India’s fight against the menace of black money continues unabated even as we have stringent laws to deal with the menace. The multi-headed hydra needs to be fought for the benefit of the country even if it requires taking the most difficult path. Find out more in the story.
As per the latest data, the total Indian money held in Swiss banks at the end of 2014 included 1,776 million Swiss franc or Rs 12,350 crore held directly by Indian individuals and entities, and another 38 million Swiss franc through ‘fiduciaries’ or wealth managers. While it is difficult to estimate the total amount of black money stashed abroad, bringing back all black money stashed away in all foreign banks was one of the major poll planks of the BJP. It said it was going to bring back all black money deposited in the foreign banks, if elected to power, and promised to deposit 15 lakh rupees in the bank account of every Indian. However, after the victory, Amit Shah clarified that it was a ‘chunavi jumla’, aimed at fooling Indian electorates.
On the question of black money, the political parties of all hues have been doing the same. While it is true that it is a multifaceted and complex problem, the sheer apathy of the government has made the scale of the problem reaching high and seemingly insurmountable. Generation of black money from legitimate activities, such as businesses or professions, nonreporting of income, overstated expenses, etc., have undermined the economy, its taxbase and the rule of law, and created inequalities.
The rise in the black money in India continues unabated even as we try to overcome the menace with growing public pressure on the political parties. However, the good news is that the Enforcement Directorate, as part of its efforts to crack down on illicit funds in India and abroad, in the financial year 2014-15 registered a 400 percent rise in the numbers of assets attached, over 500 percent increase in the number of criminal FIRs lodged, over 600 percent more numbers of arrests made of people suspected to be involved in laundering crimes and more than 200 percent jump in the filing of prosecution complaints or charge sheets as compared to the 2013-14 fiscal.
In his ongoing tour to the US this month, the Finance Minister said, “The government is taking a number of steps to compress the flow of black money. The most important step…is to weed out the root causes.” For the government, the important step is the enactment of yet another law called Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (Black Money Act) which has provisions of subjecting undisclosed foreign Income of a defaulter to a tax of 30% and penalty of up to three times the tax amount. The provisions of the Act will be attracted when an ordinarily resident of India has any income from a source outside India not reported in a tax return, or where no return has been filed to report such income. The provisions are also attracted when there is failure to disclose overseas assets generated out of income taxable in India. However, if the defaulter make the disclosure and pay a tax of 30% and an equal amount by way of penalty, they can get out of the mess.
While the new law will come into effect from April 1, 2016, the government is in the process to put in place a compliance window for those with undeclared assets abroad to come clean by paying the penalty. The government is deciding to prepare a time frame of the compliance window.
The Finance Minister has said, “I am going to announce in the next few days a compliance window that within so many days, disclose the assets, pay the tax plus penalty. And if you use that compliance window, you pay the tax, penalty and get out. But if you do not use the compliance window and thereafter if you are caught, because the world is now moving towards an automatic disclosure, you are not only going to pay a much higher level of penalty, but you also would be prosecuted.”
The penalty for not furnishing income tax returns in relation to foreign income or assets is a fine of Rs 10 lakh. This would not apply to an asset, with a value of five lakh rupees or less.
And the wilful attempts to evade taxes on overseas income and assets will attract rigorous imprisonment ranging from three months to 10 years, besides a fine.
However, some industry body has raised concerns and recommended that the provisions should be incorporated to provide for immunity from penalty/ prosecution proceedings under the IT Act with respect to Undisclosed Foreign Income and Asset taxed under the New Act. They say that barring section 67 which provides that declaration made under section 59 by the declarant shall not be admissible as evidence against the declarant for the purpose of any proceeding relating to imposition of penalty, other than penalty under section 61, or for the purposes of prosecution under the IT Act or the Wealth Tax Act or the Foreign Exchange Management Act, 1999 or the Companies Act, 2013 or the Customs Act, 1962, the provisions of the New Act do not provide for any immunity from penalty/prosecution under the IT Act.
According to a report on black money, the manifestation of black money in social, economic and political space of our lives has a debilitating effect on the institutions of governance and conduct of public policy in the country. While there is no is no uniform or accepted definition of ‘black’ money, a study undertaken by National Institute of Public Finance and Policy (NIPFP) defines ‘black’ money as aggregate of incomes which is taxable but which is not reported to tax authorities. The study, however, gives a broader definition of ‘black’ income and calls it as “unaccounted income” for purposes of clarity.
The report points out three sources of black money – crime, corruption and business. It says while the component of black money would normally include proceeds from a range of activities including racketeering, trafficking in counterfeit and contraband goods, forgery, securities fraud, embezzlement, etc, the ‘corrupt’ component of such money would stem from bribery and theft by those holding public office – such as by grant of business, bribes to alter land use or to regularize unauthorized construction, leakages from government social spending programmes, speed money to circumvent or fast-track procedures, black marketing of price controlled services, etc.
The ‘commercial’ limb of black money, the report says, usually results from tax evasion by attempting to hide transactions and any audit trail relating thereto, leading to evasion of one or more taxes. The main reason for such black economy is underreporting revenues / receipts / production, inflating expenses, not correctly reporting workers employed to avoid statutory obligations for their welfare. However, in all the three forms of black money – ‘criminal’, ‘corrupt’ and ‘commercial’ – subterfuges are created which include false documentation, sham transactions, benami entities, mispricing and collusion. This is often done by layering transactions to hide their origin.
There are many legal provisions to curb the menace of black money. We have many provisions in the Income Tax Act 1961, wealth Tax Act, The Benami Transactions (Prohibition) Act, Foreign Exchange Management Act (FEMA), 2002, Customs & Narcotic Drugs and Psychotropic Substances (NDPS) laws, Prevention of Corruption Act & United Nations Convention Against Corruption (UNCAC), etc. which provides for prosecution and fine the hoarders of black money.
Various sections of the Income tax Act have provisions for dealing with the menace of black money. The Sections 131, 132, 133A, 133B, 136, and the Chapters XXI and XXII of the Income Tax Act 1961 provides for penalties and prosecution against various offences related with evasion of taxes. Prosecutions can be launched for tax evasion (section 276C), non-filing of tax returns (section 276CC), failure to deposit taxes deducted / collected at source (sections 276B and 276BB), false statement in verification (section 277), abetment of false return (section 278), contravention of prohibitory orders (sections 275A and 275B), etc. Sentences vary from a minimum of 3 months to a maximum of 7 years imprisonment with fine.
The Prevention of Money-laundering Act, 2002 (PMLA) aimed at combating money laundering in India with three main objectives – to prevent and control money laundering, to confiscate and seize the property obtained from laundered money, and to deal with any other issue connected with money laundering in India- came into force from 1st July, 2005. The Act provides that whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property, shall be guilty of offences of money-laundering. For the purpose of money-laundering, the PMLA identifies certain offences under the Indian Penal Code, the Narcotic Drugs and Psychotropic Substances Act, the Arms Act, the Wild Life (Protection) Act, the Immoral Traffic (Prevention) Act and the Prevention of Corruption Act, the proceeds of which would be covered under this Act. Under the Act, money laundering linked to the predicate scheduled offences is liable for punishment. There are 156 offences in 28 different statutes which are Scheduled Offences under PMLA. In the amendment to the Act, the introduction of ‘corresponding law’ has been made to link the provisions of Indian law with the laws of foreign countries and provide for transfer of the proceeds of the foreign predicate offence in any manner in India.
Once the agency concerned with a predicate scheduled offence registers a case, Enforcement Directorate takes up investigations under PMLA to ascertain the proceeds of crime generated from the predicate offence booked by the Law Enforcement Agency. In case, a prima-facie case of generation of proceeds of crime and laundering thereof is made out, PMLA provides for seizure, freezing and attachment of laundered properties.
The action of seizure, freezing and attachment is required to be adjudged by the Adjudicating Authority under PMLA. The persons, both natural and legal entities, who are accused of the offence of money laundering linked to the scheduled offence can be prosecuted in Special Courts as per section 44 of PMLA. However, on conclusion of a trial under this Act, if the Special Court finds that the offence of money-laundering has not taken place or the property is not involved in money laundering, it shall order release of such property to the person entitled to receive it.
Chapter IX of PMLA sets out the procedure for reciprocal arrangements with Contracting States for seizure, freezing attachment and confiscation of assets found lying overseas.
India has signed Mutual Legal Assistance Treaty (MLAT) with 26 countries and by virtue of the provisions of PMLA, the Government is fully armed with legal measures to get the tainted assets repatriated back to the country on conviction of persons accused of money laundering. Till the conviction, the assets traced overseas can be requested to be seized or frozen by foreign jurisdictions. Section 12 of PMLA requires financial sector entities (banking companies, financial institutions and intermediaries) to verify the identity of their clients, maintain records and report suspicious / cash transactions (STR / CTR) to FIU-IND. Director, FIU-IND is empowered to conduct inquiry and impose sanctions against financial sector entities for non-compliance with section 12.
In the financial year 2014-15, in a major action against black money hoarders and money launderers, the Enforcement Directorate (ED) has attached assets to the tune of Rs 9,003 crore and filed 173 charge sheets. A report prepared in this regard, has been submitted to the Special Investigation Team (SIT) on black money and the Finance Ministry. The report states the ED, under PMLA, attached assets to the tune of Rs 9,003.26 crore, registered 1,326 PMLA FIRs, arrested 52 people on laundering charges and filed a total of 173 charge sheets during 2014-15. Also, it issued a total of 492 attachment orders and got 355 confirmed from the Adjudicating Authority of the PMLA, the first appellate body against an order issued by the ED authority.
India is committed to fighting all forms of economic crimes. To deal with such economic crimes, a number of special laws regulating customs, excise, taxes, foreign exchange, narcotic drugs, banking, insurance, trade and commerce relating to export and import have been enacted. These laws are enforced by the respective agencies in India. The public awareness about the problem has led the government to be proactive. In the recent days many names were published in the report in the media who have foreign accounts in the tax havens and the government has initiated proceedings against them. There is a greater collaboration between media organisations internationally to report the cases of money laundering and black money. In the days to come the government with its new act Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (Black Money Act) will force defaulters to comply with the rules set by the law. To enable the administration of new act the Prevention of Money Laundering Act, 2002 (PMLA) and Foreign Exchange of Management Act, 1999 (FEMA) has been amended. Lastly, in a globalized world, where all stakeholders are interdependent, no country can take unilateral measures without adversely impacting its own interests. Thus, in such a scenario, there is greater need to integrate with international efforts and use the international platforms for achieving domestic strategies aimed at curbing black money generation within the country. Thus, Subramaniam Swamy, while talking to the media, elaborating on the methods to curb the menace of black money, says, “Make best use of Resolution of the UN Convention against Corruption adopted by the UN General Assembly in 2005 to deal with the menace of black money.” India needs to continue raising issues for enhanced transparency and co-operation. Black money is too complex a problem and we need to do everything legally possible to tackle the menace of rising black money in India.
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