Twin issues of corruption and black money have attracted unprecedented public attention in thepast few months in India. Political debates in Parliament and outside, media news and campaigns, public demonstrations, dharnas and fasts, Hon’ble Supreme Court’s attention and observations, and the general public discourse, has been focused on these issues for more than past two years now.
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A host of case srelating to corruption have surfaced, such as 2-G spectrum allocation, CWG, Medical Council of India,illegal mining in Jharkhand, Karnataka, Odisha, etc. While in many of these cases, action was taken suomotu by the law enforcement agencies, in some cases action came after Hon’ble Supreme Court intervened in Public Interest Litigations (PILs) filed before it.
A number of cases relating to money kept abroad also surfaced, such as Hassan Ali Khan and associates, accounts in LGT Bank of Liechtenstein (information received from German tax authorities), and recently accounts in HSBC Bank (information received from the Government of France) which are still under investigation.
CONCEPTS AND DEFINITIONS OF BLACK MONEY
There is no uniform or accepted definition of ‘black’ money. Several terms are in use – such as‘black money’, ‘black income’, ‘dirty money’, ‘black wealth’, ‘underground wealth’, ‘black economy’, ‘parallel economy’, ‘shadow economy’, ‘underground’ or ‘unofficial’ economy. If money breaks laws in its origin,movement or use, and is not reported for tax purposes, then it would fall within the meaning of blackmoney.
The broader meaning would encompass and include money derived from corruption and otherillegal ways – to include drug trafficking, counterfeiting currency, smuggling, arms trafficking, etc. It would also include all market based legal production of goods and services that are concealed from publicauthorities for the following reasons –(i) to evade payment of taxes (income tax, excise duty, sales tax, stamp duty, etc);(ii) to evade payment of other statutory contributions;(iii) to evade minimum wages, working hours and safety standards, etc.; and(iv) to evade complying with laws and administrative procedures.
There are three sources of black money – crime, corruption and business.
The ‘criminal’ component of black money would normally include proceeds from a range of activities including racketeering, trafficking in counterfeit and contraband goods, forgery, securities fraud, embezzlement, sexual exploitation and prostitution, drug money, bank frauds and illegal trade in arms. The ‘corrupt’ component of such moneywould stem from bribery and theft by those holding public office – such as by grant of business, bribes toalter land use or to regularize unauthorized construction, leakages from government social spending programmes, speed money to circumvent or fast-track procedures, black marketing of price controlled services, etc.
The ‘commercial’ limb of black money usually results from tax evasion by attempting to hide transactions and any audit trail relating thereto, leading to evasion of one or more taxes. The main reason for such black economy is under reporting revenues / receipts / production, inflating expenses, not correctly reporting workers employed to avoid statutory obligations for their welfare. Opening of the economy permits contracts of all kinds – particularly for allocation of scarce resources such as mineral and spectrum– which, in the absence of transparent rules and procedures for licenses and non compliance of contractual obligations of the persons concerned, leads to increased generation of black money. In all the three forms of black money – ‘criminal’, ‘corrupt’ and ‘commercial’ – subterfuges are created which include false documentation, sham transactions, benami entities, mispricing and collusion. This is often done by layering transactions to hide their origin.
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