Swiss banks are where the ‘dirty money’ of the politicians, drug dealers, tax dodgers, traffickers in blood diamonds and other such people is generally parked. This perception has held sway since long but no verifiable information regarding the magnitude and the beneficiaries of such dirty money was ever available to
Swiss banks are where the ‘dirty money’ of the politicians, drug dealers, tax dodgers, traffickers in blood diamonds and other such people is generally parked. This perception has held sway since long but no verifiable information regarding the magnitude and the beneficiaries of such dirty money was ever available to the general public due to stringent secrecy laws.
Some isolated cases of politicians from developing nations sometimes surfaced in the press regarding theft of public money and its transfer to Swiss accounts. This only happened when these politicians were voted out of power or dethroned. The visible intent behind such cases was them being targets of a witch hunt by the government in power, and not the return of the proceeds of the crime to the country of origin. But now, thanks to a whistleblower and a team of investigative journalists from 45 countries, information regarding a number of Swiss accounts and their beneficiaries has now become public.
This information is based on the leaked account records maintained at HSBC. The documents – called ‘Swiss Leaks’ – give a rare glimpse into Swiss banking, something the people of the world had not seen before. These documents make it abundantly clear that the huge amount of money stolen by drug peddlers, arms dealers, corrupt politicians, and Third World dictators is all lying in Swiss banks.
Pakistan and India are also mentioned in the Swiss Leaks released by the International Consortium of Investigative Journalists (ICIJ) via the French newspaper, Le Monde. According to Swiss Leaks, India and Pakistan are respectively ranked at 16 and 48 among the list of countries whose nationals have maintained dubious accounts at HSBC. The dirty money of $4.1 billion and $859.7 million (respectively) was lying in Swiss accounts opened by the nationals of India and Pakistan during 1970-2006. The per capita GDP of India and Pakistan in 2007 was respectively $1000 and $930 as per estimates of the World Bank.
This simply means that the money stashed away in offshore accounts is not a small amount. According to some sources, over $1 trillion is stolen every year from the economies of the developing countries; interestingly, this money equals the total money developing countries spend on infrastructure in a year. If the money lying in offshore accounts is brought back and illicit outflows to safe havens are stalled, problems like overcrowded schools, lack of hospitals and potable water in rural areas and premature deaths of babies and mothers due to malnutrition can be overcome. Stealing this money simply means robbing the common people from their opportunities to live and grow.
The return of this ill-gotten money should therefore become a top priority of the developing countries. Corruption and money laundering have plundered the national wealth of these countries but slack enforcement of anti-money laundering laws, lack of tax transparency, and corruption among the political and ruling elite are shielding the perpetrators from the law. Developing countries almost find it impossible to stop the outflow of money. This outflow of resources is bleeding them of essential resources needed for human development. Bringing back the dirty money and halting its outflow is, however, not an easy a task. Initiatives need to be taken by developing countries, developed nations and global institutions like the UN and the World Bank.
Developing countries need to build effective institutions to promote good governance, transparency, and accountability. They need to fight corruption, combat organised crime, and implement effective tax systems. What is unfortunate is that state institutions and coffers are generally captured by those with vested interests. And this capture is a big hurdle to good governance, transparency and effective tax systems.
The pilferage of public resources, whether through corruption or tax evasion or through some other mode, undermines rule of law, weakens the social fabric, erodes citizens’ trust in institutions, fuels social and political instability, and hampers job creation. It is not just illegal but immoral as well because it helps perpetuate poverty and inequality.
Corruption, money laundering, and tax evasion have global dimensions. These are not just challenges faced by the developing countries. Certainly weak national institutions and limited law-enforcement capacity in developing countries are mainly responsible for illicit financial transfers to safe havens but we cannot ignore the fact that the dirty money ends up in the financial centres of the developed world. And in a way developed countries provide an enabling environment for the outflow of resources from the developing countries in the form of dirty money.
This means that international cooperation is a must to address the issue of dirty money. Institutions like the UN and the World Bank also have a vital role to play in this regard. Regulations that identify the true owners of the dirty money need to be enforced. Once such money is invested in opaque companies, it does not remain within the reach of the tax authorities and investigators of the country of origin. The recipients or beneficial owners of such companies are shielded from disclosure by laws and regulations that in a way protect criminals.
Developing countries need to forge an alliance to bring back the dirty money from safe havens like Swiss banks. They should invoke the provisions of the ‘UN Convention against Corruption’ adopted under the aegis of the United Nations. This convention provides a comprehensive framework for the return of ill-gotten assets lying outside the country. Asset recovery is a fundamental principle of this convention. Now when information about the shoddy accounts is out, the affected developing countries need to demand the return of the dirty money lying outside in Swiss banks etc under the framework of the UN convention.
But the question here is whether the rulers of the developing countries who themselves may be beneficiaries of such dubious deposits will show political will to go ahead with such a demand. The UN convention also recognises that in asset recovery, the fundamental problem is lack of political will on the part of the rulers of the affected countries. As per the convention: “Countries that are the victims of government corruption are often impeded by the fact that individuals still in power are the perpetrators or beneficiaries of corruption, while countries that are the recipients of stolen funds are sometimes reluctant to move against powerful interest groups such as banks”.
The point is very simple. This money belongs to the poor people of the poor and developing countries, and needs to be returned to the real owners who need it badly. This money can become a big source of development for the developing countries. And if the offshore banking industry keeps on sheltering such dirty money behind opaque secrecy banking laws, that would have enormous implications for societies and institutions across the globe.
Professor Thomas Piketty, the French economist, is perhaps very right when he says: “The offshore industry is a major threat to our democratic institutions and our basic social contract. Financial opacity is one of the key drivers of rising global inequality. It allows a large fraction of top income and top wealth groups to pay negligible taxes, while the rest of us pay large taxes in order to finance the public goods and services (education, health, and infrastructure etc) that are indispensable for the development process”.
The writer is a graduate of Columbia University.