INSIGHTS

GOVERNMENT:
BLACK WILL BE THE NEW WHITE!

Hot on trail

The New Year promises (rather threatens) to hold another (nasty) surprise for corporates – the Central Government has announced its intention to de-register another 1.20 lakh more companies for various non-compliance issues. This is being done essentially to drive out black money from the economy.

As it is, the fag end of the year 2017 saw almost 2.26 lakh companies being struck off and more than 3 lakh directors being disqualified for being on boards of such non complying companies. While the government took cover of non-compliance under various provisions of the Companies Act, 2013, the underlying intention of the government was hard to miss – to weed out black money and illegal funds being hoarded in such companies. This, especially after demonetisation drive in 2016. This yet again brings into sharp focus the issue of black money.

Black money - bane of economy

Money is earned / generated through all sectors. When it is earned through illegal, unfair means and such earnings are not reported to tax authorities and no tax is paid on such money, it is then called black money.

Over years, the quantum of black money in the economy has risen to such an extent that there runs a parallel economy basis that.  Generally referred to as “shadow economy”, in May, 2017 it was estimated that black money accounted for almost 62% of the official GDP of the country1. The percentage is steadily on the rise.

How it works

There seems to be no set method of earning black money. Human greed coupled with intelligence and education enables newer methods of earning or hoarding black money.

Especially in developing countries like India, there is need to identify and plug various sources of generating black money. Primary amongst them:

  •      Tax havens

    Stacking money in countries such as Switzerland, Mauritius, Singapore, the Netherlands, Monaco, Luxemborg, Cayman Islands, Bermuda and the Bahamas. Known as tax havens, these countries are known to have insignificant or no tax liabilities especially to foreigners. No financial information is shared with tax or regulatory authorities of the nations to which such investors belong to. Not just individuals, even Indian and international business conglomerates invest their moneys to avoid heavy tax liability.

  •      Public trusts

    Public trusts are created as a source of laundering money. Unlike other entities, there is no regulation or regulatory authority government to which such trusts are accountable. As a result, such trusts enjoy a free run.

  •      Kickbacks

    Kickbacks in deals in defence, technology and other strategic sectors of the government. Middlemen facilitate some strategic and key government contracts / tenders to be obtained in favour of certain individuals or corporate houses in consideration of substantial sum of money.

  •      Smuggling

    Smuggling gold and illegal money has been going on since time immemorial. This is the most unaccounted form of black money.

  •      Hawala

    Hawala is another age old method of hoarding black money which dates back to almost 8th Century in the world. Most prevalent in the Arab countries, Africa and India, this method involves transfer of money without actual movement of money. Entirely based on trust and honour, there is no authority governing this method of transfer. Dealings are not restricted to cash but are also done in kind. In substantial monetary transactions involving fund transfer from or to countries, this seems to be the most preferred mode as the commission charged is minimal as compared to go thru the normal banking channels.

  •      Corporate jugglery

    Several corporates resort to measures such as under invoicing and or showing exaggerated figures in the invoices, especially in foreign transactions. The excess amounts are stashed away.

  •      Political funding

    “Donating” substantial sum of money to political parties is one of the safest method of investing black money as all political parties are above the statutory tax ambit. Not to mention the political favours that will be bestowed by such parties.

Black money leaks?!

While the black money trail was exposed quite often, some of the biggest revelations came in recent years. In early 2015, a leading daily colluded with a foreign newspaper and released a list of prominent Indian businessmen, politicians and jewellery merchants who roughly constituted a mind boggling INR 25,500 crores in HSBC, Geneva branch. (In) famously known as the Swiss leaks, it woke the nation out of its slumber.

In 2016 came the biggest ever information leak on black money held world over. The Panama paper leaks listed 500 prominent Indians who were alleged to have escaped the tax net. The government immediately responded by constituting a high level Multi Agency Group (MAG) containing an amalgam of members from various enforcement agencies, to look into the same and suggest regulatory action. As expected, majority of those named in the list denied any wrong doing.

Governments’ Check mate

Successive governments have endeavoured to put in place a fool proof system in checking the black money menace.

  1. One of the earliest measures to check black money was the introduction of the Gold Bonds Scheme in 1993. It was unexpectedly successful.
  2. In 1997 came the Voluntary disclosure of income (VDIS) where in amnesty from prosecution from laws was provided to those who voluntarily disclosed their undisclosed income and paid lesser rate of tax (30%).
  3. In 2014, the government approved the constitution of the Special Investigation Team (SIT) to tackle the issue of black money.
  4. The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015’ was enacted in 2015 to effectively deal with undisclosed income.
  5. The Right to information Act gives the right to any individual to have access to any information on such issues.
  6. India has been actively engaging in dialogue with other countries and entering into agreement for automatic information exchange on such sensitive issues.
  7. Double taxation avoidance agreements and its various clauses are being re visited to ensure that individuals or business houses do not take advantage of loop holes in law. In 2016, DTAA’s were signed with tax havens Mauritius and Cyprus.
  8. The Income Declaration Scheme, 2016 was announced. A one-time amnesty-like compliance window for citizens to declare their undisclosed income and pay a 45% tax on undisclosed income along with penalty. This scheme met with success as well. There was one individual who made voluntary disclosure of INR 2,200 Crores2 under the scheme!

Food for thought

The spiral effect of increasing black money is there for all to see – rapid increase in inflation; widening gap between haves and have not’s, inducing vicious cycle of corruption are but a few obvious factors impacting the economy. The government has been single minded in its approach to eradicating black money from the economy. However, it is not just the government’s duty to tackle the menace. Individuals and corporates alike must maintain basic moral and ethical standard, especially towards the economically weaker sections to ensure they maintain a reasonable (if not luxurious) standard of life.

 

Notes:

1. Mr. Arun Kumar, eminent economist on Indian black money.

2. Wikipedia on Income Declaration Scheme, 2016.

What’s brewing 

BIT COINS: NO LAW CRYPTO CURRENCY

The run up to the New Year witnessed a famous Indian actor reap windfall profits by investing in bit coins. That brought back in to sharp focus the hype surrounding the latest form of virtual investment – Bit coins.

Bit coin is digital currency. It is a form of crypto currency. It works on a peer to peer basis. Bit coins, like hard currency, can change hands. The only difference– unlike normal currency, bit coins are not governed by any central authority. There is no authority to track it. There is no government /agency that controls its creation or it changing hands. Cryptography is used to create the bit coins. However, the creators of this currency have endeavoured to create fool proof records of such transactions for posterity. There is absolute anonymity in receiving or spending the same.

A snapshot of the latest currency revolution:

  • Bitcoins are created through cryptography. An entity (individual or company) has to solve a challenging mathematical puzzle using computer software. Since cryptography is used, its primary objective is to keep data and details secure and confidential.
  • Bitcoins are available in bitcoin exchanges. One of the earliest bitcoin exchanges in India was formed in 2009. They could also be bought from other bitcoin users.
  • Unlike hard currency that keep getting printed, there is a limit on the number of bitcoins that can be created. It is estimated that a maximum of 21 million bitcoins can be created in toto.
  • Due to their limited number, the value of bitcoin is volatile and increases or decreases in proportion to their demand – supply. When demand increases, the price of the bitcoin increases and vice versa. At the close of the last year, 1 bitcoin in India was valued at approximately Rs. 9.39 lakhs.
  • A bitcoin user will most likely have a software program or mobile app or mobile wallet that enables a user to send or receive bitcoins.
  • A software ledger called the “Block chain” maintains a record of every single transaction using a bitcoin by affixing time stamp on it.  When a bitcoin is sent or received by a user, the transaction is immediately recorded on the block chain to ensure that the same bitcoin is not spent again. A software validates such transaction in such a way that it cannot be altered.

Bitcoins seem to have many advantages – the freedom to send or receive currency in any part of the world without regulatory restrictions, bank holidays, etc. since it is crypto currency, there is utmost confidentiality and security of data. Though the transactions are done anonymously, the block chain ensures that there is record of the transaction. In fact, share prices of few companies investing in bit coins have almost doubled after they announced their intention to introduce their crypto currency. Investors are keen to lap any digital coins or block chains beneath them.

However, they are not free from disadvantages – like any money, they are open to misuse. The average common man is not fully aware of this form of currency. It is currently restricted to pockets of the population. The volatility of its value makes it an inconsistent form of earning. Most importantly, the absolute lack of any regulatory authority makes it a non preferred investment for the middle class who cautiously invest their hard earned money. In the Union budget 2018, the Finance Minister made is expressly clear that crypto currency will not be recognized as legal tender and hence proposes legislation to make it illegal.

In the fortnightly podcast, Mr. A.K Mylsamy shares details, judgement and anecdotes on Lakshmi Vilas Bank Ltd vs Orchid Pharma Ltd. Listen in!

AT THE HELM OF AFFAIRS

INFOGRAPHIC

A detailed graphic presentation of information, statistics and milestone cases on

ART LAW

LEGAL-EASE

Ibidem

In the same place; in the same book; on the same page, etc. Abbreviated to ”ibid” or “ib”.

Jactitation

Boasting of something which is challenged by another. A false boasting; a false claim; assertions repeated to the prejudice of another’s right.

Kangaroo Court

Term descriptive of a sham legal proceeding in which a person’s rights are totally disregarded and in which the result I a foregone conclusion because of the bias of the court or other tribunal.

Laches

“Doctrine of laches”, is based upon maximum that equity aids the vigilant and not those who slumber on their rights. It is defined as neglect to assert a right or claim which,taken together with lapse of time and other circumstances causing prejudice to adverse party, operates as bar in court of equity.

Lawlipops

THE RAINMAKER 
(Movie)

Released in 1995, the movie is entirely based on the novel of the same name written by acclaimed American writer – attorney John Grisham. Directed by Francis Ford Coppola and boasting of A-List actor/performers, the movie received positive reviews and critics’ appreciation for it’s authentic portrayal of a young lawyers life.

Matt Damon plays the central role of Rudy Baylor – a slum boy having deep rooted interest in civil rights and social justice. Rudy attends law school and graduates as a lawyer. A novice in the legal field, Rudy tries to make a mark while doing odd jobs to support himself. He reluctantly agrees to associate with Lyman “Bruiser” Stone (Mickey Rourke), a corrupt and ruthless lawyer. As part of his job, he has to hunt for potential clients at hospital(s).  Along the way, he meets Deck Shiffet (Danny DeVito), who has failed the bar exam but is a brilliant insurance assessor and expert in insurance law suits. Rudy and Deck manage to get hold of an insurance bad faith case – a type of case which is unique to the law of the United States of America that deals with a case that could be filed by a person against an insurance company that denies their insurance claim. This case is filed on behalf of a couple whose young son is terminally ill whose medical claims have been repeatedly rejected / denied by the insurance company. Rudy is up against the mighty and unscrupulous Leo Drummond (John Voight) who would go any length to win a case. Despite Leos best efforts, the underdog lawyer Rudy is determined to get justice for the couple and their dead son. The judge rules in favour of Rudys clients with an unheard of monetary compensation. Whether the compensation actually reaches the couple and the impact this case has on Rudy completes this movie.

HOW TO GET AWAY WITH MURDER 
(TV mini-series)

This legal drama series premiered in 2014 and has since run 3 seasons. The fourth season went on air in 2017. Veteran actress –producer Viola Davis plays the protagonist Annalise Keating, a law professor and senior attorney in practice. She selects five of her students to intern at her law firm along with other legal associates. In a twist of circumstances, she along with the five students become entangled in a murder plot.

Viola Davis received acclaim for her portrayal of Annalise Keating. She became the first non –white actor to win an Emmy award for her outstanding performance in a drama series. She continued her win in other several prestigious awards.

(P)REVIEW

When we lose the right to be different, we lose the privilege to be free.

Charles Evans Hughes
Former Chief Justice of the United States

© Copyright 2017 - A K Mylsamy & Associates LLP

INSIGHTS

GOVERNMENT:
BLACK WILL BE THE NEW WHITE!

Hot on trail

The New Year promises (rather threatens) to hold another (nasty) surprise for corporates – the Central Government has announced its intention to de-register another 1.20 lakh more companies for various non-compliance issues. This is being done essentially to drive out black money from the economy.

As it is, the fag end of the year 2017 saw almost 2.26 lakh companies being struck off and more than 3 lakh directors being disqualified for being on boards of such non complying companies. While the government took cover of non-compliance under various provisions of the Companies Act, 2013, the underlying intention of the government was hard to miss – to weed out black money and illegal funds being hoarded in such companies. This, especially after demonetisation drive in 2016. This yet again brings into sharp focus the issue of black money.

Black money - bane of economy

Money is earned / generated through all sectors. When it is earned through illegal, unfair means and such earnings are not reported to tax authorities and no tax is paid on such money, it is then called black money.

Over years, the quantum of black money in the economy has risen to such an extent that there runs a parallel economy basis that.  Generally referred to as “shadow economy”, in May, 2017 it was estimated that black money accounted for almost 62% of the official GDP of the country1. The percentage is steadily on the rise.

How it works

There seems to be no set method of earning black money. Human greed coupled with intelligence and education enables newer methods of earning or hoarding black money.

Especially in developing countries like India, there is need to identify and plug various sources of generating black money. Primary amongst them:

  •        Tax havens

    Stacking money in countries such as Switzerland, Mauritius, Singapore, the Netherlands, Monaco, Luxemborg, Cayman Islands, Bermuda and the Bahamas. Known as tax havens, these countries are known to have insignificant or no tax liabilities especially to foreigners. No financial information is shared with tax or regulatory authorities of the nations to which such investors belong to. Not just individuals, even Indian and international business conglomerates invest their moneys to avoid heavy tax liability.

  •        Public trusts

    Public trusts are created as a source of laundering money. Unlike other entities, there is no regulation or regulatory authority government to which such trusts are accountable. As a result, such trusts enjoy a free run.

  •        Kickbacks

    Kickbacks in deals in defence, technology and other strategic sectors of the government. Middlemen facilitate some strategic and key government contracts / tenders to be obtained in favour of certain individuals or corporate houses in consideration of substantial sum of money.

  •        Smuggling

    Smuggling gold and illegal money has been going on since time immemorial. This is the most unaccounted form of black money.

  •        Hawala

    Hawala is another age old method of hoarding black money which dates back to almost 8th Century in the world. Most prevalent in the Arab countries, Africa and India, this method involves transfer of money without actual movement of money. Entirely based on trust and honour, there is no authority governing this method of transfer. Dealings are not restricted to cash but are also done in kind. In substantial monetary transactions involving fund transfer from or to countries, this seems to be the most preferred mode as the commission charged is minimal as compared to go thru the normal banking channels.

  •        Corporate jugglery

    Several corporates resort to measures such as under invoicing and or showing exaggerated figures in the invoices, especially in foreign transactions. The excess amounts are stashed away.

  •        Political funding

    “Donating” substantial sum of money to political parties is one of the safest method of investing black money as all political parties are above the statutory tax ambit. Not to mention the political favours that will be bestowed by such parties.

Black money leaks?!

While the black money trail was exposed quite often, some of the biggest revelations came in recent years. In early 2015, a leading daily colluded with a foreign newspaper and released a list of prominent Indian businessmen, politicians and jewellery merchants who roughly constituted a mind boggling INR 25,500 crores in HSBC, Geneva branch. (In) famously known as the Swiss leaks, it woke the nation out of its slumber.

In 2016 came the biggest ever information leak on black money held world over. The Panama paper leaks listed 500 prominent Indians who were alleged to have escaped the tax net. The government immediately responded by constituting a high level Multi Agency Group (MAG) containing an amalgam of members from various enforcement agencies, to look into the same and suggest regulatory action. As expected, majority of those named in the list denied any wrong doing.

Governments’ Check mate

Successive governments have endeavoured to put in place a fool proof system in checking the black money menace.

  1. One of the earliest measures to check black money was the introduction of the Gold Bonds Scheme in 1993. It was unexpectedly successful.
  2. In 1997 came the Voluntary disclosure of income (VDIS) where in amnesty from prosecution from laws was provided to those who voluntarily disclosed their undisclosed income and paid lesser rate of tax (30%).
  3. In 2014, the government approved the constitution of the Special Investigation Team (SIT) to tackle the issue of black money.
  4. The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015’ was enacted in 2015 to effectively deal with undisclosed income.
  5. The Right to information Act gives the right to any individual to have access to any information on such issues.
  6. India has been actively engaging in dialogue with other countries and entering into agreement for automatic information exchange on such sensitive issues.
  7. Double taxation avoidance agreements and its various clauses are being re visited to ensure that individuals or business houses do not take advantage of loop holes in law. In 2016, DTAA’s were signed with tax havens Mauritius and Cyprus.
  8. The Income Declaration Scheme, 2016 was announced. A one-time amnesty-like compliance window for citizens to declare their undisclosed income and pay a 45% tax on undisclosed income along with penalty. This scheme met with success as well. There was one individual who made voluntary disclosure of INR 2,200 Crores2 under the scheme!

Food for thought

The spiral effect of increasing black money is there for all to see – rapid increase in inflation; widening gap between haves and have not’s, inducing vicious cycle of corruption are but a few obvious factors impacting the economy. The government has been single minded in its approach to eradicating black money from the economy. However, it is not just the government’s duty to tackle the menace. Individuals and corporates alike must maintain basic moral and ethical standard, especially towards the economically weaker sections to ensure they maintain a reasonable (if not luxurious) standard of life.

 

Notes:

1. Mr. Arun Kumar, eminent economist on Indian black money.

2. Wikipedia on Income Declaration Scheme, 2016.

What’s brewing 

BIT COINS: NO LAW CRYPTO CURRENCY

The run up to the New Year witnessed a famous Indian actor reap windfall profits by investing in bit coins. That brought back in to sharp focus the hype surrounding the latest form of virtual investment – Bit coins.

Bit coin is digital currency. It is a form of crypto currency. It works on a peer to peer basis. Bit coins, like hard currency, can change hands. The only difference– unlike normal currency, bit coins are not governed by any central authority. There is no authority to track it. There is no government /agency that controls its creation or it changing hands. Cryptography is used to create the bit coins. However, the creators of this currency have endeavoured to create fool proof records of such transactions for posterity. There is absolute anonymity in receiving or spending the same.

A snapshot of the latest currency revolution:

  • Bitcoins are created through cryptography. An entity (individual or company) has to solve a challenging mathematical puzzle using computer software. Since cryptography is used, its primary objective is to keep data and details secure and confidential.
  • Bitcoins are available in bitcoin exchanges. One of the earliest bitcoin exchanges in India was formed in 2009. They could also be bought from other bitcoin users.
  • Unlike hard currency that keep getting printed, there is a limit on the number of bitcoins that can be created. It is estimated that a maximum of 21 million bitcoins can be created in toto.
  • Due to their limited number, the value of bitcoin is volatile and increases or decreases in proportion to their demand – supply. When demand increases, the price of the bitcoin increases and vice versa. At the close of the last year, 1 bitcoin in India was valued at approximately Rs. 9.39 lakhs.
  • A bitcoin user will most likely have a software program or mobile app or mobile wallet that enables a user to send or receive bitcoins.
  • A software ledger called the “Block chain” maintains a record of every single transaction using a bitcoin by affixing time stamp on it.  When a bitcoin is sent or received by a user, the transaction is immediately recorded on the block chain to ensure that the same bitcoin is not spent again. A software validates such transaction in such a way that it cannot be altered.

Bitcoins seem to have many advantages – the freedom to send or receive currency in any part of the world without regulatory restrictions, bank holidays, etc. since it is crypto currency, there is utmost confidentiality and security of data. Though the transactions are done anonymously, the block chain ensures that there is record of the transaction.v In fact, share prices of few companies investing in bit coins have almost doubled after they announced their intention to introduce their crypto currency. Investors are keen to lap any digital coins or block chains beneath them.

However, they are not free from disadvantages – like any money, they are open to misuse. The average common man is not fully aware of this form of currency. It is currently restricted to pockets of the population. The volatility of its value makes it an inconsistent form of earning. Most importantly, the absolute lack of any regulatory authority makes it a non preferred investment for the middle class who cautiously invest their hard earned money. In the Union budget 2018, the Finance Minister made is expressly clear that crypto currency will not be recognized as legal tender and hence proposes legislation to make it illegal.

In the fortnightly podcast, Mr. A.K Mylsamy shares details, judgement and anecdotes on Lakshmi Vilas Bank Ltd vs Orchid Pharma Ltd. Listen in!

AT THE HELM OF AFFAIRS

INFOGRAPHIC

A detailed graphic presentation of information, statistics and milestone cases on

ART LAW

LEGAL-EASE

Ibidem

In the same place; in the same book; on the same page, etc. Abbreviated to ”ibid” or “ib”.

Jactitation

Boasting of something which is challenged by another. A false boasting; a false claim; assertions repeated to the prejudice of another’s right.

Kangaroo Court

Term descriptive of a sham legal proceeding in which a person’s rights are totally disregarded and in which the result I a foregone conclusion because of the bias of the court or other tribunal.

Laches

“Doctrine of laches”, is based upon maximum that equity aids the vigilant and not those who slumber on their rights. It is defined as neglect to assert a right or claim which,taken together with lapse of time and other circumstances causing prejudice to adverse party, operates as bar in court of equity.

Lawlipops

(P)REVIEW

THE RAINMAKER 
(Movie)

Released in 1995, the movie is entirely based on the novel of the same name written by acclaimed American writer – attorney John Grisham. Directed by Francis Ford Coppola and boasting of A-List actor/performers, the movie received positive reviews and critics’ appreciation for it’s authentic portrayal of a young lawyers life.

Matt Damon plays the central role of Rudy Baylor – a slum boy having deep rooted interest in civil rights and social justice. Rudy attends law school and graduates as a lawyer. A novice in the legal field, Rudy tries to make a mark while doing odd jobs to support himself. He reluctantly agrees to associate with Lyman “Bruiser” Stone (Mickey Rourke), a corrupt and ruthless lawyer. As part of his job, he has to hunt for potential clients at hospital(s).  Along the way, he meets Deck Shiffet (Danny DeVito), who has failed the bar exam but is a brilliant insurance assessor and expert in insurance law suits. Rudy and Deck manage to get hold of an insurance bad faith case – a type of case which is unique to the law of the United States of America that deals with a case that could be filed by a person against an insurance company that denies their insurance claim. This case is filed on behalf of a couple whose young son is terminally ill whose medical claims have been repeatedly rejected / denied by the insurance company. Rudy is up against the mighty and unscrupulous Leo Drummond (John Voight) who would go any length to win a case. Despite Leos best efforts, the underdog lawyer Rudy is determined to get justice for the couple and their dead son. The judge rules in favour of Rudys clients with an unheard of monetary compensation. Whether the compensation actually reaches the couple and the impact this case has on Rudy completes this movie.

HOW TO GET AWAY WITH MURDER 
(TV mini-series)

This legal drama series premiered in 2014 and has since run 3 seasons. The fourth season went on air in 2017. Veteran actress –producer Viola Davis plays the protagonist Annalise Keating, a law professor and senior attorney in practice. She selects five of her students to intern at her law firm along with other legal associates. In a twist of circumstances, she along with the five students become entangled in a murder plot.

Viola Davis received acclaim for her portrayal of Annalise Keating. She became the first non –white actor to win an Emmy award for her outstanding performance in a drama series. She continued her win in other several prestigious awards.

When we lose the right to be different, we lose the privilege to be free.

Charles Evans Hughes
Former Chief Justice of the United States

INSIGHTS

GOVERNMENT:
BLACK WILL BE THE NEW WHITE!

Hot on trail

The New Year promises (rather threatens) to hold another (nasty) surprise for corporates – the Central Government has announced its intention to de-register another 1.20 lakh more companies for various non-compliance issues. This is being done essentially to drive out black money from the economy.

As it is, the fag end of the year 2017 saw almost 2.26 lakh companies being struck off and more than 3 lakh directors being disqualified for being on boards of such non complying companies. While the government took cover of non-compliance under various provisions of the Companies Act, 2013, the underlying intention of the government was hard to miss – to weed out black money and illegal funds being hoarded in such companies. This, especially after demonetisation drive in 2016. This yet again brings into sharp focus the issue of black money.

Black money - bane of economy

​Money is earned / generated through all sectors. When it is earned through illegal, unfair means and such earnings are not reported to tax authorities and no tax is paid on such money, it is then called black money.

Over years, the quantum of black money in the economy has risen to such an extent that there runs a parallel economy basis that.  Generally referred to as “shadow economy”, in May, 2017 it was estimated that black money accounted for almost 62% of the official GDP of the country1. The percentage is steadily on the rise.

How it works

There seems to be no set method of earning black money. Human greed coupled with intelligence and education enables newer methods of earning or hoarding black money.

Especially in developing countries like India, there is need to identify and plug various sources of generating black money. Primary amongst them:

Tax havens

​

Stacking money in countries such as Switzerland, Mauritius, Singapore, the Netherlands, Monaco, Luxemborg, Cayman Islands, Bermuda and the Bahamas. Known as tax havens, these countries are known to have insignificant or no tax liabilities especially to foreigners. No financial information is shared with tax or regulatory authorities of the nations to which such investors belong to. Not just individuals, even Indian and international business conglomerates invest their moneys to avoid heavy tax liability.

Public trusts

Public trusts are created as a source of laundering money. Unlike other entities, there is no regulation or regulatory authority government to which such trusts are accountable. As a result, such trusts enjoy a free run.

Kickbacks

Kickbacks in deals in defence, technology and other strategic sectors of the government. Middlemen facilitate some strategic and key government contracts / tenders to be obtained in favour of certain individuals or corporate houses in consideration of substantial sum of money.

Smuggling

Smuggling gold and illegal money has been going on since time immemorial. This is the most unaccounted form of black money.

Hawala

Hawala is another age old method of hoarding black money which dates back to almost 8th Century in the world. Most prevalent in the Arab countries, Africa and India, this method involves transfer of money without actual movement of money. Entirely based on trust and honour, there is no authority governing this method of transfer. Dealings are not restricted to cash but are also done in kind. In substantial monetary transactions involving fund transfer from or to countries, this seems to be the most preferred mode as the commission charged is minimal as compared to go thru the normal banking channels.

Corporate jugglery

Several corporates resort to measures such as under invoicing and or showing exaggerated figures in the invoices, especially in foreign transactions. The excess amounts are stashed away.

Political funding

“Donating” substantial sum of money to political parties is one of the safest method of investing black money as all political parties are above the statutory tax ambit. Not to mention the political favours that will be bestowed by such parties.

Black money leaks?!

While the black money trail was exposed quite often, some of the biggest revelations came in recent years. In early 2015, a leading daily colluded with a foreign newspaper and released a list of prominent Indian businessmen, politicians and jewellery merchants who roughly constituted a mind boggling INR 25,500 crores in HSBC, Geneva branch. (In) famously known as the Swiss leaks, it woke the nation out of its slumber.

In 2016 came the biggest ever information leak on black money held world over. The Panama paper leaks listed 500 prominent Indians who were alleged to have escaped the tax net. The government immediately responded by constituting a high level Multi Agency Group (MAG) containing an amalgam of members from various enforcement agencies, to look into the same and suggest regulatory action. As expected, majority of those named in the list denied any wrong doing.

Governments’ Check mate

​Successive governments have endeavoured to put in place a fool proof system in checking the black money menace.

  1. One of the earliest measures to check black money was the introduction of the Gold Bonds Scheme in 1993. It was unexpectedly successful.
  2. In 1997 came the Voluntary disclosure of income (VDIS) where in amnesty from prosecution from laws was provided to those who voluntarily disclosed their undisclosed income and paid lesser rate of tax (30%).
  3. In 2014, the government approved the constitution of the Special Investigation Team (SIT) to tackle the issue of black money.
  4. The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015’ was enacted in 2015 to effectively deal with undisclosed income.
  5. The Right to information Act gives the right to any individual to have access to any information on such issues.
  6. India has been actively engaging in dialogue with other countries and entering into agreement for automatic information exchange on such sensitive issues.
  7. Double taxation avoidance agreements and its various clauses are being re visited to ensure that individuals or business houses do not take advantage of loop holes in law. In 2016, DTAA’s were signed with tax havens Mauritius and Cyprus.
  8. The Income Declaration Scheme, 2016 was announced. A one-time amnesty-like compliance window for citizens to declare their undisclosed income and pay a 45% tax on undisclosed income along with penalty. This scheme met with success as well. There was one individual who made voluntary disclosure of INR 2,200 Crores2 under the scheme!

Food for thought

The spiral effect of increasing black money is there for all to see – rapid increase in inflation; widening gap between haves and have not’s, inducing vicious cycle of corruption are but a few obvious factors impacting the economy. The government has been single minded in its approach to eradicating black money from the economy. However, it is not just the government’s duty to tackle the menace. Individuals and corporates alike must maintain basic moral and ethical standard, especially towards the economically weaker sections to ensure they maintain a reasonable (if not luxurious) standard of life.

 

Notes:

1. Mr. Arun Kumar, eminent economist on Indian black money.

2. Wikipedia on Income Declaration Scheme, 2016.

What’s brewing 

BIT COINS:
NO LAW CRYPTO CURRENCY

The run up to the New Year witnessed a famous Indian actor reap windfall profits by investing in bit coins. That brought back in to sharp focus the hype surrounding the latest form of virtual investment – Bit coins.

Bit coin is digital currency. It is a form of crypto currency. It works on a peer to peer basis. Bit coins, like hard currency, can change hands. The only difference– unlike normal currency, bit coins are not governed by any central authority. There is no authority to track it. There is no government /agency that controls its creation or it changing hands. Cryptography is used to create the bit coins. However, the creators of this currency have endeavoured to create fool proof records of such transactions for posterity. There is absolute anonymity in receiving or spending the same.

A snapshot of the latest currency revolution:

  • Bitcoins are created through cryptography. An entity (individual or company) has to solve a challenging mathematical puzzle using computer software. Since cryptography is used, its primary objective is to keep data and details secure and confidential.
  • Bitcoins are available in bitcoin exchanges. One of the earliest bitcoin exchanges in India was formed in 2009. They could also be bought from other bitcoin users.
  • Unlike hard currency that keep getting printed, there is a limit on the number of bitcoins that can be created. It is estimated that a maximum of 21 million bitcoins can be created in toto.
  • Due to their limited number, the value of bitcoin is volatile and increases or decreases in proportion to their demand – supply. When demand increases, the price of the bitcoin increases and vice versa. At the close of the last year, 1 bitcoin in India was valued at approximately Rs. 9.39 lakhs.
  • A bitcoin user will most likely have a software program or mobile app or mobile wallet that enables a user to send or receive bitcoins.
  • A software ledger called the “Block chain” maintains a record of every single transaction using a bitcoin by affixing time stamp on it.  When a bitcoin is sent or received by a user, the transaction is immediately recorded on the block chain to ensure that the same bitcoin is not spent again. A software validates such transaction in such a way that it cannot be altered.

Bitcoins seem to have many advantages – the freedom to send or receive currency in any part of the world without regulatory restrictions, bank holidays, etc. since it is crypto currency, there is utmost confidentiality and security of data. Though the transactions are done anonymously, the block chain ensures that there is record of the transaction. In fact, share prices of few companies investing in bit coins have almost doubled after they announced their intention to introduce their crypto currency. Investors are keen to lap any digital coins or block chains beneath them.

However, they are not free from disadvantages – like any money, they are open to misuse. The average common man is not fully aware of this form of currency. It is currently restricted to pockets of the population. The volatility of its value makes it an inconsistent form of earning. Most importantly, the absolute lack of any regulatory authority makes it a non preferred investment for the middle class who cautiously invest their hard earned money. In the Union budget 2018, the Finance Minister made is expressly clear that crypto currency will not be recognized as legal tender and hence proposes legislation to make it illegal.

In the fortnightly podcast, Mr. A.K Mylsamy shares details, judgement and anecdotes on Lakshmi Vilas Bank Ltd vs Orchid Pharma Ltd. Listen in!

AT THE HELM OF AFFAIRS

INFOGRAPHIC

A detailed graphic presentation of information, statistics and milestone cases on

ART LAW

LEGAL-EASE

​Ibidem

In the same place; in the same book; on the same page, etc. Abbreviated to ”ibid” or “ib”.

Jactitation

Boasting of something which is challenged by another. A false boasting; a false claim; assertions repeated to the prejudice of another’s right.

Kangaroo Court

Term descriptive of a sham legal proceeding in which a person’s rights are totally disregarded and in which the result I a foregone conclusion because of the bias of the court or other tribunal.

Laches

“Doctrine of laches”, is based upon maximum that equity aids the vigilant and not those who slumber on their rights. It is defined as neglect to assert a right or claim which,taken together with lapse of time and other circumstances causing prejudice to adverse party, operates as bar in court of equity.

Lawlipops

(P)REVIEW

When we lose the right to be different, we lose the privilege to be free.

Charles Evans Hughes
Former Chief Justice of the United States

GOVERNMENT:
BLACK WILL BE THE NEW WHITE!

INSIGHTS

Hot on trail

The New Year promises (rather threatens) to hold another (nasty) surprise for corporates – the Central Government has announced its intention to de-register another 1.20 lakh more companies for various non-compliance issues. This is being done essentially to drive out black money from the economy.

As it is, the fag end of the year 2017 saw almost 2.26 lakh companies being struck off and more than 3 lakh directors being disqualified for being on boards of such non complying companies. While the government took cover of non-compliance under various provisions of the Companies Act, 2013, the underlying intention of the government was hard to miss – to weed out black money and illegal funds being hoarded in such companies. This, especially after demonetisation drive in 2016. This yet again brings into sharp focus the issue of black money.

Black money - bane of economy

​Money is earned / generated through all sectors. When it is earned through illegal, unfair means and such earnings are not reported to tax authorities and no tax is paid on such money, it is then called black money.

Over years, the quantum of black money in the economy has risen to such an extent that there runs a parallel economy basis that.  Generally referred to as “shadow economy”, in May, 2017 it was estimated that black money accounted for almost 62% of the official GDP of the country1. The percentage is steadily on the rise.

How it works

There seems to be no set method of earning black money. Human greed coupled with intelligence and education enables newer methods of earning or hoarding black money.

Especially in developing countries like India, there is need to identify and plug various sources of generating black money. Primary amongst them:

Tax havens

​

Stacking money in countries such as Switzerland, Mauritius, Singapore, the Netherlands, Monaco, Luxemborg, Cayman Islands, Bermuda and the Bahamas. Known as tax havens, these countries are known to have insignificant or no tax liabilities especially to foreigners. No financial information is shared with tax or regulatory authorities of the nations to which such investors belong to. Not just individuals, even Indian and international business conglomerates invest their moneys to avoid heavy tax liability.

Public trusts

Public trusts are created as a source of laundering money. Unlike other entities, there is no regulation or regulatory authority government to which such trusts are accountable. As a result, such trusts enjoy a free run.

Kickbacks

Kickbacks in deals in defence, technology and other strategic sectors of the government. Middlemen facilitate some strategic and key government contracts / tenders to be obtained in favour of certain individuals or corporate houses in consideration of substantial sum of money.

Smuggling

Smuggling gold and illegal money has been going on since time immemorial. This is the most unaccounted form of black money.

Hawala

Hawala is another age old method of hoarding black money which dates back to almost 8th Century in the world. Most prevalent in the Arab countries, Africa and India, this method involves transfer of money without actual movement of money. Entirely based on trust and honour, there is no authority governing this method of transfer. Dealings are not restricted to cash but are also done in kind. In substantial monetary transactions involving fund transfer from or to countries, this seems to be the most preferred mode as the commission charged is minimal as compared to go thru the normal banking channels.

Corporate jugglery

Several corporates resort to measures such as under invoicing and or showing exaggerated figures in the invoices, especially in foreign transactions. The excess amounts are stashed away.

Political funding

“Donating” substantial sum of money to political parties is one of the safest method of investing black money as all political parties are above the statutory tax ambit. Not to mention the political favours that will be bestowed by such parties.

Black money leaks?!

While the black money trail was exposed quite often, some of the biggest revelations came in recent years. In early 2015, a leading daily colluded with a foreign newspaper and released a list of prominent Indian businessmen, politicians and jewellery merchants who roughly constituted a mind boggling INR 25,500 crores in HSBC, Geneva branch. (In) famously known as the Swiss leaks, it woke the nation out of its slumber.

In 2016 came the biggest ever information leak on black money held world over. The Panama paper leaks listed 500 prominent Indians who were alleged to have escaped the tax net. The government immediately responded by constituting a high level Multi Agency Group (MAG) containing an amalgam of members from various enforcement agencies, to look into the same and suggest regulatory action. As expected, majority of those named in the list denied any wrong doing.

Governments’ Check mate

​Successive governments have endeavoured to put in place a fool proof system in checking the black money menace.

  1. One of the earliest measures to check black money was the introduction of the Gold Bonds Scheme in 1993. It was unexpectedly successful.
  2. In 1997 came the Voluntary disclosure of income (VDIS) where in amnesty from prosecution from laws was provided to those who voluntarily disclosed their undisclosed income and paid lesser rate of tax (30%).
  3. In 2014, the government approved the constitution of the Special Investigation Team (SIT) to tackle the issue of black money.
  4. The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015’ was enacted in 2015 to effectively deal with undisclosed income.
  5. The Right to information Act gives the right to any individual to have access to any information on such issues.
  6. India has been actively engaging in dialogue with other countries and entering into agreement for automatic information exchange on such sensitive issues.
  7. Double taxation avoidance agreements and its various clauses are being re visited to ensure that individuals or business houses do not take advantage of loop holes in law. In 2016, DTAA’s were signed with tax havens Mauritius and Cyprus.
  8. The Income Declaration Scheme, 2016 was announced. A one-time amnesty-like compliance window for citizens to declare their undisclosed income and pay a 45% tax on undisclosed income along with penalty. This scheme met with success as well. There was one individual who made voluntary disclosure of INR 2,200 Crores2 under the scheme!

Food for thought

The spiral effect of increasing black money is there for all to see – rapid increase in inflation; widening gap between haves and have not’s, inducing vicious cycle of corruption are but a few obvious factors impacting the economy. The government has been single minded in its approach to eradicating black money from the economy. However, it is not just the government’s duty to tackle the menace. Individuals and corporates alike must maintain basic moral and ethical standard, especially towards the economically weaker sections to ensure they maintain a reasonable (if not luxurious) standard of life.

 

Notes:

1. Mr. Arun Kumar, eminent economist on Indian black money.

2. Wikipedia on Income Declaration Scheme, 2016.

What’s brewing 

BIT COINS:
NO LAW CRYPTO CURRENCY

The run up to the New Year witnessed a famous Indian actor reap windfall profits by investing in bit coins. That brought back in to sharp focus the hype surrounding the latest form of virtual investment – Bit coins.

Bit coin is digital currency. It is a form of crypto currency. It works on a peer to peer basis. Bit coins, like hard currency, can change hands. The only difference– unlike normal currency, bit coins are not governed by any central authority. There is no authority to track it. There is no government /agency that controls its creation or it changing hands. Cryptography is used to create the bit coins. However, the creators of this currency have endeavoured to create fool proof records of such transactions for posterity. There is absolute anonymity in receiving or spending the same.

A snapshot of the latest currency revolution:

  • Bitcoins are created through cryptography. An entity (individual or company) has to solve a challenging mathematical puzzle using computer software. Since cryptography is used, its primary objective is to keep data and details secure and confidential.
  • Bitcoins are available in bitcoin exchanges. One of the earliest bitcoin exchanges in India was formed in 2009. They could also be bought from other bitcoin users.
  • Unlike hard currency that keep getting printed, there is a limit on the number of bitcoins that can be created. It is estimated that a maximum of 21 million bitcoins can be created in toto.
  • Due to their limited number, the value of bitcoin is volatile and increases or decreases in proportion to their demand – supply. When demand increases, the price of the bitcoin increases and vice versa. At the close of the last year, 1 bitcoin in India was valued at approximately Rs. 9.39 lakhs.
  • A bitcoin user will most likely have a software program or mobile app or mobile wallet that enables a user to send or receive bitcoins.
  • A software ledger called the “Block chain” maintains a record of every single transaction using a bitcoin by affixing time stamp on it.  When a bitcoin is sent or received by a user, the transaction is immediately recorded on the block chain to ensure that the same bitcoin is not spent again. A software validates such transaction in such a way that it cannot be altered.

Bitcoins seem to have many advantages – the freedom to send or receive currency in any part of the world without regulatory restrictions, bank holidays, etc. since it is crypto currency, there is utmost confidentiality and security of data. Though the transactions are done anonymously, the block chain ensures that there is record of the transaction. In fact, share prices of few companies investing in bit coins have almost doubled after they announced their intention to introduce their crypto currency. Investors are keen to lap any digital coins or block chains beneath them.

However, they are not free from disadvantages – like any money, they are open to misuse. The average common man is not fully aware of this form of currency. It is currently restricted to pockets of the population. The volatility of its value makes it an inconsistent form of earning. Most importantly, the absolute lack of any regulatory authority makes it a non preferred investment for the middle class who cautiously invest their hard earned money. In the Union budget 2018, the Finance Minister made is expressly clear that crypto currency will not be recognized as legal tender and hence proposes legislation to make it illegal.

In the fortnightly podcast, Mr. A.K Mylsamy shares details, judgement and anecdotes on Lakshmi Vilas Bank Ltd vs Orchid Pharma Ltd. Listen in!

AT THE HELM OF AFFAIRS

INFOGRAPHIC

A detailed graphic presentation of information, statistics and milestone cases on

ART LAW

LEGAL-EASE

​Ibidem

In the same place; in the same book; on the same page, etc. Abbreviated to ”ibid” or “ib”.

Jactitation

Boasting of something which is challenged by another. A false boasting; a false claim; assertions repeated to the prejudice of another’s right.

Kangaroo Court

Term descriptive of a sham legal proceeding in which a person’s rights are totally disregarded and in which the result I a foregone conclusion because of the bias of the court or other tribunal.

Laches

“Doctrine of laches”, is based upon maximum that equity aids the vigilant and not those who slumber on their rights. It is defined as neglect to assert a right or claim which,taken together with lapse of time and other circumstances causing prejudice to adverse party, operates as bar in court of equity.

Lawlipops

(P)REVIEW

When we lose the right to be different, we lose the privilege to be free.

Charles Evans Hughes
Former Chief Justice of the United States