The case of Hassan Ali Khan, the Pune-based horse trader under investigation for financial skullduggery, may be taking unexpected twists but it puts the spotlight back on one question — just how much money is leaving Indian shores illegally and into secure vaults in Switzerland and fake companies in Mauritius, besides other safe havens?

The answer, quite simply, is that no one knows. The only information that the government does have is that some 80,000 people travel to Switzerland every year, of whom 25,000 travel very frequently. “Obviously, these people won’t be tourists. They must be travelling there for some other reason,” believes an official involved in tracking illegal money. And, clearly, he isn’t referring to the commerce ministry bureaucrats who’ve been flitting in and out of Geneva ever since the World Trade Organisation negotiations went into a tailspin!

The minimum balance in a Swiss bank, sources say, has to be $10 million. Assuming that at least 10,000 of the frequent fliers to Switzerland have illegal bank accounts (that is, without the permission of the Reserve Bank of India) there, that should translate into a minimum of $100 billion stashed away in Switzerland alone. Don’t even begin to ask about money invested through $1 companies in Mauritius (the favourite destination of Indians) and other tax havens such as St Kitts, the Cayman Islands, Channel Islands and British Virgin Islands, though these are more popular with westerners.

A big chunk is slush money — bribes paid to politicians and bureaucrats — and money that has been obtained through illegal means. Illegal money means cash from white collar crime (a stock market scamster was found to have spirited away a lot of his ill-gotten wealth there) and other offences such as drug smuggling, gun running, illegal sex trade and trading in protected wildlife, to name just a few.

HOT MONEY: (Above) The Swiss National Bank and (bottom) Hassan Ali Khan

Money laundering — the process by which illegal money is made legitimate — is a huge business. A 2005 anti-money laundering survey by consulting firm KPMG estimated the amount of money laundered globally to be between $590 billion and $1.5 trillion. That was nearly 2-5 per cent of the global economy. Money laundering is now a recognised crime in India, following the passage of the Prevention of Money Laundering Act (PMLA), 2005.

Not all the nest eggs in Swiss banks contain tainted money, however. There’s a fair amount of legally earned money that is parked abroad to avoid taxes in India and circumvent foreign exchange holding limits (you’re not allowed to take more than $10,000 overseas, of which only $5,000 can be in cash). The Foreign Exchange Management Act (FEMA), 1999, sets out various restrictions on how much money and assets Indians can hold abroad.

Respected businessmen, well-known politicians and senior bureaucrats rub shoulders with scamsters and criminals in the murky world of financial fraud. It’s not rare to find the owner of a noted business house defaulting on dues to investors and banks yet living it up while abroad. In the early 1990s, several Indian politicians and bureaucrats were alleged to have figured in a list of account holders of the Luxembourg-incorporated Bank of Credit and Commerce International, which went belly up.

Getting money out of India (or keeping it out) is no big deal — if one has the right contacts and sources. Despite various steps to check it — mainly the PMLA and FEMA — the hawala trade is thriving. You can hand over some money in India to one agent, who will ensure that you get money during your next trip abroad from another trusted agent.

Opening a Swiss bank account too is no big deal. All you need is a valid passport and $10 million and you can go either directly to the bank or use a broker. There is a lot of paper work involved but nothing that will scare depositors away. Once an account — either numbered, which costs more, or with your name — is created, you are assured of complete privacy. Swiss bankers are not even supposed to reveal that you are a client, let alone the details of your account. So once you have a Swiss bank account, all you have to do is to ensure that whatever money you want to conceal is deposited there. There’s no way any government can get to that.

But secrecy has always had its limits. If a citizen of a country has been involved in a crime, the government can approach the Swiss courts to order banks to reveal details of bank accounts. If the courts waive the secrecy clause, the banks will have to disclose the identity and certain other details of the account. There’s a catch, of course. The crime will have to be recognised as an offence in Switzerland as well. Officials of the Enforcement Directorate, the government agency responsible for tracking violations of India’s foreign exchange regulations, say that that has never been a problem. “Their list of crimes is larger than ours,” says one official. Swiss courts are particularly tough on corruption cases and those involved in the narcotics trade.

After 9/11, with the battle against money laundering taking on global dimensions, opening a Swiss bank account has become a tad difficult. Banks, say Indian officials, are beginning to ask more questions and are being more cautious in taking customers.

For Indians, the passing of the PMLA and FEMA (both of which are enforced by the Enforcement Directorate) have made spiriting money abroad more difficult. The government is also beefing up its detection machinery. The ED gets information from various sources — its own sources, complaints from the public, information other investigating agencies chance upon — which it looks into.

But it is the setting up of the Financial Intelligence Unit (FIU) in the finance ministry that has come as a major leg-up in the fight against illegal money. The FIU is part of a global Financial Action Task Force (FATF), an inter-governmental body to check money laundering and the financing of terrorism. FIUs in different countries will cross-check information, making the anonymous movement of funds across borders that much more difficult.

Within India, the FIU functions as an intermediary between banks and the ED. Banks have to give information on certain listed suspicious transactions to the FIU, which will analyse it to detect any irregularities. So if you have spread your murky dealings across different banks, the FIU, where all the information comes, could well latch on to you. The information is then passed on to the ED, which then investigates the matter further and either drops the matter if everything is above board or proceeds under FEMA or PMLA.

Clearly, Hassan Ali Khan and others of his ilk have to get more careful.

Arms Against Money Laundering

• PMLA: The Prevention of Money Laundering Act, 2005, makes moneylaundering a crime.
  
  
• FEMA: The Foreign Exchange Management Act, 1999, sets out various restrictions on how much money and assets Indians can hold abroad.
  
  
• FIU: The Financial Intelligence Unit, set up by the finance ministry to fight illegal money. It is part of a global Financial Action Task Force to check money laundering and financing of terrorism. FIUs across nations cross-check information to track anonymous movement of funds.