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Scam-tainted money may be moving the markets

DNA, Nov 23, 2010

R Vaidyanathan

The financial accounting course taught in every commerce college and business school Accounting 101 includes a discussion on the sources and uses of funds. In all thediscussions on the scams pertaining to the Commonwealth Games (CWG), the IndianPremier League or the 2G spectrum, the focus is on sources, not uses. For instance, in thecase of the 2G spectrum scam, which involves an opportunity loss of upto Rs1,76,000 croreto the national exchequer, the documents indiacate that a substantial portion of the funds forthe bidding came from tax havens like Cyprus, Channel Islands and Mauritius.

The last date for the submission of applications was advanced from October 1, 2007 toSeptember 25, 2007 through an announcement made much after that period was over. On

January 10, 2008 the department of telecommunications (DoT) posted an announcement onits website around 2.45pm saying letters of intent for telecom licences along with spectrumwould be issued between 3.30-4.30pm that afternoon and that application fees (worth overRs1,000 crore) would have to be paid immediately by demand draft along with the supportingdocumentation.

Licences were given to those who deposited their fees using the infamous first-come-first-served system. In short, spectrum licences were given through a system unknown even for

pre-school admissions. The prime minister, if he was serious about tackling corruption,should have ordered an inquiry immediately and sacked the telecom minister.

Now lets see who got licences. More than 45% of Etisalat DB, which acquired a stake in

Swan telecom which got the licence, was held by Tiger Trustees Pvt Ltd, a firm 99.8%owned by Dynamix Balwas, a real estate group. UAE-based Etisalat owned its stake througha Mauritius arm, while Delphi Investments, a Mauritius-based company, owned theremainder. All were clearly linked to tax havens.

Interestingly, the Central Bureau of Investigation (CBI) stumbled upon damning evidence ofmoney transfers in the spectrum case while probing the arrest of Maharashtra and Goa chief

postmaster general MS Bali. He had allegedly accepted a bribe of Rs2 crore from a builderfor issuing a no-objection certificate to build on postal land in Mumbai. Along with him oneArun Dalmia was also arrested. During interrogation, Dalmia allegedly told the sleuths abouttwo Swiss accounts, some property details and high-volume cash transactions flowing into

bank accounts in Delhi, Chennai, Singapore, Dubai, Malaysia and other tax havens abroad.But this angle was never probed. Similar is the case with the CWG scam, wherein substantialsums of money have gone to tax havens.

Funds are being siphoned off from India to tax havens by political leaders in cahoots withbureaucrats and business barons. A recent report by Global Financial Integrity, a think-tankbased in Washington, suggests that nearly US$460 billion is held illegally by Indians in taxhavens. This can only be an underestimate.

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Funds whether in white or black are always in rotation, and the further the funds flowaway from the taxman, the faster they rotate. The same funds often come back as foreigninvestment in sectors like telecom or real estate, or even as portfolio investments in the stockmarket. Information about foreign investment in stocks is opaque to say the least.

Our stock market has decoupled from the economy and its movement is related to scams

which generate funds to be sent to tax havens abroad and which are then recycled back. Oureconomic growth comes primarily from the services sector which has more than 60%share of GDP and which is dominated by firms in trade, hotels, construction and otheractivities performed by the so-called unorganised sector. The share of household financialsavings going in to stock market is less than 5%.

What we need to probe is this: is major economic activity being financed by resourcesdrained from our own system? Is our stock market largely driven by scam-tainted money?Our political leaders seem to know all about it.

Is there a way out? The only hope is for the Supreme Court to order a special investigationunder its control and supervision, away from the CBI and the Central Vigilance Commission,

which appear compromised. We need to probe the scams and create a fast track court topunish the guilty within a timeframe and create a process to bring the illegal money backfrom tax havens. If a couple of leaders are jailed for 20-50 years, some sanity can be injectedinto the system. Otherwise, we will lose our political freedoms too. Our economic freedomhas already been mortgaged with the tax havens and foreign intelligence agencies know allabout this. They are, thus, in a position to dictate our economic policies. Will the SupremeCourt step in to protect our sovereignty and integrity?