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Need To Reclaim Black Hole Of Black Money: Will Setting Up Of DCI Do? – Analysis


By Rajeev Sharma


When in the first week of February 2011, an Indian news magazine and a TV channel released a list of 15 individuals and trusts allegedly holding secret accounts in the tax haven of Liechtenstein, it appeared that the days of black money hoarders in India are numbered. But this optimism has proved to be short-lived. Four months have gone by since that list was released and still the corrupt Indians are merrily operating below the radar screens of the law enforcement agencies.

The list was handed over to the Indian government in March 2009 and the Centre had taken the stand that the names could not be disclosed because these had been given by the German government on confidential terms. The list released by the two Indian media outfits had the names of 12 individuals and three foundations without giving their addresses, businesses and the amounts they have allegedly stashed in these accounts.

Now once again the things appear to be changing for good as the government is once again showing its intentions of cracking the whip on its corrupt citizens. Trust the politicians to skirt issues of national importance like the issue of black money and then suddenly act when they come under pressure. These pressures can come from various quarters like media, Opposition leaders, courts or the civil society. However, if the UPA II government seems to have finally woken up from its years of slumber, it is because of the last of the pressure groups cited above: the civil society.

At a time when the Supreme Court is pursuing the issue of black money pro-actively in view of the Hassan Ali (India’s largest ever tax evader who is estimated to owe taxes to the Indian government anywhere between $ 2 billion to $ 20 billion) and other cases and guesstimates of black money in India vary from $ 500 billion to $ 1.4 trillion, the UPA II government has commissioned an in-depth and fresh study estimation of unaccounted income and wealth held within and outside India.

Even as the issue of black money has generated a lot of political heat and attracted public and media attention in the recent past, there are no reliable estimates of black money generated and held within and outside the country. A recent study by Global Financial Integrity has estimated the illicit money outflow to be USD 462 billion. These estimates are based on various unverifiable assumptions and approximations.


The study, engaging three top national level institutions, has already begun in March 2011 and is scheduled to be completed in 18 months. This means that the results of the study will be available only around September 2012, months after crucial assembly elections in several states, including the all-important Uttar Pradesh assembly.

A day before the government made public the existence of a study on all aspects of black money, it set up a committee, headed by Chairman of the Central Board of Direct Taxes, to examine ways to strengthen laws to curb the generation of black money and its transfer to safe havens abroad and to bring the monies back into India’s legitimate financial system. The Committee has been given six months’ time to finalize its report. The government was left with no option but to announce the two-month-old existence of a study commissioned by the Ministry of Finance after Ramdev, who was recently briefed by senior government officials on the legal constraints in bringing back the black monies parked abroad, refused to accept the government’s arguments.

The Ministry of Finance which has commissioned the study said on May 29, 2011 that the study will bring out the nature of activities that encourage money laundering and its ramifications on national security. The study is being undertaken by the following national institutes: a) National Institute of Public Finance and Policy (NIPFP); b) National Institute of Financial Management (NIFM); and c) National Council of Applied Economic Research (NCAER). The terms of reference of the study are as follows:

(i) To assess/survey unaccounted income and wealth both inside and outside the country.

(ii) To profile the nature of activities engendering money laundering both inside and outside the country with its ramifications on national security.

(iii) To identify important sectors of economy in which unaccounted money is generated and examine causes and conditions that result in generation of unaccounted money.

(iv) To examine the methods employed in generation of unaccounted money and conversion of the same into accounted money.

(v) To suggest ways and means for detection and prevention of unaccounted money and bringing the same into the mainstream of economy.

(vi) To suggest methods to be employed for bringing to tax unaccounted money kept outside India.

(vii) To estimate the quantum of non-payment of tax due to evasion by registered corporate bodies.

“The government has proposed a multi-pronged action plan with an array of measures, including amended tax treaties with foreign countries to stem the illicit flow of money in undisclosed overseas bank accounts. The steps also include creating an appropriate legislative framework, setting up institutions to deal with illicit funds, developing systems for implementation and imparting of skills to manpower for effective action,” the union Finance Ministry said.

On May 30, 2011, the UPA II government took further the strategy of setting up institutions for dealing with illicit funds and announced setting up with immediate effect the setting up of the Directorate of Income Tax (Criminal Investigation), to be known in short as DCI.

The Directorate has been created in the Central Board of Direct Taxes, Department of Revenue, Ministry of Finance, by the Central Government through a notification. The DCI will seek and collect information about persons and transactions suspected to be involved in criminal activities having cross-border, inter-state or international ramifications that pose a threat to national security and are punishable under the direct tax laws and investigate the source and use of funds involved in such criminal activities. It will file prosecution complaint in the competent court under any direct tax law relating to a criminal activity, hire the services of special prosecutors and other experts for pursuing a prosecution ‘complaint filed in any court of competent jurisdiction and execute appropriate witness protection programmes for effective prosecution of criminal offences under the direct tax laws, i.e. to protect and rehabilitate witnesses who support the state in prosecution of such offences so as to insulate them from any harm to their person. It will coordinate with and extend necessary expert, technical and logistical support to any other intelligence or law enforcement agency in India investigating crimes having cross-border, inter- state or international ramifications that pose a threat to national security.

The DCI will enter into agreements for sharing of information and other cooperation with any central or state agency in India and also forge agreements for sharing of information and other cooperation with such agencies of foreign states as may be permissible under any international agreement or treaty. The DCI will be headed by a Director General of Income Tax (Criminal Investigation), who will be an officer of the rank of Chief Commissioner of Income Tax, and will be located in New Delhi. The DCI will function under administrative control of the Member (Investigation) in the Central Board of Direct Taxes (CBDT) and will be a subordinate office of CBDT. The DCI will have eight Directors of Income Tax (Criminal Investigation) located at Delhi, Chandigarh, Jaipur, Ahmedabad, Mumbai, Chennai, Kolkata and Lucknow. These Directorates will be headed by officers of the rank of Commissioner of Income Tax who will perform such functions as are notified or assigned to them by the CBDT. The CBDT shall have all powers to amend the functions assigned to the DCI.

With the latest notification setting up the DCI, the Government has adopted five-fold strategy to tackle the menace of illicit funds as follows:

i) Joining global crusade against ‘black money’;

ii) Creating an appropriate legislative framework;

iii) Setting up institutions for dealing with Illicit Funds;

iv) Developing systems for implementation; and

v) Imparting skills to the manpower for effective action.

On April 22, 2011, the union finance ministry said in response to an RTI query that it has “no authentic figures” about the quantum of money deposited in Swiss banks. The Ministry also said that certain “references” have been received on the black money issue but declined to make the information public since it will “impede the process of investigation” as the case is being heard in the apex court. “There are no authentic figures about the amount of deposits held by Indian citizens in Swiss Banks, which are exclusive of their lawful and legitimate deposits,” the Ministry said. It also cited legal difficulties being faced by India with the Switzerland government when the Government of India approached the Swiss authorities with specific information about certain individuals. “The Swiss Federal Tax Administration has expressed its inability to exchange the information regarding bank deposits of Indian citizens as the information was not necessary for the application of the DTAA (Double Taxation Avoidance Agreement) between India and Swiss Confederation but was required only for the enforcement of India internal laws,” the Finance Ministry said in the RTI reply.

A day before this, the Supreme Court had taken a very strong view of the government’s inefficiency in dealing with the issue of black money and focusing its probe only on Hasan Ali, owner of Pune-based stud farm, accused of money laundering and large-scale tax evasion.

Political parties too have exerted enormous pressure on the government for its sins of omission and commission in tracking corrupt Indians’ ill-gotten wealth stashed away in foreign tax havens.

The BJP for its part has been scoring political goals against the UPA government on the issue of black money.

The problem with India is not lack of legislations. On the contrary, there is a plethora of legislations for virtually every illegal activity. The problem has been lack of good governance and complete absence of political will while dealing with issues of national importance. The issue of black money is extremely important and any government that means business must put it on top of its agenda.

There is an urgent need for India to reclaim the black hole of black money. The leader who does it will be the true and the tallest Bharat Ratna India has ever produced. India can do it. India must do it.


SAAG is the South Asia Analysis Group, a non-profit, non-commercial think tank. The objective of SAAG is to advance strategic analysis and contribute to the expansion of knowledge of Indian and International security and promote public understanding.

One thought on “Need To Reclaim Black Hole Of Black Money: Will Setting Up Of DCI Do? – Analysis

  • June 4, 2011 at 6:34 am

    Very good article…every Indian who wants to protests against black money must read it…!!! Thanks !


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