We take on Cyprus, why not Switzerland?

Cyprus seems to have done it, albeit at the instance of Brussels, the headquarters of the European Union. With debts steadily piling up and reaching the dangerous levels of 800 per cent of its GDP, Cyprus perhaps had no choice but to comply with the Union’s diktat — impound a part of deposits placed with its banks — in order to be eligible for a bailout package.

Those in the know aver sotto voce that the invisible hand of the Russian authorities was, in fact, responsible for EU’s arguably audacious move. For, bulk of the deposits in Cyprus are those of Russian oligarchs who wanted to stash away their ill-gotten funds to a safer destination, away from the probing eyes of the Russian officialdom.

The belief seems to be that smoking out these deposits from Cyprus would get them rushing back to Russia and its banks. Many right-thinking people in India are already drawing a parallel between Russian oligarchs and Indian’s black-money elite, cutting across political and industrial persuasions. If the Russians have chosen Cyprus as sanctuary, the Indians have chosen Mauritius as sanctuary. Will the Indian government be able to instigate the Mauritius government to do an encore of what Russia did to Cyprus?

MAURITIUS AND CYPRUS

A deeper reflection, however, would indicate otherwise. Mauritius, unlike Cyprus, is under no one’s pincer. While the squeeze could be applied on Cyprus, thanks to its Euro Zone member status that could be in jeopardy in the face of its intransigence, Mauritius is not under the Indian government’s thumb. Its linkage with India is purely ethnic and business-related. The Indian government’s writ, in the event, would not extend to the banks in Mauritius — not even to the Indian banks such as Bank of Baroda and SBI that have set up shop there.

Seychelles, which has sprung up of late as an alternative destination for Indians to park their dubious wealth, too would remain impervious to Indian diktats.

SWISS IMMUNITY

Both Russia and India, as indeed any other country witnessing flight of funds, have to contend with the formidable Switzerland. Russian authorities cannot afford to be complacent, as the money smoked out would perhaps find its way into other clandestine and secretive destinations under Switzerland’s tutelage.

And, it is not as if Russians are unfamiliar with the ways of this salubrious alpine state. Grapevine has it that Russians lead the pack, followed by Indians, when it comes to money stashed away in Switzerland. The point is, if the world financial order is to change for better, Switzerland must be brought on board. Its policy of running with the hare and hunting with hound will simply not do.

The US government registered a modicum of success with the intransigent Swiss authorities in obtaining a list of US citizens who had reportedly stashed away their black money with UBS, one of the leading Swiss banks. The British government settled meekly for Swiss banks paying a tax on interest payable to depositors of British origin.

The Indian government has been placated with a wishy-washy promise of cooperation, should the Indian government present a water-tight case to the Swiss authorities, that too in respect of deposits placed after March 31, 2011.

Switzerland has always been an enigma. It practises direct democracy that has been adopted by states such as California in the US. In common with its other Scandinavian neighbours, it forswears aggression and promotes education and Good Samaritan principles. Yet, it offers sanctuary to sundry crooks and despots. It has wisely stayed away from the currency union for fear of coming under the regulatory reach of the European Central Bank, even while enjoying the fruits emanating out of membership of the European Union.

COMING CLEAN

The international order is at its wits’ end taming Swiss intransigence. Somehow, the world is reluctant to isolate it internationally, the way Iraq, Iran and Libya were put out in the cold for their pursuit of nuclear ambitions. But the financial power wielded by Switzerland is quite dangerous. Yet, leave alone formal censure, no forum has ever even remotely chided it for its financial leniency that casts even the most benign KYC norms to the winds.

National governments should not be held hostage by a country that beckons funds, no matter what its colour. The Swiss government would be doing a signal service to the governments of other harried nations, if it compels its depositors to come clean before the governments of the countries to which they belong. And, the information thus coughed up must be scrutinised by an impartial team of auditors a la the CAG in India. The success with Switzerland can then be extended to other tax and bank havens. And this system of coming clean before national governments must not be a one-off affair, but an annual one.

(The author is a New Delhi-based chartered accountant)

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