Dear members,
The on-going Supreme Court hearing in the case of Ram Jethmalani & Others vs. the Union of India has once again brought to the forefront, the issues of black money and illicit accounts in overseas banks. The likely disclosure of the complete list of those who have stashed black money abroad has triggered speculations that some prominent names, including those of politicians, may figure on this much-awaited list.
In the interim order [2011] 339 ITR 107 (SC) in this case, the Supreme Court remarked,
“The quantum of such monies may be rough indicators of the weakness of the State, in terms of both crime prevention, and also of tax collection. Depending on the volume of such monies, and the number of incidents through which such monies are generated and secreted away, it may very well reveal the degree of softness of the State.”
The Court also stated that the softer the State is, the greater the likelihood that there is an unholy nexus between the law-maker, the law-keeper, and the lawbreaker. It expressed concerns about the incapacity and failure of the State, declining moral authority and increase in volume and extent of tax evasion.
This judicial intervention in 2011 pushed the Government into a corner. Over the years the various governments did make attempts to investigate/study the problem, but rarely was any action taken to stem the menace.
• India finally ratified the United Nations Convention against Corruption (UNCAC) in May 2011 after dillydallying for about six years.
• In 2011, the Government commissioned a study to assess the quantum of black money stashed in India and abroad. This study by the National Institute of Public Finance and Policy (NIPFP), National Council of Applied Economic Research (NCAER) and National Institute of Financial Management (NIFM) is yet not complete.
• The Chairman, CBDT headed Committee, set up to examine measures to tackle black money in India and abroad, submitted a 109-page report in March 2012. It stated that there is no dearth of laws to deal with the menace of the black money. The Committee suggested strengthening of the existing agencies, both in terms of manpower and other resources, along with the improvement in coordination amongst various agencies.
• The Ministry of Finance published a 108-page White Paper on black money in May 2012 that presented different facets of black money and its complex relationship with the policy and administrative regime in the country. It also reflected upon the remedial measures by way of policy options and strategies to address the issue of black money and corruption in public life. The White Paper elaborates on working with the Global Forum on Transparency and Exchange of Information for Tax Purposes and through the Double Tax Avoidance Agreements and the Tax Information Exchange Agreements in dealing with black money stashed abroad.
It is ironical that the Government moves only when prodded by intense pressure brought through the judiciary or by international organisations. Even then the Government’s response, more often than not, is halfhearted, and the implementation tardy as is evident from the following examples.
• In the instant case, the UPA Government refused to follow the Supreme Court’s direction to constitute a Special Investigation Team (SIT) and its application to set aside this direction was rejected in March, 2014.
• Delays in implementation of international standards on anti-money laundering lead the Financial Action Task Force (FATF) to raise concerns about effectiveness of the Prevention of Money Laundering Act, 2002.
• India needs to address the issue of private sector corruption from both a legislative as well as practical perspective to fully comply with the requirements of the UNCAC. Internationally, significant anti-bribery legal framework has evolved over the last 15 years.
• The UNCAC requires criminalisation of bribery of national public officials, foreign public officials and officials of public international organisations.
• The OECD’s Anti-Bribery Convention focuses on the ‘supply side’ of the bribery transaction and has established legally binding standards to criminalise bribery of foreign public officials in international business transactions.
• The G20 too has established anti-corruption working group and announced anti-corruption action plan.
• In 2013, the OECD, the UN and the World Bank jointly published “Anti-Corruption Ethics and Compliance Handbook for Business.” The objective of this publication is to serve as a useful, practical tool for companies seeking compliance with anti-corruption measures and includes business guidance instruments illustrated using real life case studies.
Greater expectations from independent external auditors are emerging in this crusade against bribery and corruption.
The OECD Council’s “Revised Recommendation on Combating Bribery in International Business Transactions” requires an independent external auditor, who discovers indications of a possible illegal act of bribery, to report this discovery to management, and, as appropriate, to corporate monitoring bodies and to the competent authorities. The OECD’s consultation paper on this subject admits limitations in current Standards on Auditing in meeting the above recommendations, specifically those equivalent to SA 240 “The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements” and SA 250 “Consideration of Laws and Regulations in an Audit of Financial Statements.”
The Indian Government has been echoing similar sentiments expecting the auditors to contribute more in this anti-corruption fight. In his address at the International Conference organised by the ICAI in January, 2012, the then Union Minister of Corporate Affairs Dr. M. Veerappa Moily called upon the ICAI and its members to take the lead in the fight against corruption.
Increasingly, auditors are being entrusted with greater responsibilities as experienced recently with the Companies Act, 2013. The audit profession has never shied away from assuming greater responsibility. What is necessary is that, when an auditor discharges his obligation in this regard, the regulators should take the requisite action against the perpetrators of crime, protect the auditor and in deserving cases commend him. This will result in professionals doing their duty in accordance with the spirit of the law and not just the letter of the law.
The BCAS, as a principle centred organisation, under the leadership of the indefatigable Narayan Varma has been supporting the fight against corruption through RTI, a major tool in the fight against corruption, and various other activities regularly reported in the BCAJ. Many other prominent Chartered Accountants too are contributing to the fight against corruption in different ways.
Let us hope that the Modi Government extends a Clean India campaign for the eradication of black money and corruption, to help the Nation overcome this evil as well.
With warm regards,
Nitin Shingala
