Silence over Tamil Nadu’s Hasan Ali moment is baffling

Silence over Tamil Nadu’s Hasan Ali moment is baffling

By M.R. VENKATESH | CHENNAI | 5 January, 2013
The IT department said it seized bonds worth $5 billion from a broker in Tirupur, but there are many loopholes in the story.

The stunning claim of the Income Tax (IT) department of having seized US treasury bonds worth $5 billion (five bonds of each $1 billion) valued at approximately Rs 27,500cr from a 45-year-old financial broker in Tirupur district, Tamil Nadu, has set the cat amongst the pigeons. Press reports suggest that the IT department has sent the seized instruments to the Financial Intelligence Unit (FIU) for verifying its authenticity. In the interregnum, the department is expected to continue to "probe" his sources of income, how he managed to buy these bonds in the first place and also investigate whether he was acting as a conduit for someone else.

But who tipped the IT department, which ultimately led to the search in the first place, is unclear at this point in time. Entries on the passport of the person in question reportedly indicate that he was a frequent flyer to countries including Brazil, China and Myanmar.

When the local press visited the residence of the person (where the search was conducted), it turned out to be a modest building — definitely not one to house $5 billion. While more details are awaited, there are several unanswered questions even at this point in time.

First, the US Treasury Department issues bills, notes and bonds with varied maturities. But whatever be its maturity, these bills I understand are always issued at a discount. Simply put, it means that the treasury doesn't pay interest at coupon rates. Instead, the bills are sold at a discount and mature at face value. That explains why several websites have the "Treasury Bill Price Calculator". What was the face value of these bonds? What was its discount value? When was it purchased and what is its maturity date? These fundamental facts are unclear at this point in time including the fact that whether he was the "owner" of these bonds.

Second, some experts in the know claim that the US Treasury Department does not issue bonds of such huge denomination. Third, remember we are talking of US (where these bonds are issued in electronic and not physical format), not Rwanda. Obviously, for these two reasons the one billion dollar bond looks to be dodgy. It may not be out of place to mention that in early 2012 a few Italians were caught with $6 trillion worth of US Treasury Bonds. Needless to emphasise that these were fakes. Obviously, there is some commercial use even for fake US Treasury Bonds at a global level. Are India and some Indians part of this counterfeit racket? Assuming that for these reasons these bonds are fake, the silence of law enforcing agencies on this development is deafening.

That is not all. As per extant Indian laws, a resident Indian can invest only up to $200,000 in a financial year to buy assets in foreign currency. Anything more violates the Foreign Exchange Laws of the country. Put pithily, even if you have an investible surplus, investment in foreign assets is not permitted beyond a point. Assuming for the moment that these bonds are indeed genuine, the silence of the Reserve Bank of India (RBI) on this matter is intriguing.

That brings us to the mother of all debates. If these bonds are indeed genuine (and probably the US Treasury, under some exceptional circumstances, do issue such high value bonds after all) were they bought out of illicit income originally generated in India, subsequently transferred through the hawala route to some remote tax havens and finally invested into these bonds in the US? Is this the illicit wealth of someone high and mighty? If that were so, it is money laundering, plain and simple. Under these circumstances, the silence of the Enforcement Directorate (ED) is inexplicable.

Surely, readers may recall that a search operation a few years back on Hasan Ali by the IT Department (yes, the horse farm owner from Pune) reportedly yielded incriminating documents suggesting deposits aggregating in excess of $8 billion in his bank accounts in Switzerland. Subsequently, even the finance ministry conceded that they need to recover a sum of approximately

Rs 70,000cr as taxes from him on such undisclosed accounts. However, nothing further has been heard on this story since then. Crucially, not a penny has been recovered.

Naturally questions arise. Is this Tamil Nadu's Hasan Ali moment? Will this "story" also be buried by the efflux of time? Will we, keep endlessly speculating, while the culprits continue to have their last laugh?

Analysts who are divided on whether the bonds are genuine or fake are unanimous on one issue: several of our agencies need to answer some of the fundamental questions raised here.

M.R. Venkatesh is a Chennai-based chartered accountant.

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