क्या बेशुमार सोने का आयात वास्तव में भारतीय काले धन का निर्यात है: The Likely New Gold Import Scam – Sify

A sinister Swiss twist for India’s gold fetish!

Sinister explanations  But sinister explanations come in the way of that rush to comfort. And in an era of eye-popping scams and massive wealth creation, due  vigilance and diligence are the need of the hour.It is no secret that the go-go years of the 2000s also created substantial ill-begotten wealth.With banks starting to toughen regulations and implementing more stringent know-your-customer (KYC) rules (since the mid-2000s), rich and  corrupt Indians exited from the regulated banking system to gold as a ‘safe haven’ – ‘safe’, that is, from the authorities. Hence the rise in  imports, which was, in part, the counterpart of the decline in financial savings (graph 2).But suppose these Indians also wanted to stash some of their wealth overseas, especially in tax havens such as Switzerland, how would they  do so?One possibility is by over-invoicing imports from Switzerland. Importers could claim that they imported gold worth $100 from Switzerland  while in fact only buying gold $50, with the difference finding its way to Swiss bank accounts prized for their lack of transparency. 

Image: UBS, Built-in deceit? 

According to media reports from last June, Switzerland ranked first among the major countries to which India despatched its secret tax and  finance-related queries (232 in all) during the last fiscal year.

In contrast, the authorities sent ‘only’ 145 such requests to Mauritius.

The gold trade channel, then, offers a convenient way of repatriating wealth to the tax haven, which also happens to be the source of  imports.

This channel is not only convenient, it is also ‘legitimate,’ at least in the limited sense that payments can be made through the banking  system for prima facie legal (namely trade) purposes.

Of course, there is deceit in the underlying transaction, which must be facilitated or condoned. Note that capital flight cannot work if  customs officials are honest and their procedures effective.

They can verify the quantities and values of gold that importers declare and match them against banking documentation relating to the  payment for imports.

Hence, the sinister explanation requires some degree of incompetence or complicity of customs officials in capital flight.

Are they? We can never tell; but, as economic researchers, there is one – albeit indirect and imperfect – way of checking.  

Image: The University of Geneva.

the Swiss Bank that is considered the world’s largest manager of private wealth assets

The zinger 

We can exploit the insight in Robert Solow’s famous saying that in economics there is only one law: ‘Every purchase is a sale and every  sale is a purchase.’

In the trade context, every import is an export and vice versa.

We can try and match at a very disaggregated level (and by partner country) what is being reported at the Indian end as imports with what  is being recorded as exports at the partner end.

But here’s the zinger.

Swiss law, as it currently stands, does not require Switzerland to publish details of its gold trade.

In 1981, under pressure from leading Swiss banks, Switzerland stopped publishing detailed statistics on monthly imports and exports of  gold bars.

The country’s three largest banks complained to the authorities that country-level reporting was harming business, since it removed the  veil of anonymity.

Some have suggested that the underlying motivation was linked to the Swiss role in facilitating the gold trade involving South Africa,  then under apartheid.

Given the collapse of apartheid long ago, what is the rationale today for this norm? Mysteriously, Switzerland publishes detailed data on  a lot of its trade – but not gold bars.

The international community has made great strides towards transparency in relation to anti-money laundering and to tax evasion.  Especially, on the latter, Switzerland has been responsive to prodding by the United States and other rich nations.

It is time to extend transparency to areas of concern to developing nations, which are struggling to improve governance and reduce  corruption.

Switzerland could help in this endeavour by publishing details of its gold trade.

To be clear, we have no interest in conspiracy theories and stand ready to accept the benign interpretations for these facts.

Yet, given the massive capital flows at play (and the shenanigans we have become inured to), Indians deserve assurances that all is, in  fact, above board.

Unravelling the mystery of India’s gold fetish could well be in the hands of the bureaucrats of Berne. The clarion call from developing  countries to Switzerland should be: ‘Publish or we perish.’