Tip of the iceberg

Hasan Ali is finally arrested, and his interrogation may unravel a list of black money racketeers in the country.

EIGHT billion dollars in Swiss bank accounts and close to Rs.70,000 crore in unpaid taxes. No race horse owner or punter in India can make that kind of money, said half a dozen members at the Mahalakshmi Race Course in Mumbai. So where did Hasan Ali, a horse-racing gambler and small-time race horse owner from Pune, make this staggering amount of money? No one knows. Not the Enforcement Directorate (E.D.), the police or anyone in the Pune racing or business circles.

In a major crackdown on black market racketeers, Ali was arrested by the E.D. under the Prevention of Money Laundering Act (MPLA) for possessing money not accounted for by his known sources of income. Currently in judicial custody, this mystery billionaire has become the latest to join the gallery of fraudsters, tax evaders and corporate offenders.

Kashinath Tapuriah, a close aide of Ali and a businessman from Kolkata, has also been arrested in the attempt to track down the black money trail. Interrogation of the two of them is expected to reveal a long and explosive list of black money racketeers in the country and yield information on the black money trail.

On March 25, when Ali was sent to judicial custody, he sent a handwritten note to the Mumbai sessions court saying his life was under threat. The court has ordered protection for Ali while he is in custody. The E.D., meanwhile, is also questioning his wife, Rheema Khan, and hotelier Philip Anandraj.

On March 29, the Supreme Court once again rapped the E.D., saying the issue of tracking black money did not stop at Ali and that much more needed to be done: No further information is forthcoming from the agencies. It has stopped there. Only one individual is being held. What about the others?

The Bench also said: Were all these agencies sleeping since 2008? Why did they move only after we stepped in? [That means] had it not been for the writ petition, nothing would have happened.

Ali's case shows that it is a serious issue that needs to be addressed by lawmakers. While the Supreme Court has been issuing strictures on corruption, there is no strong law to prevent money laundering. Until such a law is in place, Ali and his ilk have little to be concerned about.

Observers say that though there is no doubt Ali should be arrested if he has evaded tax, he is clearly just one among many who are involved in the black money racket. If the anti-black money campaign means business, many more big fish should be caught.

Ali's background

Ali was first arrested on March 7. He was released on bail after the sessions court threw out the case saying the E.D. had no substantial evidence to arrest him.

The low-profile punter was apparently under the scanner since 2006 for tax evasion and for allegedly stashing money in several countries across the world. The law caught up with him again after the Supreme Court pulled up the E.D. over the issue.

Ali was a small-time operator of the black money system and, with suaveness and clever dealings, turned into a billionaire. Originally from Hyderabad where he allegedly ran a shady antique business, Ali eventually landed in Pune because of his interest in punting at the races.

According to a former race course steward, Ali was a quiet man who did not socialise with Pune's high society. His horses were never at the top and he has never won a big race or the derby. It's impossible that he made this money at the races, the steward said.

According to the E.D., Ali tops the list of tax defaulters in the country. He had parked around $8 billion in various Swiss bank accounts. Under hawala transactions he had moved about Rs.35,000 crore into his off-shore accounts.

And the tax he evaded amounts to anywhere between Rs.50,000 crore and Rs.72,000 crore. Unfortunately for the E.D., it did not have a strong enough case to book the racketeer, and Hasan Ali walked free on March 11.

It is so typical of these cases. Hasan Ali is not the problem. He is the face of the problem. He is a front man and a fall guy. This money is definitely not his he is being used by some powerful people to store their wealth and, therefore, he will escape, said a tax consultant in Mumbai. They could have made the money laundering/black money law much more stringent years ago. They haven't touched it because too many people benefit from it.

Supine agencies

Ali's case also shows how enforcement agencies and the government turn a blind eye to people like him. Investigations are often tardy, and the gathering of information is delayed, indicating, perhaps, that the officers may be facing some pressure, the consultant said.

In spite of several opportunities to catch him, the E.D. appears to have allowed Ali to remain untouched. An Income Tax Department raid on his premises in January 2007 yielded a laptop and documents that revealed multiple black money trails. Yet little was done to book him. The E.D. also had information on money laundering schemes leading to cities across the country. It even had evidence of Hasan Ali possessing multiple passports (an offence in India). But he continued to be a free man.

From 2007, the E.D. was also aware of transactions between Hasan Ali and Adnan Khashoggi, a notorious arms dealer from Saudi Arabia. Khashoggi had apparently helped Ali open accounts in Swiss banks. There is an unsubstantiated claim that Ali's money may have been used in terror activities. The E.D. is probing that angle.

Tapuriah was raided soon after the punter was arrested. Tapuriah's name appeared in some of Ali's documents, indicating that he had helped Ali set-up off-shore businesses that were part of his money laundering plans. Tapuriah claims that Ali came to him with recommendations from two politicians and, therefore, he trusted him. He says he is willing to cooperate with the E.D. as he believes he is innocent.

Once Ali and Tapuriah were in the E.D.'s net, both were brought together for a sort of face-off to corroborate information gathered by the E.D. Reportedly, the duo know each other well and have opened several off-shore shell companies to divert funds. Their modus operandi involved opening bank accounts in countries such as Switzerland or Singapore once the money was transferred, they would move the money and shut the account quickly in order to block the trail of black money.

The E.D. believes that if Tapuriah sings, some prominent names will come out.

Legal loopholes

Unfortunately for the E.D., it is not easy to capture someone like Hasan Ali. Swiss banks do not reveal information unless criminality is proved. In this case, with no law in place, Ali has done nothing criminal in their eyes. Additionally, they do not have names for their accounts. Account numbers are by digits, and unless there is evidence of these numbers being found on the culprit, it is unlikely that enforcement agencies can trace the money. The Swiss banks where Ali reportedly parked his money say the E.D.'s proof of those accounts is inaccurate.

The E.D. and the Supreme Court were spurred into action following a public interest litigation (PIL) petition filed by well-known lawyer Ram Jethmalani. Once the case of stashing of $8 billion was presented to the court, the judge, in a stinging rebuke, told the E.D.: What the hell is going on in this countryminor offenders are shot down for violating Section 144 of CrPC but you don't take any action against these people. This sent the E.D. scurrying to capture Hasan Ali in Pune.

Eventually, after Ali was brought to Mumbai for interrogation and subsequently arrested, the sessions judge threw the case out with a sneer, saying the E.D. had not done its homework and that there was not enough evidence to book the racketeer. Reportedly, the E.D. had given the court photocopies of bank documents and material, which, the judge said, could be found on the Internet.

There is no explanation on why Ali was allowed to continue his operations despite mounting indications that there was black money involved in his transactions. The slow pace of the investigations must have given him enough time to clean out his accounts, park the money elsewhere and confuse the investigations.

The Black Economy

Speaking to Frontline about the larger issue of black money, or the black economy as he calls it, Arun Kumar, chairperson of the Centre for Economic Studies and Planning at the Jawaharlal Nehru University (JNU), said: The problem is not new. So what explains the earlier inaction?

According to Kumar, the recent spate of corruption scandals, following the shameful 2G spectrum case and the Commonwealth Games scandal, has made the larger population, especially the middle class, angry and they are questioning the government's attitude to this parallel economy.

Black money affects everyone, especially the common man. Roads are not good because someone has taken a cut. Buildings are dangerous because materials are substandard as somebody is on the take. You don't get water because water supply is run by a mafia. The situation is terrible. It really is about time citizens took this seriously. Corruption has seeped into every part of daily life, Kumar said.

He said that the government's recent actions were in direct proportion to the public pressure brought about by the recent exposes. Kumar's research estimates that a whopping Rs.35 lakh crore in black income is generated annually and about 10 per cent of it goes abroad. He said that the capital lost through this route was greater than the annual net foreign investment, and yet action was minimal.

As for the government's plea that Swiss banks would not reveal names if criminality was not established, he pointed out how former Egyptian President Hosni Mubarak's accounts were frozen without Egypt giving any evidence of criminality. Additionally, in 2007-08, United Bank of Switzerland gave the U.S. government tax authorities a list of close to 5,000 U.S. citizens without criminality being proven. India could also have asked for names but it chose not to, he said.