Outlandish charges against Hasan Ali make no sense

There is an air of unreality in the case being built up against alleged money launderer Hasan Ali Khan.  The Pune-based businessman is thought to be the kingpin in a racket in which $8 billion was transferred to the Zurich based UBS Bank. This was, as expected, denied by the Swiss bank. 

His clients are said to include politicians in Bihar, Maharashtra and Andhra Pradesh and he was supposed to have links with “a senior politician in Maharashtra”. Hasan Ali also feared his life was in danger. While allegedly transferring money into the Swiss bank, Hasan Ali was obviously dealing with some very powerful people he has reason to fear.

This money could not have belonged to him but was laundered corruption money, gotten by bribes and kickbacks, by these powerful people and was temporarily transferred into an account opened by him before being transferred to their own Swiss accounts.

What is incredible is that Hasan Ali’s income in 2006-07 was estimated by the income tax authorities to be Rs54,300 crore, or over three times the net profit of Rs16,200 crore of India’s largest and richest company Reliance Industries.  He was slapped with a tax demand of an unbelievable Rs75,200 crore, one-sixth of the government's total tax revenues of Rs4,52,000 crore last year. Something is clearly wrong.

If one small-time businessman and racehorse owner is saddled with such large demands, either the tax authorities and the government are trying to protect someone, or, equally likely, are turning the screws on one or more of the prominent politicians known to Hasan Ali. Such outlandish demands do not make any sense otherwise.

There is definitely need to curb money laundering and the criminal activities for which it is the conduit, taking illegally acquired wealth by bribes, kickbacks, prostitution, kidnappings, extortion, dealing in drugs, other criminal activity as well as evading taxes to safe havens abroad. But this may be more complicated than it seems.

Some of this is coming back into the country by reverse hawala, or after being suitably laundered, returning as foreign investment by way of participatory notes, or through ‘earnings’ by dummy software companies.

‘Black money’, or tax-evaded wealth, has been a longstanding feature of the Indian economy. It thrived in the days when tax rates were prohibitively high and led to many businessmen taking profits abroad using an agent or by over-invoicing imports or under-invoicing exports.

On a small scale, especially when remittances from Indian labourers in the Gulf were involved, the transfer was done by hawala, the traditional and trusted means of money transfer in this part of the world. While official remittances from Indians abroad are over $50 billion, an estimated 30% to 40% of official inflows comes into the country by the reverse hawala route.

Estimates of the scale of money laundering vary. But a benchmark is the figure put out by the Washington-based Global Financial Integrity (GFI). In a November 2010 report, ‘The Drivers and Dynamics of Illicit Financial Flows from India: 1948-2008’, GFI says that based on five years of study for 2004-08, India lost assets at the rate of $19 billion a year.

While this was less than a tenth of the illicit flows in China of $233
billion a year, from 1948 through 2008, India lost a total of $213 billion in illicit financial flows, whose present value is $462 billion.
The GFI report also finds that the faster rates of economic growth since economic reform started in 1991 led to a deterioration of income distribution, which led to more illicit flows from the country, and maintains that “high net-worth individuals and private companies were found to be the primary drivers of illicit flows out of India’s private sector.  India’s underground economy is also a significant driver of illicit financial flows.”

It further states, “We also find that there is a statistical correlation between larger volumes of illicit flows and deteriorating income distribution.” However, this is disputed by proponents of reform who believe that since 1991, the incidence of capital flight has actually come down.

Some economists have estimated that over 75%  of the ‘black’ money is earned though legal channels. Most of this is invested within the country itself — either in business or consumption or in buying jewellery or property. If this is true, money laundering need not be the hydra-headed monster it is made out to be.
The writer is a commentator on political issues