Manmohan Singh and his government, instead of celebrating, seem to be worried at the success of eliminating banking secrecy

A deafening silence on funny money

It was unthinkable six months ago. Switzerland, once a pet of Western capitalism, is now its hate object. During World War II, the tiny nation was the common love of both the Allied and Axis powers, at war with each other. But neutral Switzerland, a friend of all since Napoleonic days, is friendless today. Its prime attraction, financial secrecy secured by law, has become its nemesis.
Germany first, France next, the US later, with the UK joining last, have, individually and together, declared a war against secret banking and tax havens like Switzerland.
It is a crusade by the West against the Swiss, says the media. Tax havens ask for no income tax from non-citizens and their banks ask no questions about their money. Modern capitalism had all along winked at secret banks and tax shelters; even nicknamed secret money ‘funny money’. But now the West chases secret money like it targets al-Qaeda.
Why this miraculous shift? The short answer: ‘financial crisis’. The Guardian of UK wrote (March 4), “European leaders grew increasingly agitated at how tax havens have fostered secrecy that has contributed to the collapse of banks the world over”. The newspaper’s Tax Gap Series estimated the unaccounted global wealth held in secret havens, including Switzerland, at $13 trillion. The annual tax evasion on the dirty fund, estimated at $255 billion was, the newspaper said, twice the global budget for poor nations. Der Spiegel, a German magazine, reported (March 3) that “Cash strapped governments around the world see the opportunity to finally put an end to bank secrecy” to access the money concealed by their nationals. It added “British Prime Minister Gordon Brown, French President Nicholas Sarkozy and German Chancellor Angela Merkel are now joining forces” and “they have set their sights on Switzerland”.
The crusade against Swiss banks was started by Germany in early 2008 when its intelligence bribed — bribed? Yes — an informant in LGT Bank in Liechtenstein and got a CD containing the names of some 1,500 tax dodgers, and raided half of them, who were its citizens. It also offered, free of cost, the names of citizens of other countries. Many accepted the offer gratefully.
Thereafter, in the third quarter of 2008, Germany pressed the Organisation of Economic Co-operation and Development (OECD) to blacklist Switzerland for protecting tax dodgers.
Switzerland is an OECD member and twothirds of the Swiss speak German. Yet Germany couldn’t care less. Soon, France joined Germany.
“We want to put a stop to tax havens”, thundered Sarkozy.
At the preparatory G20 summit in Berlin early February, European leaders vowed to launch a global crusade against tax havens at the G20 meet in London, said the Irish Financial News. Europe’s anger was explicit in its refusal to allow the Swiss plea to be presented before the G20 in London.
The US moved even more menacingly. On February 18, the US Inland Revenue threatened the largest Swiss bank, UBS, with a lawsuit — that would have bankrupted it — unless the bank disclosed the names and accounts of some 300 American tax dodgers. A frightened UBS forthwith surrendered the secret data to the US before the account holders could stall it by a Swiss court order. Later, the Obama administration told the US Senate that it would bring laws to prise open the world’s most secretive tax havens.
At this point the UK joined the crusade.
Switzerland wilted under the pressure. Spiegel wrote that, for generations, the Swiss had held bank secrecy as “not negotiable”, and added that it was “no longer” so. The magazine quoted Swiss finance minister Merz as saying that they would have “to compromise”. The Swiss justice and foreign ministers, the magazine reported, had hinted that the country might have to stop protecting tax dodgers. Subsequently, a nervous Merz met Gordon Brown on March 14 with a deal to prevent any move in G20 to blacklist his country. The deal was that Swiss banks would adopt the bank transparency rules of OECD countries. Brown claimed that it was “the beginning of the end of banking secrecy”. Yet, the US is pressing ahead with a law to punish banking secrecy.
When the crusade of the West against Swiss banks is succeeding, here Dr Manmohan Singh and his government, instead of celebrating, seem to be worried at their success. Three bits of evidence expose the Congress-led government’s not-so-well-hidden worry. First, when Germany’s finance ministry offered the LTG bank secret data to any country that needed it, the government would not ask for it despite reports that it contained some 100 Indian names. When in April last year, L K Advani wrote to Manmohan, requesting to him to ask Germany for the data, the then finance minister responded evasively. Transparency International noted India’s “stoic silence over the issue” and that it “has not approached the German government for the data’’ (Economic Times, May 25 2008]. More, the revenue secretary in Delhi has reportedly advised the Indian ambassador in Berlin not to push Germany for the details as Germany might not like it – clear proof that the government is scuttling, not getting, the details.
Second, when, in the G20 preparatory meeting at Berlin, Germany and France were threatening to blacklist Swiss and other secret tax shelters, India’s silence at Berlin was deafening.
Montek Singh Ahluwalia, the PM’s righthand who, along with Dr Rakesh Mohan, represented India at Berlin, did not utter a word in support of Germany and France. India, a principal victim of banking secrecy, should have been leading the war cry against it. But it did not even morally support those waging the war.
Third, when on Sunday last L K Advani told Manmohan Singh that India should join in the G20 effort to break banking secrecy, the PM did not respond. The spokesperson of the Congress Abhishek Singhvi responded that G20 was not the forum for that, being blissfully ignorant of the fact that it was a main agenda of G20 meet.
In fact just ahead of the meeting, Sarkozy had threatened to walk out unless the G20 decisively acted against secret banks and tax havens.
No need to strain further to understand Manmohan’s compulsions. The fear that drove the ruling family to abort the 1987 probe into Indian monies secreted abroad is still evident. But Advani’s threat to turn the recovery of Indian wealth secreted abroad an election issue has got the PM and his party off guard. The party has blundered, saying G20 is not the forum, when it is precisely that. Now the prime minister cannot remain silent. He has to do something. At least make a show of doing. But can he? QED: Dr Manmohan Singh stands between the devil and the deep sea — between his party and L K Advani.