Action Committee Against Corruption in India (ACACI)

(Championing Action Against Corruption) A-77, Nizamuddin East, New Delhi 110013, Phone: (011) 2435 7388 India www.acaci.in

Chairperson Dr. Subramanian Swamy Members Shri A. Surya Prakash Shri A K Doval (IPS) Retd. Shri J. Gopikrishnan Shri K N Govindacharya Shri K Sampath Iyengar Shri Prof. M D Nalapat Shri M R Venkatesh Shri Prof. R. Vaidyanathan Shri. Dr. S. Kalyanaraman Shri. S. Gurumurthy Shri Saryu Roy Shri V. Sundaram(IAS)Retd. Member Secretary:

Dear Shri AP Singh, As you are aware, people all over the country are exercised over the issue of corruption and black money and the stashing away of illicit funds in tax havens across the world. There is also growing frustration among the people about the States inability to curb these trends and to criminally prosecute the offenders. The Action Committee Against Corruption in India (ACACI) strongly feels that firm and deterrent action is needed to tackle this menace. It is our considered view that as a first step an FIR should be registered immediately against unknown persons who have generated illicit funds and parked them in banks outside India. I therefore request CBI to register the enclosed FIR, which catalogues of publicly known allegations and instances involving bribery, kickbacks, money laundering and violations currency and other national laws including tax laws and the persons known or suspected to be involved in such activities, and have the matter thoroughly investigated. I may add that all over the world, investigating agencies are working in close coordination and rendering utmost mutual assistance particularly after the G20 meet in April 2010 when the twenty leading economies of the world decided by consensus to have financial transparency and break the tax havens into which illegal monies are stashed away by the buccaneers. The time is opportune for commencing investigations into the subject matter of the FIR as the cooperation of other countries will be forthcoming unlike in the past. We undertake to render any assistance that may be required.

Dr.Subramanian Swamy
Shri. Abhishek Joshi

Chairperson, Action Committee Against Corruption in India (ACACI)

Action Committee Against Corruption in India (ACACI)

(Championing Action Against Corruption) A-77, Nizamuddin East, New Delhi 110013, Phone: (011) 2435 7388 India www.acaci.in

Chairperson Dr. Subramanian Swamy Members Shri A. Surya Prakash Shri AK Doval Shri J. Gopikrishnan Shri KN Govindacharya Shri K Sampath Iyengar Shri Prof. MD Nalapat Shri MR Venkatesh Shri Prof. R. Vaidyanathan Shri. Dr. S. Kalyanaraman Shri. S. Gurumurthy Shri Saryu Roy Shri V. Sundaram Member Secretary Shri. Abhishek Joshi

First Information Report

Subject: A complaint under Prevention of Corruption Act, Prevention of Money Laundering Act, Foreign Exchange Management Act to be read with Sections under Indian Penal Code against unknown offenders. It is now a matter of common knowledge that very large sums of Indian money are lying in tax havens all around the world. We received clinching evidence of the same two years ago when the Government of Germany handed over to our government a list of Indians, who were holding illegal accounts in LGT Bank, Liechtenstein. After it obtained this information, the Income Tax department proceeded against 18 such account holders and raised a total tax demand of Rs. 24.26Crores. Subsequently, in recent months the government of India is in receipt of information about illegal bank accounts held by Indians in HSBC Bank, Geneva, Switzerland. The Govt. of France has supplied a list of 700 such account holders to the Government of India. The IT department may be investigating these holdings but what is more important is the criminality of the act of creating and lodging illegal assets abroad. In the light of all this evidence the question before every citizen is what steps are being taken by Indias investigating agencies against such persons who have stashed away illicit wealth abroad. Citizens also want to know how these monies left Indian shores and landed in illegal accounts in Liechtenstein, Geneva and other tax havens, as this flight of capital itself constitutes an offence that is worthy of a probe by the premier investigating agency of the country. There have been varying estimates of the quantum of Indian money in Swiss banks and in banks in other tax havens. At the lower end there is a Global Financial Integrity estimate which suggests that the amount involved could be half a Trillion US Dollars. There are other estimates which put this figure to upwards of 1.5 Trillion US Dollars. These recent disclosures vis a vis Indian illegal holding in one bank in LGT and one bank in Geneva, is just the tip of the iceberg. Over the years there has been global investigation and collection of evidence on the flight of capital and the proceeds of corruption from countries like India to tax havens across the world. However it must be noted that apart from the private Swiss banks, there are the corporate banks in Switzerland and Indian monies are lying in all of them. Further, in addition to banks in Switzerland there are banks in as many as 76 tax havens spread across the world.

The total deposits in all these banks are estimated to be a humongous USD 7 trillion as per Raymond Baker of Global Financial Integrity (GFI). Quoted in the report, these deposits relate to terrorist crimes, corruption, economic offences, drug related crime and tax evasion. Given the level of secrecy in all these banks in Switzerland and all these tax havens it is difficult at this juncture to come up with an exact figure in regard to the funds that have moved out of the country and into these banks. However there can be no doubt on how the flight of capital has taken place. It is largely through the hawala route, kick backs in deals and invoice mispricing, which is a crime under Foreign Exchange Management Act (FEMA).These also constitute offences under the Prevention of Money Laundering Act (PMLA). The enormity of the problem of flight of capital out of India, a large part of which relates to large scale corruption has been a matter of grave public concern in the country over the last few years. Shocked by the sheer size of the problem and blatant violation of laws and the unbridled resort to corrupt practices by those in government, the Honble Supreme Court, felt it necessary to dwell on this problem at length in its ruling in ruling in Ram Jethmalani and Others 176 of 2009/I.A.No.1 of 2009 SC Vs Union of India and Others In paragraph 4 of this judgment, the Honble Court has said, The worries of this Court that arise, in the context of the matters placed before us, are with respect to transfers of monies, and accumulation of monies, which are unaccounted for by many individuals and other legal entities in the country, in foreign banks. It said The worries of this Court relate not merely to the quantum of monies said to have been secreted away in foreign banks, but also the manner in which they may have been taken away from the country, and with the nature of activities that may have engendered the accumulation of such monies. The honorable Supreme Court in the judgment cited above has also expressed itself strongly at the way the government and its agencies have been responding to this steady flow of information about unaccounted monies in foreign banks. It has pointed out that this activity which has a bearing on national economy and national security cannot be treated merely as a case of tax evasion. Illegal appropriation of public funds and criminal misconduct of the account holders, as has been proven in the case of Hasan Ali, needs to be thoroughly investigated. As per the opinion of the Court, in Paragraph 5 of this judgment, the court has said, First and foremost, such large monies stashed abroad, and unaccounted for by individuals and entities of a country, would suggest the necessity of suspecting that they have been generated in activities that have been deemed to be unlawful. The disappointment of the court with the response of the Indian State and investigating agencies to available evidence of illicit bank accounts is best explained by its observations in this regard, in Paragraph 8 of this judgment. The court observed, Unaccounted monies, especially large sums held by nationals and entitiesclearly indicate a compromise of the ability of the State to manage its affairs in consonance with what is required from a constitutional perspective. The court has said the quantum of such monies by itself indicates that a large volume of activities in the social and economic sphere within the country are unlawful and are causing great social damage. A substantial degree of incapacity, in the above respect, would be indicia of the degree of failure of the State. The apathy or even possible connivance of persons in power to the whole business off light of capital from India has over the decades emboldened unscrupulous persons in the country. The climate of lawlessness and the complete absence of scruples in the political arena has translated into large scale corruption at various levels. There can be no better example of the monumental failure of the Indian state to ensure governance in a fair and objective manner than the 2G Spectrum Scam that has resulted in a staggering loss of Rs 1.76 Lakh Crores to the Indian exchequer (nearly 3% of the Indian GDP) This is considered to be mother of all scams but there are hundreds of others, all of which have resulted in a large scale loot of public funds.

It is estimated that one part of this tainted money has moved into real estate and other illegal activities within the country but that a substantial part of it has moved abroad to bank accounts in tax havens. All available evidence suggests that a good portion of the money in various tax havens belongs to Indians, this is a national shame. There is another far more sinister dimension to the flight of capital from India and the opening of illicit bank accounts in Switzerland and other tax havens. This aspect has been highlighted by Mr. M.K. Narayanan, former National Security Advisor to the Government of India. Addressing the 43rd Munich Conference on Security Policy on February 11, 2007, Mr. Narayanan referred to the various ways in which terrorists in India were being funded. He said: Instances of terrorist outfits manipulating the stock markets to raise funds for their operations have been reported. Stock exchanges in Mumbai and Chennai have, on occasion, reported that fictitious or notional companies were engaging in stock market operations. Some of these companies were later traced to terrorist outfits. This concern of Mr. Narayanan is also shared by the Supreme Court. In Paragraph 4 of Ram Jethmalani and Others 176 of 2009/ I.A.No.1 of 2009 SC Vs Union of India and others, the court asserts, The worries of this Court are also with regard to the nature of activities that such monies may engender, both in terms of the concentration of economic power, and also the fact that such monies may be transferred to groups and individuals who may use them for unlawful activities that are extremely dangerous to the nation, including actions against the State. It is obvious that a substantial part of the Illicit Indian money in foreign banks relates to corruption and to the kick backs obtained abroad on contracts awarded by the Union Government and State governments. These kick backs constitute an offence under the Prevention of Corruption Act (PCA) 1988 and involve host of Public Servants and Politically Exposed Persons (PEPs). Besides public Servants, the members of the corporate world and the businessmen who collaborated or facilitated these deals are all conspirators in these crimes under the Prevention of Corruption Act. It is generally believed that since independence there were kick backs in all government deals. However in recent times this is no longer mere hearsay. We now have authentic information on how kick backs are collected and this has been substantiated by several persons who have held high offices in the country, including President R. Venkataraman, former Cabinet Secretary B.G.Deshmukh and former Governor of Jammu and Kashmir, Mr. B.K Nehru. Mr. Deshmukh who was Cabinet Secretary when Mr. Rajiv Gandhi was Prime Minister, has explained the genesis of collection of kick backs outside the country by Indian politicians who took decisionswith regard to government contacts. On Page 217 of his memoirs, titled Cabinet Secretary Looks Back, he describes this process in detail; the genesis of the Bofors affair lies in the practice initiated by Indira Gandhi and further refined by her son Sanjay for collecting funds for the Congress Party. No doubt the Congress party and other political parties in India have needed funds mostly to fight elections from 1947 when the country became independent. Till the middle of 1960s, during the regime of Pandit Jawaharlal Nehru, collection of funds for the party was a more transparent business and Business Houses were also permitted to make open donations. Collection of funds for ones party was then not a highly competitive and corrosive practice corrupting the whole social, economic and political fabric as happened later. Indira Gandhi at the very beginning of her tenure as Prime Minister found that she was in dire need of funds to fight elections to establish herself as the undisputed leader of the Congress Party. As I was then in Maharashtra, I know that in that state she depended heavily on her loyal supporters Rajni Patel and Vasant Rao Naik to raise funds and they did this by literally selling sheets of sea water in the Nariman Point area. Later, when she established her supremacy in Indian politics, she decided that a far better way to collect funds for the party was through claiming cuts from foreign deals. Sanjay Gandhi perfected and refined this still further from 1972 onwards.

When she came back to power in 1980, I was additional secretary in the Ministry of Home Affairs. My colleagues told me that in January 1980 itself, Sanjay Gandhi called senior officers from certain concerned ministries for giving orders and making deals and clearly and firmly told them how they should be finalized. Trusted senior officers were posted to ministries such as defense ministry and also to Department of Defense Production. According to Mr. Deshmukh this arrangement of collecting kickbacks from foreign deals continued even after the tragic demise of Sanjay Gandhi in mid-1980. This point of view is further corroborated by Mr. R. Venkatraman who was President of India from 1987 to 1992 on Page 40 of his autobiography titled My Presidential Years. Mr. Venkataraman makes the following observation: JRD Tata made a courtesy call on me---------------- commenting on Rajiv Gandhis statement on Bofors----- it will be difficult to deny the receipt of commission by the Congress Party. He felt that since 1980, industrialists had not been approached for political contributions and that the general feeling amongst them was that the party was financed by commissions on deals. Apart from these invaluable observations from persons who have held high offices the CBI itself is in possession of clinching evidence of commissions paid on various deals including defense and power sector deals in particular. Bofors is a case in point. The CBI was handed over bank documents by the Swiss authorities which established payment of a commission of USD 7.3 Mn by the Swedish arms company, Bofors to the account of Mr. Otttavio Quattrocchi and his wife Maria Quattrocchi, friends of Rajiv and Sonia Gandhi. This payment was made soon after India signed the deal with Bofors for purchase of 155 mm field guns when Mr. Rajiv Gandhi was the Prime Minister. The Income tax appellate tribunal, the highest judicial body on tax matters, has held that commissions have been paid to Win Chadha and Quattrocchi. In its order dated December 31, 2010, the Income Tax Appellate Tribunal (ITAT) named Quattrocchi and Win Chadda as recipients of commissions from Bofors. It said the first clear evidence of commissions or kickbacks paid by Bofors emerged in the June, 1987 report of the Swedish National Audit Bureau (SNAB) which said that commission payments were made to those who took care of the Bofors deal with India. On Quattrochchi, the ITAT said that despite the Indian Governments insistence not to appoint or pay any agent, Bofors entered into a fresh consultancy agreement with M/s. AE Services Limited of U.K. on November 15, 1985 at the behest of one Mr. Ottavio Quattrocchi, an Italian. According to this agreement, if Bofors was awarded the contract before March 31, 1986, it was to pay a fee equivalent to 3% of the total value of the contract pro rata with the receipt of the payments. By a strange coincidence, the Bofors-India contract was signed on March 24, 1986, just a week before the expiry of the deadline. Bofors deliberately suppressed the fact of this agreement in their letter dated March 10, 1986 to the Indian Ministry of Defense. Based on bank documents obtained from Switzerland by Indian authorities, the tribunal concluded that after India paid Bofors SEK 1,682,132,196.80 (Rs.29, 615 lakhs), equivalent to 20% of the contract value, on May 2, 1986, Bofors remitted a sum of SEK 50,463,966 (equivalent to USD 7,343,941.98), on September 03, 1986, to A/c No. 18051-53 of M/s. A.E. Services Limited at Nordfinanz Bank, Zurich. This Account of M/s. A.E. Services Limited had been opened only a fortnight earlier, on August 20, 1986. The amount paid to A.E Services worked out to be exactly 3% of the amount of advance paid by to Bofors and was, thus, perfectly in accordance with the terms set out in the A.E. Services Ltd. Bofors Agreement. Thereafter, the ITAT provided details of the money trail. The transfer of funds by Quattrochchi from this company to the accounts of other companies in other banks, all of which were operated by Ottavio Quattrocchi and his wife Maria is fully outlined. The tribunal also noted that while opening the Account of Colbar Investments Ltd. Inc. with the Union Bank of Switzerland, Geneva on March 30, 1984, Ottavio Quattrocchi had mentioned his address in India as Colony East, New Delhi/ India, which was a fake and non-existent Address. Similarly, Indian authorities gathered valuable documentary evidence from Switzerland in regard to payments made to the Indian agent, Mr.Win Chadhas company .

Further, in the later part of the 1980s, it was common knowledge that a huge kick back was paid to Indian politicians by the German submarine manufacturing company, HDW when India purchased 4 submarines. It was estimated that the kick backs paid were to the extent of 7% of the contracted value of the deal. Even this finds corroboration in the memoirs of Mr. Deshmukh. On page 218 of his memoirs, Mr. Deshmukh says, I might also add that the practice of getting kick backs earned us notoriety in foreign countries. In the HDW Submarine Case, I was told that the West German Defense Ministry had intimated to the German defense supplier the amount of commission that would be required to be paid in selling the defense equipments. The Latin American and African countries were in the bracket of 10% and above, whereas we were placed in the bracket of 5% to 10%. Incidentally, this clearly shows how cynical developed countries are in selling their defense products The black money that is generated and received inside the country is partly kept in India in various forms and is partly taken abroad. That a lot of tainted money is collected for political purposes has been validated by various persons who have had an insight into decision making at the highest level in the country. Mr. B.K. Nehru, former Indian ambassador to the United States and former Governor of several states was among those who knew something about collection of funds for political parties. On page 582 of his memoirs Nice Guys Finish Second, he refers to a conversation he had with his nephew Rajiv Gandhi a day after Sanjay Gandhis funeral in June, 1980. I asked Rajiv whether the money Sanjay had collected allegedly for the Congress was safe. He said all they found in the almirah of the Congress Office was Rs. 20 Lakhs. I asked how much Sanjay had collected. He held his head in his hands and said Crores and unaccounted Crores. The KGB and its hold on RussiaPast Present and Future authored by Yevgenia Albats (published by Farrar Straus -Giroux - NY- states quoting from KGB archives ( on page 223) as follows -A letter signed by Viktor Chebrikov, who replaced Andropov as head of the KGB in 1982 ,noted the USSR KGB maintains contact with the son of Premier Minister Rajiv Gandhi (of India) Rajiv Gandhi expresses deep gratitude for benefits accruing the Prime Ministers family from the commercial dealings of an Indian firm he controls in cooperation with Soviet foreign trade organizations. Rajiv Gandhi reports confidentially that a substantial portion of the funds obtained through this channel are used to support the party of Rajiv Gandhi. We feel that the illicit funds accumulated by Indians abroad are not just a matter of taxation. Domestic black money is no-confidence in the Government but black money kept in foreign banks is no confidence in the country and hence a form of treason. Apart from the clinching evidence of commissions paid by Bofors to the friend of our Prime Minister in the mid1980s and the revelations in Mr.Albaats book, we also have startling revelations made by a popular Swiss magazine all of which lends credence to the fact that Indian politicians and their cohorts took commissions and bribes on contracts awarded to foreign entities and ensured that these funds were remitted to their accounts in Swirzerland and other tax havens. In its issue of November 19, 1991, Schweizer Illustrierte, a magazine of Switzerland with a readership close to one million did an expos of over a dozen politicians of the third world who had stashed away their bribe monies in Swiss banks. Citing the newly opened KGB records, the magazine reported that Sonia Gandhi the widow of the former Prime Minister Rajiv Gandhi was controlling secret account with 2.5 billion Swiss Francs (equal to USD 2.2 billion) in her minor sons name. The USD 2.2 billion account must have existed prior to June 1988 when Rahul Gandhi attained majority. At current foreign exchange rates, its value would be Rs 11,400 crore. Over the years the transfer of illegal wealth has been done through the hawala route. Apart from this, kick backs from corruption and mispricing of invoices in foreign trade transactions has led to accumulation of illicit monies in tax havens. Whatever be the reason for generation of these funds, carting it abroad is an offence under FEMA. All citizens who illegally divert funds to foreign shores are guilty of offences under this law. Where ever such funds are linked to corruption, arms deals, drug trafficking etc the Prevention of Money Laundering Act comes into play.

Since all these offences are committed behind a veil of secrecy, these are not ordinarily known to the public. The world over, be it Germany in the LGT Case, France in HSBC or USA in the UBS affair, the facts have been uncovered by the intelligence wings of Union Government Departments or investigative agencies. These offenders are all unknown person but the transactions conducted by them can be traced and identified by the Economic Intelligence Units of Government of India, Intelligence organizations or the CBI on its own or through its contacts in Interpol. After tracing the transactions, it can work backwards and link it to the offenders. There is a demand across the country for vigorous investigation of illegal assets of Indian citizens outside the country. In lodging this complaint, the Action Committee Against Corruption in India (ACACI) is hoping that this will trigger necessary action on the part of the CBI. As the Supreme Court has observed in the above mentioned judgment; The merits of vigor of investigations, and attempts at law enforcement, cannot be measured merely on the scale of what we accomplish with respect to what has happened in the past. It would necessarily also have to be appreciated from the benefits that are likely to accrue to the country in preventing such activities in the future. In view of the above and in particular, in view of the observations of the Supreme Court and all the References cited above, the Action Committee Against Corruption in India (ACACI) is hereby lodging a formal complaint at this juncture because it feels that enough is enough and no more of this draining and bleeding of the nation can be allowed to continue .The time has come when the need is to take direct action. A clutch of recent developments have made this the most appropriate moment for concerned citizens to initiate this complaint. The Action Committee Against Corruption in India (ACACI) requests through the Director, for CBI to criminal case under relevant sections of the Prevention of Corruption Act (PCA), the Prevention Laundering Act (PMLA) and the Foreign Exchange Management Act (FEMA), read with Section 120B of Penal Code (IPC) against unknown persons and cause investigations, collect evidence and charge offenders. register a of Money the Indian sheet the