June 2008

Vol 7 - No. 12
























Economy | June 2008



Black Money Data Available for Asking

Black Money: A Global Problem
Indians and NRIs partners in crime 

The total amount of black money globally is estimated between $2.1 and 2.5 trillion. This is roughly about seven per cent of the world's GDP, says Aman Agarwal, professor of finance at the Indian Institute of Finance, New Delhi.


Naman Sood has quoted a Swiss Banking Report: Indians, with $1.4 trillion, have more black money than the next four largest depositors put together: Russians at $470 billion, Britons at $390 billion, Ukrainians at $100 billion and Chinese at $96 billion.


Economists have variously estimated black money in between five and 48 percent of the GDP, with economist Shanker Acharya putting the figure at 20 percent and Arun Kumar at 40 percent.


Both Indians and NRIs are partners in this crime: Politicians, businessmen, babus and criminals.


"Let us bring back our money," says M.R. Venkatesh, an NRI in the US. "It is one of the biggest loots witnessed by mankind - the loot of the 'aam aadmi' (common man) since 1947 by his brethren occupying public offices. What is even more depressing is that this ill-gotten wealth of ours has been stashed away abroad into secret bank accounts located in some of the world's best known tax havens. And to that extent, the Indian economy has been stripped of its wealth."


How has this happened? In an exclusive interview with the Economic Times, Agarwal said:

- some NRIs in the US transferred money by 'hawala' 10 years ago after India's nuclear tests at Pokhran because they feared that they may be pressurised to leave the US.

- Indian workers in Arab countries cannot transfer money back home due to local laws. So 'hawala' is the only route -- by handing cash to local 'agents' for delivery to their families in India. They also buy gold and diamonds to bring to India.

-  NRIs in Eastern Africa faced tight exchange control regulations until mid-1990s so they sent their cash to Britain and the US as 'a lifeboat'. They deposited it in banks or purchased properties with this money.

- NRIs from Britain used the 'hawala' route to send money to their families for a better exchange rate and less hassles with banks for their relatives.


After 9/11, a new element of financing terrorist operations has crept in -- black money transfers, in addition to financing drugs. Terror groups are using 'wire money transfer' channels and credit cards to send money for terror strikes.


There is global fight against money laundering and the financing of terrorist activities. The International Monetary Fund (IMF) continued to deepen its engagement in the global fight against money laundering and the financing of terrorism.


The Egmont Group is an international organization of more than 100 Financial Intelligence Units (FIUs) dedicated to information exchange, and to assisting FIUs worldwide to improve their operations.


The Financial Transactions and Reports Analysis Centre of Canada, or FINTRAC, created in July 2000, is Canada's financial intelligence unit, a specialized agency created to collect, analyze and disclose financial information and intelligence on suspected money laundering and terrorist activities financing.


The Indian government set up the Financial Intelligence Unit - India (FIU-IND) in 2004 for receiving, processing, analysing and disseminating information relating to suspect financial transactions.


All banks and finance companies are bound every month to inform FIU-IND about all cash transactions of over Rs.1 million and its equivalent in foreign currencies; all cash transactions below Rs.1 million and its equivalent in foreign currencies; all cash transactions in forged or counterfeit currency notes and all suspicious transactions.


This unit has unearthed an impressive number of underhand dealings as detailed in its annual report and has been granted more powers to track down more. Now Indian outlets of foreign wire transfer services and casinos have also been ordered to report their transactions every month.


Banks and finance companies now implement strict rules to identify everyone who operates or opens an account with them. Agarwal has advocated this concept, ‘Know Your Customer’, for some time. He has also devised a CD-ROM Principle for India's Black Money where C stands for pay Cash Carry Certificates; D for Delays, Deficiencies and Denial of certificate; and ROM for Rest on Mat as cases are never taken up and gather dust!


Comments Agarwal, "Unfortunately, the least respect for law and the maximum violation of law is the order of the day by some people in authority - as they are charged with the responsibility of enforcing laws on mafia groups, gangs, and/or nexus of the two. The former enjoys the constitutional security and the later is outside the framework of the law. A common man does not question either of them."


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