How secrecy jurisdictions undermine Indian markets

January 19th, 2010

Recently we wrote a blog looking at how tax havens (secrecy jurisdictions) undermine clean markets by allowing related parties in the telecommunications industry to trade with anonymity and collude to fix prices. Well, we’re not the only ones worried about this: the Indian Securities and Exchange board seems to be, too – as the FT reported recently:

“Société Générale was on Friday threatened with expulsion from the Indian equities market for allegedly violating “know your client” rules that compel companies to provide complete information on overseas customers.

The Securities and Exchange Board of India (Sebi), the market regulator, alleged SocGen had provided incomplete information on overseas clients that had bought shares of Reliance Communications, controlled by Indian billionaire Anil Ambani, through offshore derivatives known as participatory notes.”

Sebi said SocGen was immediately suspended from trading; Barclays was suspended last December for also making “incomplete declarations.” Sebi requires foreign institutional investors to disclose to Sebi the ultimate identity of the owners of any notes they sell. Why do they require that?

“To guard against insider trading and other nefarious activities in the country’s stock markets.”

Indeed. And SocGen doesn’t seem to have a leg to stand on:

“The order said Sebi had asked SocGen last month for more information on the identity of the ultimate buyer behind a series of trades in Reliance notes that the French broker had completed with Hythe Securities. SocGen said it was unable to persuade Hythe to reveal the information because of client confidentiality, the order said. It instead asked Hythe to inform the Sebi itself.”

But here’s a question. Why is it that journalists do the good job of reporting these things – but almost never follow these questions with the obvious other question: why are secrecy jurisdictions being allowed to undermine markets in this way? The question just doesn’t seem to get asked. And it is a big question.

Written by Tax Justice Network

Follow @FinTrCo