Financial Transparency Coalition

About two weeks ago, I wrote about the “upward trajectory” of India’s stance on black money and transparency in international finance. I predicted that the country (eventually) would become a leader in this arena.

In case you’ve missed India’s catapult into this discussion, here’s the background.

In April of 2009, after becoming very upset by the evidence there are rivers of ‘black money’ flowing out of India, the president of the Bharatiya Janata Party (BJP), Rajnath Singh, told voters that if they elected his party into office he would, within 100 days, “bring back all the black money stashed in foreign banks and distribute [it] among ‘the common poor people.’” As we know, the BJP did not come to power inIndia in 2009 so fortunately for Rajnath Singh, his party never needed to prove this monumental task was possible. It’s not, by the way.

In the last two years there has been relentless pressure from Indian citizens and politicians on President Manomohan Singh to “bring it back;” a phrase which has become something of a common term in the world’s largest democracy. Unfortunately for India, this has proven to be a monumental—make that impossible—task.

The more important, and more effective, course of action is to stem the outflow in the first place. And in recent months India has significantly expanded its efforts in this area. To this end, India recently joined the Financial Action Task Force and the Task Force on Financial Integrity and Economic Development’s Partnership Panel. It has also completed negotiations for 16 new tax information exchange agreements (TIEAs) with mostly notorious tax havens, including: the Bahamas, the Isle of Man, the British Virgin Islands, Cayman Islands, Jersey, and Gibraltar.

Two weeks ago, I noted that while this was a step in the right direction “TIEAs are not nearly strong enough to allow for effective fight against tax evasion… [because] under TIEA requirements, tax information is only provided if another country specifically requests it.” I said what India really should pursue is automatic exchange of tax information and predicted that, “given the progress of the last two years, in the next two, we may see India on the forefront of the international arena, calling for automatic tax information exchange.”

Two years? Try two weeks.

On Thursday, at the G20 Summit in Cannes, Prime Minister Singh stood in front of the leaders of the world’s twenty most powerful countries and urged them to agree to automatic exchange of tax information. He said: “G-20 countries should take the lead in agreeing to automatic exchange of tax related information with each other, irrespective of artificial distinctions such as past or present, for tax evasion or tax fraud in the spirit of our London Summit that ‘the era of bank secrecy is over’.”

Unfortunately the G20 is not on the same intellectual fast-track that India is steering. As GFI noted in a recent press release: “While the final declaration mentioned automatic exchange of tax information as a potentially useful tool in tackling non cooperative jurisdictions, it stopped short of calling for its implementation—instead stating that they would ‘consider’ it “on a voluntary basis as appropriate.”

While this is, of course, a bit of a disappointment, we should remember Prime Minister Singh’s comments are a huge victory for transparency. This discussion will take time. As they say, Rome was not built in a day, and secrecy won’t be dismantled in that proverbial day, either. We must be patient in our pressure on the rest of the world as it catches up with the Indian thought leaders. But who knows? Maybe they’re not as far behind as it might seem. I’ve already underestimated the power of this idea once.