Here is another quote, this time from an email that has been circulating on the Internet for at least two years. “India has more money in Swiss banks than all the other countries combined! ...Swiss Banking Association report, 2006 details bank deposits in the territory of Switzerland by nationals of following countries: India, $1,456 billion; Russia, $470 billion; UK, $390 billion; Ukraine, $100 billion; China, $96 billion... In March 2005, the Tax Justice Network (TJN) published a research finding demonstrating that $11.5 trillion of personal wealth was held offshore by rich individuals across the globe. The findings estimated that a large proportion of this wealth was managed from some 70 tax havens. Further, augmenting these studies of TJN, Raymond Baker — in his widely celebrated book titled Capitalism’s Achilles Heel: Dirty Money and How to Renew the Free Market System estimates that at least $5 trillion have been shifted out of poorer countries to the West since the mid-1970s.” The media has freely swallowed the $1400 or $1456 billion figure, a number also referred to in the Advani press release. Nor is the BJP the first political party to mention this figure. It has been cited by other non-Congress parties too and the original source seems to be a Swiss Banking Association.

There doesn’t seem to be anything called a Swiss Banking Association. There is a Swiss Bankers Association, which builds on its USP of bank-client confidentiality. In public domain reports and surveys, there is certainly no 2006 report I can track down. So is this a figment of someone’s imagination? While on the Swiss Banking Association, let’s also have facts of the UBS case right. UBS was prosecuted in Florida for tax evasion and, in 2008, IRS (Internal Revenue Service) requested information on 19,000 (later increased to 52,000) UBS clients. Swiss criminal law prohibits release of this information. Nor does the double taxation agreement between the US and Switzerland cover such general requests for information. No doubt with some arm-twisting, and pressure through the Swiss Financial Market Advisory Authority (FINMA), there was an agreement to part with information, with the Swiss drawing a distinction between tax fraud and tax evasion. Let’s also not forget that in Florida, an ex-UBS employee provided evidence, establishing tax fraud. Extrapolation of the UBS case to suggest that the Swiss are about to give up their USP of bank-client confidentiality seems far-fetched, even if there are such pressures emanating from elsewhere in Europe.

Nor can I find any figures in Wikipedia about “illicit money” in Swiss banks. The $2.6 trillion figure for 2001 and $5.7 trillion for 2007 are for off-shore funds, perfectly legal. Let’s move on to the Tax Justice Network (TJN), which is against tax havens and tax competition, arguing that this encourages capital flight from developing to developed countries. The TJN’s estimates, including the $11.5 billion figure, focus on tax abuse, not illegality. Nor should one forget that capital flight to developed countries isn’t caused only by tax havens (the pull) but also by irrational policies within developing countries (the push).

We are now left with the Global Financial Integrity (GFI) report of 2009 (2002-06 data) and Raymond Baker. There are several methodological problems with estimating capital flight and, though innovative, the GFI can’t be completely authentic, since one is talking about unrecorded transactions. Having said this, whenever the GFI is quoted, people latch on to the Asian figure, forgetting that the bulk of this flight within Asia is from China. And the quote is also from the executive summary, placing India (together with Russia) in the annual band of $10 to $100 billion, which is quite a large interval. Now we probably know where that $500 billion figure in the Advani press release came from, five multiplied by $100 billion. Had one read the report, one would have discovered the annual Indian figure is more like $25 billion. Since the GFI builds on Raymond Baker’s pioneering 2005 book, one doesn’t have to add anything on Baker.

What we are thus left with is a maze of figures, some concocted, others real, but sometimes quoted out of context. That doesn’t mean the issue is unimportant. Some reasons for capital flight (administered and unrealistic exchange rates, foreign exchange controls, unrealistic and non-transparent tax rates) have become unimportant in post-1991 India and BOP (balance of payments) data suggest there has been some reversal of capital flight. How else does one interpret a net capital inflow of $17.7 billion in the “other flows” category in 2007-08? This residual category primarily means delayed export receipts and errors and omissions. Stated simplistically, the reserves position shows this forex has come in. But we don’t know why it has come in. However, this reversal is restricted to situations where the push was unreasonable domestic economic policy. There are other unreasonable domestic policies too, including the political process and criminalisation of politics. These are issues we should talk about, not so much the pull of tax havens. But first, let us get the figures right.

The writer is a Delhi-based economist

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