A stud farm owner, arms deals & missing billions (dollars!)

This has been one of the longest pending posts in my draft folder – going back almost 10 months to May 2010.  The reason for not posting this before was only partly laziness. The more relevant reason were the skeletons that kept tumbling out of the cupboard every few months. Read on for the amazing story of a stud farm owner, arms deals and missing billions..(please note that emphasis has been added throughout by me;  I have added “$ millions” equivalent figures at several places since “Rs Crores” appears to have lost its shock value).

The first trigger to this post was this news-report from 11th May 2010 titled: “It takes two to tango“. Written by  MR Venkatesh, its sub-heading was telling: “Government Goofs Up, The Opposition Allows It To”. Even more interesting were the facts cited by Sh Venkatesh. He wrote:

To understand this conspiracy ~ yes conspiracy ~ of our political class some chilling facts relating to Hassan Ali would at the outset have to be narrated.

It may be recalled that the Union government, in an affidavit filed before the  Supreme Court stated  that the tax demand pending against Hassan Ali was Rs 71,849.59 crore. (In contrast, the Income-tax levy on all individuals for the financial year 2009-10 is a mere Rs 113,000 crore only.)  That was in May 2009. Subsequently, disclosing the list of defaulters in Parliament,  the government informed that Hassan Ali topped the list of tax defaulters with outstanding arrears of more than Rs 50,000 crore. That was in August 2009.

IT may be noted that the Budget papers contain details of all tax dues (Income-Tax, Excise, Customs and Service Tax) to the Government (Annexure 10 to the Revenue Budget). This also details cases where the assessee has either disputed the same through an appeal as well as those where the assessee has not preferred an appeal. Believe it or not ~ Hassan Ali ~ the single largest tax defaulter was missed out by the Budget papers. That was in February 2010.

…Naturally, the debate is not about the efforts of the CBDT or the Government in attempting to recover the tax dues from Hassan Ali. Nor does the slip-up by the Finance Minister (or The Week) matter.  Given the track record of the Government in tackling such convoluted issues in the past, all this posturing is akin to the proverbial rain dance of the African tribal chief. After all, the lessons of several past scams, notably Bofors, are too fresh in our minds to even take the explanations (Letters Rogatory, attaching immovable properties et al) of these institutions seriously. Obviously, from here on only two explanations are possible. Someone in the Finance Ministry was incompetent or was programmed to be incompetent, probably the latter. And that is the crux of the issue.

If the amount of tax raised in excess of Rs 50,000 crore is any indication, it is obvious that under the prevailing tax rates, the income of Hassan Ali should be in excess of Rs 150,000 crore (~ $33.3 billions). And that is a conservative estimate…

More importantly, what was his source of income that led to this huge tax bill in the first place? Surely, his stud farm cannot be the source of this gargantuan wealth. Has he laundered the entire earnings and parked it abroad? In the alternative has he parked some money in India too? Where is the balance? Has he routed some of this wealth into the stock exchanges in India through the opaque Participatory Note route? Was he laundering wealth of several prominent Indians and possibly some terrorists? Several questions that remain unanswered to this date.

Obviously, the “wealth” of Hassan Ali is not his wealth. Rather, it is quite possible that he is a conduit for several persons across the political spectrum, celebrities, industrial houses and of course criminals. That explains the thundering silence of our elite on this issue.

The IPL and even the Spectrum scam by comparison were relatively minor issues. Yet they rocked Parliament for several days in the recently concluded Budget session. In contrast, the entire Opposition (including the BJP and the Left) remained silent on the Hassan Ali issue. In the process, by refusing to raise this issue and nail the government on this affair, the Opposition actually bailed out the government.

The reason for the generosity of the Opposition is inexplicable unless of course one concedes that there is a tacit understanding and a convergence of interest between the Government and the Opposition in hushing up the Hassan Ali case.

MR Venkatesh’s article was followed by a report three days later in ToI that noted:

A Mumbai court has issued a letter of request to a Swiss court to allow Income Tax authorities to probe accounts of stud-farm owner Hasan Ali, who is alleged to have deposited billions of dollars there.

The report also noted that:

After a search on the premises of Ali in 2007, Income Tax department had found incriminating documents containing information of $8 billion deposits in UBS AG, a Swiss Bank.

Based on the various documents, tax demand of Rs. 71,846 crore (nearly $15 billion) was raised by I-T department in December 2008.

…Enforcement Directorate, through the Indian Government, had also approached the Swiss Government on the basis of these and other documents.

The Swiss Federal Tax Administration had earlier refused to share bank related information on the ground that such information regarding bank deposits of Indian residents is covered by Banking Secrecy Laws.

I had filed these two reports carefully in my drafts folder to write a post on this issue. I was going to headline it as the “Mother of all Scams”. Due to one reason or the other, I could not get around to posting this information. Of course during this period, another mega-scandal had surfaced.

Total amount of Tax Demand on Hassan Ali (Dec 2008)

In the early days of 2011, three separate news-reports came out that reminded me of this pending post. The first was a report in ET dated 22nd Jan 2011 Titled, “Hasan Ali squeezes through I-T loophole again, holds Rs 50,000 cr tax dues”, it mentioned how Swiss authorities’ refused “to part with the information (on Hasan Ali) on the premise that the offence allegedly committed in India—in this case of not filing tax returns—is not an offence under Swiss law.”

The report also mentioned :

A senior income-tax official expressed surprise over choosing “not filing of returns” as the reason for initiating a letter rogatory to Swiss authorities as it’s well known that ‘not filing of returns’ is not an offence under Swiss laws and therefore they are not bound to comply with the I-T department’s request…However, tax evasion is an offence in both the countries.

So why was the request not initiated on charges of tax evasion? The report was followed by a news-item in ToI which mentioned something pretty alarming. Titled,  “Hasan Ali’s $6bn in Swiss accounts missing”, it noted

The probe into three of his accounts yielded nothing significant. The minister (Sh Pranab Mukherjee) said investigators had information on three Swiss bank accounts being allegedly held by him, but no money was left in them. In one, $ 60,000 was deposited but withdrawn within a day and no trace was left.

However, Times Now said investigators had information about Ali holding at least $6 billion in his UBS Bank accounts.

The report also mentioned that Hasan Ali “was jailed last year for holding three fake passports issued in Mumbai, Hyderabad and Patna.” This was followed by another report in ET which mentioned that the delay in probing Hasan Ali’s accounts were because

Switzerland’s Federal Office of Justice (FoJ) (was) “awaiting a “complete” request from India for help in this case since 2007.

An FoJ spokesperson was quoted in the report as mentioning that “the request has not been completed so far”

The obvious question is WHY? Was it in someone’s interest to drag their heels on this matter? Was the delay a  result of deliberate incompetence? I was reminded of MR Venkatesh’s article of May ‘11

Obviously, from here on only two explanations are possible. Someone in the Finance Ministry was incompetent or was programmed to be incompetent, probably the latter. And that is the crux of the issue.

Early in February, A Surya Prakash wrote a piece in the Pioneer titled, “Curious story of Hasan Ali Khan”. It mentioned how

The documents procured by the ED showed that on the date of the raid (netween Jan 2-7 2007), Khan had liquid funds totalling $6 billion in his accounts, which he could move right away. The remaining $2.04 billion had a lock-in period until January 15, 2007 (which was just eight days from the last day of the raid). The documents also established that the Swiss Government had acted suo motu and frozen an account with $300 million held by Khan because it suspected that this money related to “funds from weapons sale”.

Read that again: “..liquid funds totalling $6 billion”

Oddly,

the Union Government took no action either to freeze the accounts or to prosecute him under the anti-terrorism law.

Even more surprisingly,

..the Income Tax Department, which customarily issues lakhs of notices every year to taxpayers with paltry salaried incomes, took no action at all on Khan, who had illegal funds amounting to Rs 36,000 crore. It accused him neither of tax evasion nor of money laundering. Instead, it sent a Letter Rogatory to the Swiss Government, merely complaining that Khan had not filed his tax returns in India.

As we know “The Swiss Government dismissed the request for assistance and said non-filing of tax returns was no offence at all under Swiss law…Even more shocking was the Swiss Government’s declaration that the documents attached to the Letter Rogatory were forged.

Of course the funds have long since been cleared out:

“Pranab Mukherjee..informed mediapersons recently that there were no funds in these accounts.”

Sh Surya Prakash also mentioned that “the police have a video recording of his interrogation done later, in which he confesses that while he ducked the police, he met a key Congress leader in Ms Sonia Gandhi’s establishment, the Maharastra Chief Minister, the State’s Home Minister, and the Commissioner of Police, Mumbai.

The same month, the Indian Express published a story that confirmed that the documents on the basis of which assistance was requested from Switzerland were indeed forged:

The bank (UBS) ..claimed that in January 2007, following a request for information from Indian authorities, UBS had informed Swiss justice department that the documents purporting to be from UBS, and suggesting that Khan was holding assets with it, were forged. Following investigation, the Swiss justice department and federal banking commission were satisfied that there was no basis for the allegations.

Why would someone make forged documents the basis for an investigation and a request? Unless the documents were so cleverly forged that they appeared to be genuine? Or unless someone deliberately wanted a red-herring trail?

In the meantime, I stumbled on an India Today report that mentioned how Hasan Ali Khan was

…trying a big cover-up operation. “He is taking advantage of his political connections in the state,” says an EDofficial, requesting anonymity. Says a top investigator with Mumbai Police’s CID branch, “He is very quiet, very active.” Mumbai Police records show Khan, in one of the numerous interrogations, has admitted to his links with top political leaders in Maharashtra.

It also mentioned how “..Mumbai Police have been relatively successful in staving of what they call enormous political pressures to stonewall the investigation.”

The report also mentioned the

…February 2010 decision of the Bombay High Court that dismissed the appeal of the state Government to cancel Khan’s bail, observing that the state itself was not interested in cancelling the bail granted to him. Justice D.G. Karnik had remarked: “The state Government is not interested in serving notice (to the accused) even after six months of filing an appeal. If the Government is not keen on pursuing its own appeal, the court cannot waste time on it.

Why was the state government not keen to pursue this case? Why was a zealous IT Department that raids celebrities remained oddly silent and passive about this person? And why has this not been made into a single-point agenda a la the 2G scam by BJP and opposition parties?

Questions, questions and more questions...More in Part II tomorrow. In the meantime, please add your thoughts/comments below.