Beanie Babies, Twitter, and Black Money
July 2nd, 2009
July 2nd, 2009
Like lava lamps, parachute pants, and Twitter, it has become a fad to rave about fetching back illicit funds stashed abroad. Of course, like any first-rate fad, there was a trendsetting pair, which in this case was the U.S. and Swiss bank UBS. The pair linked up earlier this year when the IRS caught wind that Swiss bankers were traveling to the U.S., offering Americans access to superior wealth management, sound investment opportunities, the added perk of easy tax evasion. And the U.S. has been on the chase ever since. In recent months, other governments have jumped on the bandwagon, including the Chinese which reclaimed $4 billion in embezzled public money. And in May the Bharatiya Janata Party (BJP) in India, engulfed in a fiery election, vowed to bring back billions stashed in Swiss banks and “give it to the poor.”
If only it were so effortless! But there is a cold irony to the phrase “tax haven.” Not that the word “haven” isn’t appropriate, as they offer a sunny sanctuary for the illicit funds to intermingle with trillions of licit dollars. Herein lies the irony, namely that the word “haven” implies these funds can be wrought out, exposed by valiant politicians with the courage to scour the crevasses of banking secrecy. But as Dev Kar, GFI’s Lead Economist has suggested, to differentiate the licit from illicit would be like distinguishing two cups of water—one hot and one cold—that were poured into the same bowl. A better solution would be to not pour them together in the first place.
It just doesn’t work that way for many reasons. For one, that illicit money has accumulated overseas for decades, which means that some of it wasn’t illegal at the time it was sent away, some of has passed its statute of limitation, and some the home country just doesn’t have jurisdiction over.
It is by definition that fads have no hope of enacting cultural change. Case in point: Did all those Beanie Babies you bought in the late ‘90s impact your emotional maturity? Likewise, India’s promises to recapture its billions in illicit funds won’t have much effect on its long term public policy initiatives.
But occasionally, maybe every few years, a fad grows some cultural teeth. Think Twitter in Iran. And as India’s understanding of this issue has matured and outlasted the political firestorm, we hold our breath that this is another one of these cases. For India’s sake we certainly hope so. Their problem is huge, as Global Financial Integrity (GFI) estimates somewhere between $22 and $27 billion dollars leaves the country every year in untouchable illicit financial flows.
As experts at GFI have pointed out, there are a few steps India can take to stem this problem, though it is not by attempting to “bring it all back.” First, and most importantly, India must curtail the current outflows. There’s no point in bailing out the boat when there are still holes riddled through its hull. Second, India should study the UBS-U.S. case carefully; this can provide a model for India’s actions with Switzerland and other secrecy jurisdictions. Third, India can take a proactive role in the G-20 process and join leaders like Pres. Obama and PM Brown in their unanimous voice against tax havens.
Following these steps will give them hope to enact real change. So the question becomes: Is India’s black money going to be a Twitter… or a Beanie Baby?
RT @icrict: "O @MinFazenda vai perguntar: como financiar mais gasto público? Tem como: é só mudar o sistema fiscal do #Brasil, que é um dos…
- Tuesday Mar 21 - 6:46pm