By Raymond Baker

(The author is director of Global Financial Integrity, a Washington-based think tank)

It is encouraging to see the zealous enthusiasm that has surfaced in India over the past few years on eliminating black money or illicit financial flows . While many other countries are taking modest steps to curtail illicit flows, India has gone ahead to make the issue one of pressing national importance. Applause is due to the nation, while more work remains tobe done.India has acted strongly to pressurise foreign banks into accounting for and in the future returning illicitly-acquired assets to the country. This is a worthwhile goal. But any asset recovery will be a long-drawn process and is likely to result only in a fraction of illicit dollars being returned. A more productive outcome can be to focus on stemming future illicit financial flows, both domestically through mechanisms such as anti- corruption legislation and by applying pressure on the international community.Much of the onus for further progress should be placed on the world's most developed nations. The West maintains a shadow financial system that allows corrupt or tax evading Indians, and others across the globe, to hide and launder ill-gotten gains. As long as this system persists, black money will continue to flow out of the country.India is in a unique position to address this problem. Unlike many other countries that suffer the scourge of illicit capital flight, India is a large, powerful nation with significant international influence. Prime Minister Manmohan Singh demonstrated this at the G20 meeting in Cannes when he advocated his fellow heads of state to establish a global system of automatic exchange of tax information. India has aggressively signed numerous bilateral Tax Information Exchange Agreements , but this process involves requesting for information and, oftentimes, it requires an onerous effort to drag account data from reluctant foreign jurisdictions. Automatic exchange would allow authorities to track tax evasion more easily across borders. Further pressure needs to be exerted on G20 nations to make automatic exchange a reality.In addition, India can push for three important measures to combat black money. First, G20 countries should require all corporations formed anywhere in the world to declare who are the natural persons owning the entities. This would end shell, or anonymous, companies that are used to hide transactions and assets. Shell corporations can be found both in places such as Liechtenstein and Cayman Islands, but also in more powerful jurisdictions such as the UK and US. Criminals and tax evaders often use layers of shell corporations, spread out all over the world, to hide money and conduct illicit business. Corporate vehicles are intended to provide limited liability to owners, not secrecy to owners. This glaring deviation from the original intent often facilitates crime and tax evasion, and needs to be corrected.Second, India should push its G20 partners to require that multinational corporations report revenues, costs, profits, and taxes paid on a country-by-country basis. This would make it more difficult for multinationals to use abusive accounting tactics, including the mispricing of trade, to evade corporate taxes. The current system allows multinational corporations operating in India, both foreign- and domestically-owned, to claim profits in foreign jurisdictions where taxes are lower. Creative use of abusive transfer pricing can result in a very profitable multinational paying little or no tax. This creates an unfair system where companies with the will and means to avoid corporate taxes are able to out-compete and out-earn companies who pay their fair share.Third, India can take the lead among emerging-market nations to make tax evasion a criminal offence. Currently, the Paris-based Financial Action Task Force (FATF), the global anti-money laundering standard-setter, is considering a measure to make tax evasion a money-laundering offence. Doing so would help prevent banks from being willing and active facilitators of tax evasion. This is all well and good, but further than that, tax evasion should be a criminal offence in its own right, whether or not tied to money laundering. India has already been a global leader in pressuring banks in secrecy jurisdictions such as Switzerland to stop enabling tax evasion. It can move forward by passing domestic standards on money laundering and tax evasion than are tougher than what the FATF is looking at now.India can take the lead on a more transparent global financial system, for the sake not only of its citizens but for all developing nations as well. If India does so, we may one day live in a shared world where illicit funds no longer find easy safe havens and those who would shift their gains are deterred or caught before their assets illegally leave poorer countries for richer ones. This world will be safer, more equitable, and more prosperous for all.