INDIAN FUNDS HELD IN SWISS BANKS SKYROCKETS IN 2020 - LEGITIMATE OR BLACK MONEY?

Updated: Jul 8, 2021


What strikes your mind when you hear “Swiss Banks”? You might think about Heist Films, Political Debates, and loads of Black Money.


Well, why not! There has always been an aura of secrecy associated with Swiss Banks' accounts. Swiss Banks are known for their anonymity, safety, and tax haven treatment of black money since their inception. The money in Swiss banks has been frequently linked to black money smuggled out of India and stashed abroad and had been a political hot potato for years.


According to the data published by the Swiss Central Bank, the deposits of Indians in Swiss Banks rose by 286 % in 2020 compared to 2019.


ANALYSIS OF INDIAN FUNDS KEPT IN SWISS BANKS


In 2006, Indian deposits stood at a record high of CHF 6.5 billion (Rs 52,600 Crore), following which it has experienced a slight downward trend except for a few years. In 2020, these funds held by Indian individuals and firms in swiss banks jumped to CHF 2.55 billion (Rs 20,700 Crore). This jump has reversed a two-year declining trend, making the figure reached its highest point in 13 years.



As per the data, the money held via other banks rose sharply by CHF 88 million to become CHF 383 million in 2020 from 2019. The most significant surge was in “other amounts due to customers” from India, which rose by six times to CHF 1,664.8 million from CHF 253 million. Interestingly, funds classified as fiduciaries or trusts declined to CHF 2 million.


This data released doesn’t include the money that Indians might have in Swiss banks in the names of third-country entities and hence, doesn’t represents the complete picture.

WHAT DOES THE INDIAN GOVERNMENT HAVE TO SAY ABOUT THESE REPORTS?



The Indian government has denied and dismissed any allegations alleging that Indians were supposedly storing black money in Switzerland. According to the finance ministry, Indian client deposits in Swiss banks have decreased since 2019. It has also contacted Swiss authorities to verify the specifics of the deposits and has sought details. This exchange of information is expected to take us closer to the menace of black money found offshore.

ARE THE FUNDS PARKED IN THE SWISS BANK INCLUDES SIGNIFICANT BLACK MONEY STASHED OUTSIDE OF INDIA?



Here are some crucial facts that will take us closer to the answer.


Fact #1: According to the Indian finance ministry, reasons such as the rise in Indian firms’ deposits in Swiss banks and other cross-border transactions between Swiss and Indian banks might explain the increase of Indian funds in Swiss Banks.

Fact #2: The “Liberalised Remittance Scheme (LRS)” of RBI allows Indian residents to send $ 250,000 overseas for purposes like education, employment, emigration, medical treatment, and investment. LRS permitted money transfer from anywhere in the world except non-cooperative countries declared by Financial Action Task Force (FATF).

Fact #3: In recent years, Switzerland has opened its banking sector to external regulatory scrutiny. It also entered the “Automatic Exchange of Information” with numerous countries, including India. This is an established global standard developed by the Organization for Economic Cooperation and Development (OECD). It intends to promote the transfer and exchange of financial information among countries, putting an end to the era of banking secrecy.



Fact #4: India and Switzerland had signed the “Automatic Information-Sharing Agreement” after protracted negotiations, and it entered into effect from January 1st, 2018. Before this agreement, Switzerland insisted on protecting account holder’s identity and tax-related information. Since September 2019, the Swiss Banks have started sharing information with Indian tax authorities of the financial assets of Indians stashed in Swiss Banks which can help find economic offenders.

Fact #5: The Indian government has also imposed “The Undisclosed Foreign Income and Assets (Imposition of Tax) Act, 2015.” It aims to curb black money held outside the borders.


Hence, if we were to go by the above presented facts, this money may no longer indicate the quantum of the black money held by Indians in Switzerland.


WHY ARE SWISS BANKS STILL A FAVOURABLE ENTITY TO KEEP MONEY WORLDWIDE?



Switzerland is considered a safe place to keep the money because its economy is steady, and the government maintains neutrality in global conflicts. Moreover, Swiss Banks open accounts in most major currencies, which helps account holders manage financial risk and make transactions. Swiss law also requires that banks have high capital requirements and strong depositor protection, ensuring that any deposits will be safe from economic crisis and conflict.

Furthermore, low tax rates encourage the wealthy to invest and save their money in Swiss Banks, making it easier for them to relocate and settle in a safe and stable country in the event of an unexpected conflict.


Source:

1. Swiss National Bank Annual Reports

2. South Asia’s Leading Multimedia News Agency (ANI)

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