Podcast | Pick of the day - Indians' affinity for Swiss banks grows

Indians’ affinity for Switzerland is only too well known. Mention “honeymoon” and the first image that I imagine most Indians conjure is snowcapped mountains, cute little chalets, men in thick woolen sweaters, and women in chiffon sarees – basically a scene from Chandni.

Perhaps even singing “Aage aage chalein hum, peechhe peechhe preet mitwa.” It’s no surprise then that as Indians are going aage aage into Switzerland in busloads, so would their black money follow them peechhe peechhe.

A recent PTI report claims that money parked by Indians in Swiss banks rose over 50 percent to 1.01 billion francs (Rs 7,000 crore) in 2017, reversing a three-year downward trend amid India's clampdown on suspected black money stashed there.

You know what they say, bahut hee bure din somewhere must mean achhe din somewhere else. And that tragico(s)mic balance is our Editor’s Pick of the Day – Brown Money in the White Alps. My name is Seetal, and you’re listening to Moneycontrol.

The Gringotts of the Muggle World has released its latest report, and it appears the Slytherins of the Muggle World are cashing in. That analogy must mean we have a Voldemort among us, but it fails when we realise it is not just one. Oh well.

The tall claims of the government that there has been a renewed crackdown on black money stashed abroad meets a blow in one statistic - as against the 50% rise in funds from India, the total funds held by all foreign clients of Swiss banks rose by just 3% to Rs 100 lakh crore in 2017.

One can only wonder when that statistic will make the rounds of WhatsApp groups as an example of India Shining. Perhaps when people will also realise our neighbour Pakistan's fell by over 21 per cent to a record low of Rs 7,700 crore. However, Pakistani nationals still have more money stashed in Swiss bank than Indians. Yay?

The Swiss National Bank, which is the central banking authority of Honeymoon Central (we mean Switzerland), released its annual official data and it is from them that we draw out these nuggets.

The Indian money in Swiss banks had fallen by 45 per cent in 2016, marking their biggest ever yearly plunge, to CHF 676 million (about Rs 4,500 crore) – the lowest ever since the European nation began making the data public in 1987. According to the SNB data, the total funds held by Indians directly with Swiss banks rose to 999 million Swiss franc (Rs 6,891 crore) in 2017, while the same held through fiduciaries or wealth managers increased to CHF 16.2 million (Rs 112 crore).

These figures stood at CHF 664.8 million and CHF 11 million, respectively, at the end of 2016. As per the latest data, the Indian money in Swiss banks included CHF 464 million (Rs 3,200 crore) in the form of customer deposits, CHF 152 million (Rs 1,050 crore) through other banks and CHF 383 million (Rs 2,640 crore) as 'other liabilities' such as securities at the end of 2017.

The funds under all three heads have risen sharply, as against a huge plunge across all categories in the previous year, the SNB data showed. The funds held through fiduciaries alone used to be in billions till 2007 but began falling after that amid fears of regulatory crackdown.

Early-to-mid noughties were a particularly naughty time for Indians with their illicit money – the total funds held by Indians with Swiss banks stood at a record high of CHF 6.5 billion (Rs 23,000 crore) at 2006-end, but came down to nearly one-tenth of that level in about a decade.

Since those record levels, this is only the third time when there has been a rise in Indians' money in Swiss banks — in 2011 (12 percent), 2013 (43 percent) and now in 2017 by 50.2 percent — the maximum increase since 56 percent way back in 2004.

These latest data from the Zurich-based SNB come after the setting up of a framework to enable the automatic exchange of information between Switzerland and India to help check the black money menace.

While Switzerland has already begun sharing foreign client details on evidence of wrongdoing provided by India and some other countries, it has agreed to further expand its cooperation on India's fight against black money with a new pact for automatic information exchange.

There were several rounds of discussions between Indian and Swiss government officials on the new framework and also for expediting the pending information requests about suspected illicit accounts of Indians in Swiss banks.

The funds, described by SNB as 'liabilities' of Swiss banks or 'amounts due to' their clients, are the official figures disclosed by the Swiss authorities and do not indicate to the quantum of the much-debated alleged black money held by Indians there.

SNB's official figures also do not include the money that Indians, NRIs or others might have in Swiss banks in the names of entities from different countries. Let’s not also forget that a lot of Indians’ companies are registered in different countries. Let’s also not forget that a lot of money stashed away in foreign havens is under the names of spouses or kin who may not be the citizens of India.

So, amid a decline seen in Indian money over the previous three years, there was a view that Indians who had allegedly parked their illicit money in Swiss banks in the past may have shifted the funds to other locations after a global crackdown began on the mighty banking secrecy practices in Switzerland.

Swiss banks have earlier said Indians have "few deposits" in Swiss banks compared to other global financial hubs like Singapore and Hong Kong amid stepped-up efforts to check the black money menace.

On directions of the Supreme Court, India had constituted a Special Investigation Team (SIT) to probe cases of alleged black money of Indians, including funds stashed abroad in places like Switzerland.

A number of strategies were deployed by the government to combat the stash-funds menace, in both overseas and domestic domain, which included enactment of a new law, amendments in the Anti-Money Laundering Act and compliance windows for people to declare their hidden assets.

The Tax Department had detected suspected black money running into thousands of crores of rupees post investigations on global leaks about Indians stashing funds abroad and has launched prosecution against hundreds of them, including those with accounts in the Geneva branch of HSBC.

The issue of black money has been always been a matter of great debate in India. When demonetization was brought into place, among the most affected were people who did not have much, but there was an undeniable element of schadenfreude from those very people that the haves with their illegally stashed money will at least suffer.

Whether or not that has happened is up for another debate, but the issue of black money strikes at the very heart of a country like ours, with its massive income gap and the resulting different Indias occupied by different people within the same geographic area they call India.

Switzerland has been long perceived as one of the safest havens for such funds. Earlier in 2015, the money held by Indians in Swiss banks had fallen by nearly one-third to CHF 1,217.6 million (over Rs 8,000 crore). Prior to that, these funds fell by 10 percent to CHF 1.8 billion in 2014, after a rise of 43 percent in 2013 to CHF 2.03 billion.

The total assets of Swiss banks in India, however, fell by about 18 percent in 2017 to CHF 3.2 billion in second consecutive year of decline. This does not include any tangible assets like real estate and properties. The amount owed by Indian clients to Swiss banks fell by 48 percent in 2017 to CHF 210 million.

Back in 2009, during election season, the BJP’s Lal Krishna Advani made the repatriation of black money held in Swiss banks one of his main campaign issues. He had declared, “If I am elected, I promise to repatriate this money within 100 days.”

Ironically enough, capital flight is an accusation that dogs politicians most, while it is the same politicians who also use it as a campaign issue. As early as the mid-2000s, in addition to tax fraud, kickbacks and other kinds of bribery, a study by Global Financial Integrity, a Washington-based thinktank, claimed USD 22-27 billion was moved abroad from India every year.

These numbers had placed the subcontinent fifth – behind China, Saudi Arabia, Mexico and Russia – in the ranking of countries with capital flowing in the direction of tax havens. A report by the BJP task force back in 2009 had concluded that, “wealth in Swiss bank accounts and other tax havens may be in the range of USD 500 billion and USD 1.4 trillion.”

Advani had said the credibility of these figures was reinforced by the Organisation for Economic Co-operation and Development, which at a G20 summit in London in April estimated that more than $11 trillion was held in tax havens. James Newson, then at the Swiss Banks Association, had said that these numbers were at best speculation, and at worst pure fantasy.

Cut to 2012, the Director of the CBI AP Singh said, “Indians are the largest depositors in banks abroad with an estimated 500 billion US dollars (nearly Rs 24.5 lakh crore) of illegal money stashed by them in tax havens. India, in particular, has suffered from the flow of illegal funds to tax havens such as Mauritius, Switzerland, Lichtenstein, British Virgin Islands, etc.

It is estimated that around 500 billion dollars of illegal money belonging to Indians is deposited in tax havens abroad. Largest depositors in Swiss Banks are also reported to be Indians.”

The BBC in its report of AP Singh’s comments had cited a November 2010 report by the US-based group, Global Financial Integrity, which claimed India had lost more than $460bn between 1948, a year after Independence, and 2008 because of companies and the rich illegally funnelling their wealth overseas. India's underground economy accounted for 50% of the country's gross domestic product, it said.

The report further elaborated the illicit outflows of money had increased after economic reforms began in 1991. The opposition party then, the BJP, had used this information to target the ruling party, the Indian National Congress. However, some of these numbers were described as flawed in a White Paper on Black Money, released by the government.

So the issue of black money and foreign havens being used as secret stashaways has long been a campaign issue.