The Directorate of Revenue Intelligence has formed a 16-member team to verify a report by a US-based think tank, Global Financial Integrity (GFI), which said $505 billion flew out of India in the years between 2004 and 2013, when the UPA was in power at the Centre. The yearly illicit outflow was, on an average, USD 51 billion, which is more than India’s annual defence budget of $40.4 billion. A Supreme Court-appointed Special Investigation Team probing black money asked the DRI to form the team on Tuesday. The team includes DRI Director General Najib Shah, Additional Director General (ADG) HQs John Joseph, ADG Delhi S.M. Bhatnagar and ADG Mumbai Ajit Kumar, among others. The department will liaise with the Reserve Bank of India and the Enforcement Directorate for the task.
The DRI has given the report top priority, with sources telling this newspaper that the department will release its report to the SIT in two months. DRI obtained the detailed financial calculations from the SIT on 8 February. The data will now be assessed and verified with Indian records to check the veracity of the report.
“We have formed a 16-member team and set a target of 45-60 days to release our report to the black money SIT. We have already received the detailed calculations from the SIT and the verification process has started. It is good that we do not have to undertake the task of procuring such a large amount of data on our own, since it would have taken a long time. If this report is, in fact, accurate, then it will go a long way in helping the SIT to bring back the black money that was siphoned out of India,” a DRI official told The Sunday Guardian.
Experts are of the opinion that it is impossible to ascertain the exact amount of money that has been siphoned out of the country as much of the black money goes into real estate and stays out of banks.
“The government has to show its conviction about tackling issues like black money. But you can never figure out exactly how much money was siphoned out of the country as black money. While zeroing down on the quantum of money, you tend to incorporate several notional figures and assumptions. This process will just be of verifying GFI’s report. I doubt whether this will have any impact on the process to bring back black money. The government should, in the first place, not depend on a foreign think tank to tell them how much money was siphoned out of its shores. That is the job of the government to know for itself. A large amount of money goes into real estate. That money, essentially, stays out of banks or bank records,” C. Krishnan, expert on public finance and policy, told this newspaper.
The GFI said in a press release, “GFI analyzed discrepancies in balance of payments data and direction of trade statistics (DOTS), as reported to the IMF, in order to detect flows of capital that are illegally earned, transferred, and/or utilized. Since GFI’s 2014 annual update, the existing methodology has been refined to provide a more precise trade misinvoicing calculation for a greater number of countries, leading to a significant upward revision in illicit flow estimates for many of these economies as compared to previous GFI reports.”
GFI said in its report “Illicit Financial Flows from Developing Countries: 2004-2013’” that it has measured illicit financial outflows from India using two sources—deliberate trade misinvoicing and leakages in the balance of payments. “Trade misinvoicing is the primary measurable means for shifting funds out of developing countries illicitly,” the report said.
The report ranks India fourth in terms of illicit financial outflow from the country with an average USD 51.029 billion siphoned out of the country each year between 2004 and 2013.
“The SIT obtained detailed calculations of country-wise illicit financial flows for each of these years from Global Financial Integrity,” a Finance Ministry statement said. The details were sent to the DRI on 8 February. The SIT asked it to “verify the extent to which the calculations are correct”
The SIT believes that since GFI reports are widely cited and used in academic and financial circles, it is “very crucial to ascertain the veracity of such reports”. The SIT said that trade-based money laundering is the primary reason for accumulation and outflow of black money from India.
“This study clearly demonstrates that illicit financial flows are the most damaging economic problem faced by the world’s developing and emerging economies,” said GFI president Raymond Baker, who is known to be an authority on international financial crime.
“This year at the UN the mantra of ‘trillions not billions’ was continuously used to indicate the amount of funds needed to reach the Sustainable Development Goals. Significantly curtailing illicit flows is central to that effort,” he said.
China tops the list with average illicit outflows to the tune of USD 139 billion. Russia and Mexico follow with average annual illicit outflows of USD 104 billion and USD 52.8 billion, respectively. The report shows that global illicit financial outflows have grown from USD 465.3 billion in 2004 to over USD 1.1 trillion in 2013. Over 38 percent of the USD 1.1 trillion was siphoned out of Asia in 2003.