Benami Dollars – a New Financial Product from India.

The original US dollar, the legal tender of the United States of America, is now the de facto currency of the world. Its convertible nature and the free market economy of the USA have assisted creation of both legal and illegal financial assets and transactions with peculiar dollar names.  The new find, Benami dollar, is developed by Indians exclusively for their own use by parking their illicit wealth abroad. 

EURO dollar is a notional currency without any central bank governance and is  

managed collectively by international banks. It started as stashed funds from the East European Communist bloc but has become a recognized source of legal fund in the last 35 years. Central banks have accepted this product and corporate/commercial/retail dealings are perfectly legal and transparent.  The estimated size of this market is over 5 trillion dollars.

PETRO dollars is a given name by political economists to the wealth of the OPEC (Organization of Petroleum Exporting Countries) members.  The yearly collection is close to a trillion dollar.  This is a legal wealth and is being used for various development projects in the OPEC countries and is also invested all over the world.

The lesser known, NARCO dollar is the illegal wealth of the drug lords hidden in off shore tax havens mostly in the Caribbean. Owners are totally unknown; movements are secret and have high velocity of circulation. The estimated size of this market is $ 500 billion. Its existence was corroborated by the strong rumour when Pablo Escobar, the fugitive Colombian drug lord, offered to settle the billions of dollars of foreign debts of the Colombian government in return for his freedom.    

What is Benami transaction?

Benami transaction means any transaction in which property is transferred to one person for a consideration paid or provided by another person. - The Benami Transactions (Prohibition) Act, 1988

Merriam-Webster dictionary describes “Made, held, done, or transacted in the name of (another person) —used in Hindu law to designate a transaction, contract, or property that is made or held under a name that is fictitious or is that of a third party who holds as ostensible owner for the principal or beneficial owner” 

In the Western world, it is known as fronting or proxy deals.    

BENAMI Dollars could be the appropriate name for the stashed funds parked in the offshore tax havens by Indians. Until the year 2000 the boundaries of stashed funds were limited to a few big corporations and high level politicians in the centre due to restricted exchange regulations.   The stashing is done by age old techniques like under invoicing exports, over pricing imports and kick backs from government and defence contracts.  Havala (Informal and illegal transfer of money outside the banking channel) transfers were mostly in the individual retail segment.

Globalization with Foreign Direct Investments (FDIs) and opening of the Indian market for Multi National Corporations (MNCs) have paved the way for new players even at state level politicians and bureaucrats. The accumulation started multiplying after the year 2000 from kickbacks from MNCs who were given free passage to compete in various economic development programmes. The Indian government is turning a deaf ear to the clamour against the stashing as any investigation might backfire on them.  Millions have grown into billions.

Leniently regulated Gulf States particularly Dubai in UAE, and Hong Kong are comfortable locations for parking funds and many Non Resident Indians (NRIs) and People of Indian origin (PIO) are ready to provide the Benami services. Authorities in these countries do not care even if an Indian taxi driver or a construction worker maintains a million dollar account in local banks. Neither the Indian government nor the Indian embassy has any control on the activities of the NRIs and PIOs. The vital interests, close kin and spouse of the Benamies in India will be held as security for the risk.

Companies owned by PIOs in Malaysia, Singapore and UAE are   providing  Benami service for high stakes.  There are reciprocal arrangements for their ventures in India.  The principals of the Benamis do not mind paying tax on the parked amount in foreign countries as long as their stashed money is kept intact with transfer facilities and their identity remaining undisclosed.  It will be an interesting research to find out how the funds are being used. It depends upon the size of the fund and the power of the politicians. Huge sums are transferred as donations to many  NGOs and charity organizations run by them.  Foreign Institutional Investors (FIIs) assist the Benamies as well as the real owners through Participatory Notes, a tax free and convertible offshore financial tool, to reinvest the stashed funds in India and take advantage of the lucrative Indian stock market without being identified.   

Benami business, practised within India so far, has now crossed the shores with a new name in the international market.  MNC banks in tax havens provide all kinds of services for managing the illicit wealth.   The Government’s reluctance will encourage creation of  more Benami dollars and at this rate India can produce a few    Pablo Escobars in  future, after all the foreign debt of India  amounts to around US$ 300 billion as against the estimated stashed holdings of US$ 700 billion.

Dr. Krishnan Arunachalam.

       

 Ref: Authors blog krishrajiblogspot Nov/2013