The fallout of Chidambaram’s arrest has been underwhelming. The effect on stock markets, investor sentiment as well as global financial hubs has been a collective yawn.

International experts eager to identify and punish high-level policymakers active in the massive flow of illegal funds through banking channels are heartened that early in Modi 2.0, after years of procrastination, both the Enforcement Directorate as well as the CBI have presented enough evidence to convince the judiciary to give custody of former Finance Minister P. Chidambaram. Over more than two decades, the former Finance Minister, who is fifth in importance in the Congress Party after Sonia Gandhi, Rahul Gandhi, Priyanka Gandhi and Ahmed Patel, has established a network of officials who have assisted him in operations not (in the view of such experts) congruent with his Oath of Office.

Throughout Modi 1.0, sufficient action against Chidambaram and his associates was stymied by the “PC network”, including by a cleverly created misperception that such an action would destabilise stock markets and generate a negative impression among global investors. Also added was the warning that New York and London, among other key financial markets, would react negatively to the enforcing of accountability on Chidambaram. It is clear that Prime Minister Narendra Modi has himself given the green light to go forward on the matter of the former Finance Minister, no matter what the fallout.

Among the consequences has been the continued operation of the PC-backed Mumbai Financial Force (MMF) and their high-level backers in the Lutyens Zone.

The fallout has been underwhelming. The effect on stock markets, investor sentiment as well as global financial hubs of the Chidambaram arrest has been a collective yawn. The Prime Minister has acted not a day too soon. Amidst the successes achieved by Modi since 26 May 2014, an area of worry has been the economy. North Block remained unchanged in mindset and functioning even after the 2014 Lok Sabha polls, and among the consequences has been the continued operation of the PC-backed Mumbai Financial Force (MMF) and their high-level backers in the Lutyens Zone. Because of the scale of the misdeeds committed by the still active and influential “PC network”, it was expected in 2014 itself that swift action would be taken against the principal depredators who have hollowed out key elements of the economy, including from 2004 onwards. However, not only did North Block not initiate such justice, those active in the MMF continued to have rich pickings thanks to “PC network” contacts retained in key positions within North Block.

Since the second term of President Barack Obama, the US and its West European allies have been willing—indeed, eager—to assist the Government of India in identifying those who have misused the banking system, as well as stock exchanges in order to amass and siphon abroad an estimated $238 billion and counting (in present value) since 2001, according to international placeholders active in tracking illegal money, flows from Asia to Europe and North America. Since the period when Jack Lew was Treasury Secretary under Obama (2013-17), the US Treasury has been willing to share software that is capable of tracking money flows with pinpoint accuracy in most locations, barring a few territories such as North Korea or parts of the Macau financial matrix. As yet, this offer (which is still standing) has not been taken up by North Block, according to the experts spoken to.

CHECK THE ORIGINAL LIST

An expert made the disturbing claim that the list of illicit overseas bank accounts of citizens of India that was obtained from Germany during Modi 1.0 had several names that were removed by certain officials before the list was passed on to locations outside North Block. As the Germans still have the original list of Indian names, they say that it would be helpful in PM Modi’s battle against VVIP corruption to secure a fresh copy of the original list from Germany and check whether any names were subsequently deleted from the Indian side. If so, it would be a simple matter to identify the officials responsible for such an intentional lapse and to punish them. It is understood that among the names was that of a prominent member of the UPA government who is now being questioned in a location where both room and board are complimentary for actions committed while he was in office.

The experts spoken too claimed that the German government was ready to provide additional lists (of Indian nationals holding illicit accounts in external tax havens) but that “this offer has not thus far been taken advantage of” by North Block. An investigation by the PMO would show whether such a claim is accurate or not, and if correct, those responsible for refusing to secure the additional names offered by the German side could be identified. There needs to be a comprehensive enquiry into the offers made by the US, Germany, Switzerland and other countries to share financial data on Indian nationals, and why such offers were not taken full advantage of, if that after enquiry be found to be the case. According to the experts in global illicit money flows spoken to, “complete details of such bank accounts can be made available, especially if the Government of India agrees to make such discoveries the subject not of criminal action but of tax recovery”.

Identifying such resourceful individuals and their networks would be worth forgoing prosecution and going in for a collection of back taxes, as what the country needs more is extra funds for development rather than more mouths to feed in Tihar. Officials responsible for deliberately introducing confiscatory tax rates and threats of prosecution even on those declaring overseas cash and assets in the Modi 1.0 external bank deposits amnesty scheme resulted in around $500 million of the $1.3 trillion in illicit cash and assets abroad of Indian nationals and their nominees coming back, rather than the $300 billion that would have the minimum received, had there not been such self-defeating confiscatory rates and the continuing threat of penal action based on the whim of officials.

REACH OF A CONGRESS POLITICIAN

Experts on illicit money flow, especially in the US, diligently track goings-on in financial and administrative matters in India, which is seen as having great promise once governance issues get more comprehensively addressed. Worry is the corruption present within a few sections of the higher bureaucracy. Among the claims is that a very high official in the Enforcement Directorate (ED) has for decades been “exceptionally close” to a Congress politician from Gujarat known to be the closest aide of Sonia Gandhi and that this official “routinely passes on information” (to the Congress politician).

Among the examples cited was when some members of the “PC network” succeeded in initiating a criminal enquiry into a former ED Director as payback for this officer’s relentless pursuit of the former Union Minister for Finance. They say that the Congress bigwig informed the media of the secret enquiry in such a manner as to tarnish the name of the former ED Director in the public mind. Hopefully, since records of such conversations are available with overseas players, they will also be available in the archives of the agencies and departments coming under the supervision of National Security Advisor Ajit Doval, now elevated to Cabinet rank, or at the same level as External Affairs Minister S. Jaishankar. The sources who gave a confidential briefing claim that several important ED cases have been “deliberately slowed down almost to a stop” by the very senior officer concerned, on instructions from the Congress leader. Examples given were the enquiries into Sterling Biotech, Robert Vadra and the matter of FIBP approval for a private airline done on “instructions of then Union Minister for Finance” P. Chidambaram.

Digital technology has made it possible to track all kinds of activity in a range of sectors, and hence those guilty of wrongdoing can be discovered.

THE TARDY VADRA INVESTIGATION

An important case referred to as an example of snail-speed progress involves Robert Vadra, who had bought land in Bikaner in Rajasthan that was originally acquired for an Army firing range by the government. The land was quickly resold to Alleghany at a price ten times higher than what was paid. The role of a certain Mr Mahendra Nagar in this and other transactions has yet to be seriously probed. The BJP government in Rajasthan equally seemed to show very little interest in looking into the Vadra matter, and the Central agencies did not protest. Properties in the Middle East were acquired by C.N. Thampi, an enterprising businessman based in the UAE, who is also reported by the sources spoken to of having helped secure land for Robert Vadra in Kerala and Haryana.

With the coming of Modi 2.0, the chokehold of the “PC network” on various institutions of governance has been reduced. This opens the door for the charges made by the expert officials to be investigated without getting slowed down or diverted because of internal sabotage caused by “PC network” holdovers. Digital technology has made it possible to track all kinds of activity in a range of sectors, and hence those guilty of wrongdoing can be discovered. Good results are also possible because of the excellent relations that Prime Minister Modi has built over the past five years with top leaders of the GCC, the US and the EU. All such leaders will cooperate with PM Modi in uncovering illicit money flows.

Expert sources spoke to say that some of the other matters needing investigation during Modi 2.0 include the matter of FIPB action in the matter of Katra Holdings, Nicholls Stein of South Africa and Diageo. The high-level experts from a very important country (that is transitioning towards becoming a security and defence ally of India) claim that P. Chidambaram played a significant role in these three matters. Also that “officials (within the investigative agencies) who are linked to the “PC network” as its accomplices “blocked serious investigation of them”, not to mention matters such as the Sesa Goa sale, that gave rise to suspicions of manipulation in valuation caused by budgetary and other Finance Ministry statements that seemed designed to affect the price of an ongoing sale to a business group to which Chidambaram was no stranger.

None of these or other cases appears to have been seriously investigated during the previous five years, despite Prime Minister Modi’s call for a zero-tolerance policy towards VVIP corruption. In this connection, it is difficult to believe that issues relating to certain loans made by ICICI stopped at the door of former Managing Director Chanda Kochar, but this is what the agencies seem to believe. Even in dealing with Kochar, the progress of the case against her resembles a trajectory slower than the onward progress of a snail. Modi 2.0 needs to encourage high-level whistleblowers by giving a call to those indicted to give full information about the higher-ups involved, and if this be done and those higher-ups proceeded against, leniency needs to be shown to the whistleblowers.

The degree of leniency would depend on the value of the information revealed. Corruption-inducing regulations such as the Manmohan Singh plan to make the bribe giver a bigger culprit than the bribe-taker need to be revised. Bribe givers should be encouraged to get immunity by coming forward as whistleblowers, ideally with evidence about such transactions covertly gathered by them through electronic means. Devices for such interception and recording are freely and cheaply available and should be extensively used in cases where bribes are demanded and paid. Unlike in India, where retired officials become livid when accountability for facilitating wrongdoing by politicians and business persons is placed at the door of serving officials, in Sri Lanka former Defence Secretary Hemasri Fernando was sent to prison and the country’s Inspector-General of Police Pujith Jayasundara placed on compulsory leave after the Easter Sunday terror attack that devastated the tourism industry in this picturesque and still reasonably safe island. No group of retired Sri Lankan officials have followed the example of their peers in India by sending a written protest at such an action. In India, security lapse after security lapse, terror attack after terror attack, has taken place with scarcely any effect on the officials involved with security during the relevant period. Indeed, many such officials have received further promotions even after such lapses, such is the culture of official impunity in India.

It is unfortunate that the 71 well-meaning officials who were aghast at permission being given to prosecute serving officials have sought to create immunity for members of the civil service.

STOP CULTURE OF IMMUNITY

The systematic looting of millions of small investors by a few vulture operators trading in coordination with the management of exchanges has continued in India irrespective of the government in power. However, there is expectation in Modi 2.0 that such misdeeds will finally get punished. Finance Ministers have in the past deliberately talked markets up or down, while those close to them have booked huge profits as a consequence of the price swings caused. Worse, key policymakers have several times coordinated with brokers to take long or short positions in stocks they know will be affected by policies in their control.

Some of the officials who assisted broker and other associates of Chidambaram in such transactions continue to hold high-level positions and need to be identified. Corrupt officials, especially those affecting the economic wellbeing of the country, are a national security risk who need to be the focus of detailed investigation and enquiry. It is unfortunate that the 71 well-meaning officials who were aghast at permission being given to prosecute serving officials have sought to create immunity for members of the civil service. If what they want gets continued, officials will have a 007-style licence to collect bribes. This they are attempting through decrying efforts at prosecuting those within the bureaucratic fraternity who knowingly and actively assisted Chidambaram and others in their suspicious transactions and operations, presumably for substantial personal profit. Attempting to promote a culture of immunity for senior officials in the name of efficient administration will only retard the battle against VVIP corruption that several of the highly respected 71 signatories otherwise support.

The only way to prevent the connivance of officials in wrongdoing by businesspersons and politicians is to enforce accountability in such cases as a warning to those tempted to follow those few who connive at wrongdoing. In such a context, some of the orders passed by SEBI and SAT during the past 15 years need forensic scrutiny, according to the expert sources. Some of the orders passed by SEBI, including some that were reversed by SAT, need a closer look. Integrity within the financial system is core to the success of the economy.

Matters such as the NSE co-location scam seem as yet not to be getting the attention they merit from the relevant agencies. “Procedural lapses” is hardly a valid explanation for what (according to the sources spoken to) amounted to “willful fraud on the small investor” to enrich a few operators. Matters such as the MCX data scam, and the manner in which NSEL was gutted to benefit NSE need investigation by the PMO. Part of this operation involved an effort by the “PC network” to wrest NXDEX from the control of the Consumer Affairs Ministry to the Finance Ministry. An official who was the right-hand man of Chidambaram in several operations still enjoys a high position within the government and is even being backed for a still higher post by a senior ruling politician with whom he struck a friendship during the UPA period.

PROBE NSE CO-LOCATION

Only a comprehensive enquiry can ensure action (thus far absent) against those responsible for the goings-on involving efforts at using influence to protect and further the interests of a private exchange against a competitor. In the view of the experts on global financial crime spoken to, unless the NSE co-location matter gets adequately probed and responsibility fixed, global investors will continue having doubts about the integrity of share and commodity markets in India. Any data on transactions that has been erased within an exchange can easily be recovered through the use of software available for the purpose.

Only by bringing to book those guilty of insider trading and market manipulation can external and internal investors have the confidence to invest enough to fulfil Modi’s objective of a $5 trillion economy by 2024. The role of past heads of regulatory agencies need to be gone into and responsibility affixed, no matter that this may result in another “71 Letter” calling for the continuation of a zero guilt policy towards those belonging to the very services that are collectively more powerful than elected politicians in running the country. While most members of the IAS are honest, and many are indeed outstanding in their dedication and competence, the bad apples need to be removed from the basket before they infect others with the disease of self before service. At the same time, honest officials who were persecuted by the “PC network” need to be recognised for their services.

An example is former SEBI member G. Anantaraman, who issued orders designed to prevent scams such as the 2003-4 IPO scam from being repeated. A series of financial scams affecting small investors was partly responsible for the wipe-out of the A.B. Vajpayee government in cities across India in the 2004 Lok Sabha polls. A few politicians, businesspersons, brokers and officials made billions while millions of middle-class investors lost heavily as a consequence of their misdeeds. In the IPO scam, multiple applications were made by a few players under different names, so as to corner shares and make a killing through deliberately getting misleading signals passed by sections of the government, thereby boosting prices for the scrips, which were then sold to small investors as well as to captive public sector investors. Very soon the scrips declined in value, and hundreds of thousands of small investors, together with the public sector “Bali ka bakra” institutions, lost much of their stake. Then SEBI Chairman Damodaran examined too carefully for the comfort of the guilty the role of NSDL, and some influential individuals reacted. Soon the SEBI committee order on NSDL was set aside by new management in SEBI. An investigation into such reversals of policies and actions would be essential in any campaign against corruption, together with an examination of why both Damodaran and Anantaraman were refused extensions despite good work.

Modi 2.0 needed a relook at share price swings caused by misleading North Block signalling from 2001 onwards that was followed by a reversal of course.

POLITICIAN’S DAUGHTER AND BENAMI ASSETS

A startling disclosure by the experts has spoken to relate to the daughter of a top politician (now deceased), who is aware of several of the Benami assets of her parent and are seeking through contacts in the governance system to transfer such assets into entities that she is ultimately the beneficiary of. Prime Minister Modi has been clear that corruption will be fought to the close, no matter what political party the corrupt individual is from. Officials throughout the government are watching this effort of a deceased politician’s daughter to transfer to herself those benami assets of the parent that are known to her.

The spirit of determination to eradicate VVIP corruption in Modi 2.0 is creating hurdles in her path to further riches, which the experts spoken to say is a good sign that change is on the way in North Block. Hopefully, such a change will translate into double-digit growth in the economy. Till now, such growth has been held back by corruption and misfeasance, connived at by the “PC network” through the Lutyens Mafia and the Swiss Club. These ensure that the regulations and laws passed are so irksome and complex that it becomes easy to get targets into trouble and extract bribes from them. In particular, the vastly expanded list of (mainly technical or derisory) breaches that are potentially subject to prison time has proven to be invaluable in boosting the average bribes paid to corrupt officials, rather than serving as any check on wrongdoing. Among the routes most commonly used to bring unaccounted money back to India are Participatory Notes (PNs).

These reached a peak in 2007, when more than half of Rs 4.5 lakh crore of foreign portfolio investments were through such instruments. The sources spoke to say that information should be gathered on a mysterious cartel that swept up shares that had fallen steeply in value because in October 2007 SEBI publicly sought greater transparency in the provenance of PNs. Soon after, Finance Minister Chidambaram (according to those tracking such activities) prodded SEBI to instead go in for a much looser and calibrated introduction of Know Your Customer (KYC) norms, and the same shares that had lost ground rose sharply in value, generating huge profits for a group of investors that it would be easy to identify, according to experts.

According to them, the former Finance Minister used a similar gambit in 2012 of first talking down share values through warning of action against PNs and then changing his tune after a cartel close to him had cornered shares sold by nervous investors at a discount. They added that this PN scam was among several other such suspicious share transactions made during the period when P. Chidambaram was the Union Finance Minister that has been analysed by trackers of market manipulation in a major world capital to which Air India (itself the victim of a UPA Cabinet minister) has a direct flight from Delhi. There were numerous examples given of such fixing of the markets by cartels wired to top policymakers (in North Block), and the view was that Modi 2.0 needed a relook at share price swings caused by misleading North Block signalling from 2001 onwards that was followed by a reversal of course. Only punishment of the guilty individuals would ensure “order and integrity in the markets”.

WHY MAYARAM FAVOURED DE LA RUE

Another matter awaiting attention in Modi 2.0 is the De La Rue matter. Why did an official bypass Finance Minister Chidambaram (despite being a favourite of his) and write to the Home Ministry to bypass the blacklisting of the company? Why were orders issued for the supply of paper from De La Rue even three years after the Sheelbhadra Banerjee report was ready for implementation and after Finance Minister Pranab Mukherjee had in 2012 ordered De La Rue to be blacklisted? When even Chidambaram as FM ordered the company to get blacklisted in 2010 itself, why did he stand by while an official close to him and who was known to always take his counsel allowed the contract with the company to continue?

If the official, Arvind Mayaram, comes clean on the episode, the minister who gave the actual commands deserves to be booked and Mayaram treated with leniency. Why did Mayaram make it easy for Pakistan to produce counterfeit notes of Indian currency, and who is responsible for the fact that the old (and inadequate) security features of pre-demonetisation currency notes remain in the new notes? Why, despite his record during 2005-08, was Mayaram’s appointment as MD of APMCIL approved by the ACC in 2009? Was, as claimed by the sources spoken to, the hidden hand behind Mayaram’s approval that of Chidambaram? The fact that Prime Minister Modi has succeeded in overcoming the sabotage of the “PC network” in the matter of the kingpin himself, and ensured that key agencies enforced accountability in the case of the former Union Finance Minister, indicates that there are grounds for optimism that the battle against VVIP corruption could be a pivotal point in the second of what is likely to be three 5-year innings in power of PM Narendra Modi.

Note:

1. The views expressed here are those of the author and do not necessarily represent or reflect the views of PGurus.