three years, it is clear that it has not gone far enough. A just-released report from the non-governmental organisation Tax Justice Network, written by a former chief economist for McKinsey and Company, has used an innovative method to document the size of flows to tax havens from a set of developing and emerging economies. Unlike previous estimates, which relied on data surrounding “trade mis-invoicing” and were open to question, these estimates use Bank of International Settlements and IMF data, along with details available from source countries. The numbers, however, are staggering: anything between $21 and $32 trillion is stashed away.
What, therefore, has been the progress in closing these gaps in the global tax net — and has India contributed what it should have to the effort? It appears that the central problem has been a lack of co-ordination. Although the G20 spoke out on the issue after the global financial crisis, it then left individual countries to their own devices. What this meant was that countries like the United States could renegotiate treaties in their favour with much greater ease than could most other jurisdictions. The US, for example, has succeeded in getting Switzerland to hand over even the names of tax dodgers not covered by treaty, through threats to launch criminal charges against their banks. Other European countries have agreed to provide the details of all accounts held by American citizens to the US. Germany and Britain similarly pushed Switzerland into a treaty by which the latter will tax Swiss bank accounts for them, and introduce a withholding tax on future interest earned. India, while it has been renegotiating treaties, has simply not been that tough or threatening when it comes to forcing tax havens like Switzerland, Leichtenstein or the UK-owned Cayman Islands into giving it similar deals. This must change. At a minimum, the onus of demonstrating bona fides should be shifted to the depositor, as with depositors of other nationalities — instead of on to Indian tax investigators. Nor is it sensible to allow legal protection of the identities of tax evaders.
Indeed, even India’s use of current provisions has been unsatisfactory. It is not necessary to treat the matter as closed once tax is paid — tax evasion is a criminal act, and the law should take its course. Swiss officials have in fact pointed out that treaties always enabled investigation for money laundering and corruption; India merely chose not to take advantage of those provisions. True, the government has chosen to try and close loopholes that enabled companies to avoid taxes. It has not gone about that in the most public relations-friendly manner. But rather than pulling back following the outcry its efforts have occasioned, it should instead realise it has not gone far enough in tackling the other implications of tax havens.