The Black Money Myth Part 4 :Swiss Banks !

A big motorcade comes crawling through alpine roads and mountains and stops in front of a heritage looking mansion in a secret Swiss town....a fat guy with hat and sunglasses comes out from a limo and enters the building in the protection of 4-5 guards and vanishes into a "vault " .The secrecy is supreme and this guy only operates his vault with a single number combination..no questions asked.....sounds familiar ? Yes then either you are watching too many Hollywood mystery movies or trusting some of our joker politicians or "yoga gurus" ( ! ) who made you believe that India's billions of dollars worth illegitimate money is "stashed away" in Swiss Banks ! EVERY opposition party in India has cursed EVERY ruling government of not "bringing back" "swiss bank me pada hua kala paisa " ( Black money stashed in Swiss banks ).Today's ruling party of India went one step ahead in their election campaign that if each penny stashed in Swiss Banks would come back to India,every Indian will get Rs 15 lakh credit in their bank accounts...!!! How childish ! BJP used it as political stunt and now Congress is asking BJP when would they "bring swiss money back " !! :-p

Image Courtesy : Swiss Banking Antiques

Let's first understand why Swiss Banks are " fabled" as Global money havens!

Switzerland as a country has been a stable economy in last 50 + years with neither major wars (including second world war which was fought on their soils as well )  or communal tensions affecting them  nor having government instability issues either .Such economies are very few in the world and they also have strict privacy laws which governs their banking system .So the truth is ..yes..Switzerland has been a safe place for super rich and super corrupt alike to keep their money as a hedge against uncertainty in the home country . But that does not mean these politicians and super rich keep loads of 500 /1000 Rs notes or even USD/CHF/EUR currency in bank lockers in Swiss banks !I have been telling the principle from day one when I started writing this series on black money : " The money has a value only so far it can buy you goods or services OR can grow your returns " ! A stashed currency bundle in bank locker is NOT money and can become a waste paper overnight ..like we have seen during last week when demonetization was announced for old high denomination notes .

So what is done with Swiss accounts ?

First : You can not send "PHYSICAL" money abroad and deposit in these accounts.I mean you can but its very difficult and risky . Every country and customs law normally prevents you to carry physical currency beyond a limit.Most countries ask you to declare anything excess of USD 10,000 in cash or equivalent .So "Trucks full of black money" can not physically move across the international borders .People talk about then sending through  hawala syndicates but ignorant and super excited commoners in us fail to understand when even to deposit Rs 50,000 in cash in a third world country like India needs a PAN card,how can a corrupt politician deposit "truck loads of black money" across the counter to these banks who are governed by some of the best banking laws in the world  and follow best practices which are then becoming the benchmarks across the world !

So how money goes there then ? ...

The only way to send the money to Swiss bank is via international wire transfer.And to do that your money first has to be in a bank account somewhere  !Then only you can do wire transfer .Now can these corrupt politicians/businessmen  actually walk to nearest SBI/ICICI/HDFC counter,deposit 1000 Crore Indian currency and ask them ,"Bhaiyaa,Jara is Swiss Account me transfer karva dena ? " (Bro,can you pls transfer this money to my swiss account ? ).The answer is a big NO ! Then how the money Goes there ? To understand this we have to understand how global trade is done !

There are many countries/Islands across the world who allow anyone to set up a company WITHOUT doing any physical business like manufacturing or trading ! These companies are called "Shell Companies " .And this is legally allowed in THAT Country !Remember "Panama Papers " ?Cayman Islands,Barbados,Bahamas and many such islands/countries  offer this facility.

So anyone wants to send money abroad first have to establish a genuine business in home country,show that this genuine business which IMPORTS from this "shell entity " by under invoicing and over invoicing game ! Say you have a factory and you  buy a machine from a UK Firm which costs 50000 Pounds ! This company will not give you a fake invoice of higher value because of UK Laws .So what you do is your OWN shell company is say Dubai buys the same machine at GBP 50 K but sells the same to YOUR OWN Indian entity at GBP 300 K ! So you actually imported the goods worth GBP 50 K but remitted money worth GBP 300 K to the shell company  .This shell company then uses various international tax loopholes to get this money to Swiss Banks !

So basically all this money is "WHITE " !

So what do they do with all this money ?

Now this is very interesting. As Swiss economy is a developed economy ,the interest rates are very low.So the money lying there AGAIN first comes to a nation like Mauritius,pays tax in that country which is far lesser than India and then this money is INVESTED in India via FDI !India as DTAA (Double Taxation Avoidance Treaty ) with Mauritius and hence all such money coming into India is not taxed ! So this money comes as WHITE Money !

Another way to bring money in India is showing EXPORT of the software ! India is anyway known for this right ?So this Shell company in Mauritius /Bahamas/Cayman Islands/Panama/Cyprus IMPORTS software from India ..a blank CD or a movie CD is shipped out by following ALL customs paperwork and money is credited back to Indian "SOFTWARE" firm for the software exports ! Now this can not be challenged by authorities as many times software can also be deleivered by digital means !Also who knows whats inside the CD or DVD which is shipped !So for a blank DVD shipped to Cyprus,you can get even USD 500 K back and pay taxes here as "money received by exporting proprietary software "  ..+ various government schemes for promoting IT exports out of India ! :-) Amazing isn't it !

Yes there ARE cash and Hawala transactions and no one is denying the same.But the way they say 25 Lakh Crore and all in Swiss banks is STUPID !!!

So the summary is don't trust the politicians who fooled you in past (BJP) and present (Congress) who claim to have "billions of black money stashed in Swiss Banks " ..Just look around yourself...the latest flyover /road may have been already built through the SAME money which "came in via FDI " or the "Entrepreneur of the year" who just received the award for "Software Exports" may have already brought in the SAME money back to India :-)