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Modi govt's black money fight a flop? Deposits by Indians in Swiss banks jump 50.2% in 2017

The surge in Indian money held with Swiss banks comes as a surprise given India's continuing clampdown on suspected black money stashed abroad, including in banks of Switzerland that used to be known for their famed secrecy walls for years.

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Modi govt's black money fight a flop? Deposits by Indians in Swiss banks jump 50.2% in 2017

The Modi government's much-trumpeted crackdown on black money has just taken a big hit. According to the official annual data of the Swiss National Bank (SNB), the central banking authority of the Alpine nation, money parked by Indians in Swiss banks rose over 50 per cent to Swiss Francs (CHF) 1.01 billion (Rs 7,000 crore) in 2017. In comparison, the total funds held by all foreign clients of Swiss banks rose about 3 per cent to CHF 1.46 trillion, or about Rs 100 lakh crore, as per the data released yesterday.

The surge in Indian money held with Swiss banks comes as a surprise given India's continuing clampdown on suspected black money stashed abroad, including in banks of Switzerland that used to be known for their famed secrecy walls for years.

In fact, the latest data marks a reversal in a three-year downward trend. Funds stashed by Indians in Swiss banks had fallen by 45 per cent in 2016, the biggest ever yearly plunge, to CHF 676 million (about Rs 4,500 crore). This was the lowest level for Indian money since Switzerland began making the data public in 1987. The funds held by Indians directly with Swiss banks stood at CHF 664.8 million at the end of 2016, while the same held through fiduciaries or wealth managers was CHF 11 million.

As per the latest SNB data, both these figures went through the roof in 2017. The money parked directly with the banks is now pegged at CHF 999 million (Rs 6,891 crore) and another CHF 16.2 million (Rs 112 crore) through fiduciaries. The total amount of CHF 1.01 billion included CHF 464 million (Rs 3,200 crore) in the form of customer deposits, CHF 152 million (Rs 1,050 crore) through other banks and CHF 383 million (Rs 2,640 crore) as 'other liabilities' such as securities at the end of 2017. The funds under all three heads have risen sharply in 2017, against a huge plunge across all categories in the previous year.

Of course, the situation is not as alarming as it was a decade ago. The total funds held by Indians with Swiss banks stood at a record high of CHF 6.5 billion (Rs 23,000 crore) at end-2006. Moreover, the funds held through fiduciaries used to be in billions till 2007, but began falling after that amid fears of regulatory crackdown.

The quantum of these funds has been falling since those record levels, barring three spikes in the ensuing years. There was a 12 per cent jump in Indians' funds in 2011, then again in 2013 (43 per cent). The following year, these funds fell by 10 per cent to CHF 1.8 billion, followed by further drops of around 33 per cent and 45 per cent in 2015 and 2016, respectively. Unfortunately, the latest uptick of 50.2 per cent is the highest ever posted since 56 per cent way back in 2004.

The latest data from Zurich-based SNB comes months after a new framework having been put in place for automatic exchange of information between Switzerland and India to help check the black money menace. While the former has already begun sharing foreign client details on evidence of wrongdoing provided by India and some other countries, it has agreed to further expand its cooperation on India's fight against black money with a new pact for automatic information exchange.

There were several rounds of discussions between Indian and Swiss government officials on the new framework and also for expediting the pending information requests about suspected illicit accounts of Indians in Swiss banks.

Interestingly, the funds, described by SNB as 'liabilities' of Swiss banks or 'amounts due to' their clients, are the official figures disclosed by the Swiss authorities and do not indicate to the quantum of the much-debated alleged black money held by Indians there. SNB's official figures also do not include the money that Indians, NRIs or others might have in Swiss banks in the names of entities from different countries.

What could explain the decline in Indian money stashed in Swiss banks between 2013 and 2016? One view was that Indians looking to park illicit money had shifted focus to other locations after a global crackdown began on the mighty banking secrecy practices in Switzerland. Swiss banks themselves have previously pointed out that Indians have "few deposits" with them compared to other global financial hubs like Singapore and Hong Kong amid the stepped-up efforts to check the black money menace.

To remind you, on directions of the Supreme Court, India had constituted a Special Investigation Team (SIT) to probe cases of alleged black money of Indians, including funds stashed abroad in places like Switzerland. A number of strategies were deployed by the government to combat the stash-funds menace, in both overseas and domestic domain, which included enactment of a new law, amendments in the Anti-Money Laundering Act and compliance windows for people to declare their hidden assets.

The Income Tax department had detected suspected black money running into thousands of crores post investigations on global leaks about Indians stashing funds abroad and has launched prosecution against hundreds of them, including those with accounts in the Geneva branch of HSBC.

The total assets of Swiss banks in India, however, fell by about 18 per cent in 2017 to CHF 3.2 billion. This marks a second consecutive year of decline and does not include any tangible assets like real estate and properties. The amount owed by Indian clients to Swiss banks fell by 48 per cent in 2017 to CHF 210 million, down from CHF 570 million in 2015 and CHF 407 million in 2016.

With PTI inputs

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