Swiss pact from April 2011

MUMBAI: Someone following the money in a season of scams can rummage through dry data on the website of the United Arab Emirates' central bank. In the past few months, there has been an unusual surge in deposits in many high-street banks in Dubai Abu Dhabi and financial centres in the UAE . Where the money came from is a subject of speculation in the Gulf with the regulator yet to spell out the sources.But amid the buzz that much of it could be government money taken from reserves to help state-owned firms pay off debts next year, senior bankers and finance professionals have spotted an India angle to the fund flow.The rush of deposits began weeks after India and Switzerland signed a revised treaty on August 30 to exchange information on tax-evaders. The pact was perceived as the first step to obtain details on money stashed away in Swiss banks. India struck a similar agreement with Bermuda, a tax haven.Total bank deposits jumped more than 40 billion dirhams ($11 billion) in October, as per data compiled by the Central Bank of UAE , against an average monthly growth of 10 billion dirhams ($2.7 billion) since January. "It may be more than a coincidence. It's a fact that money is moving out of Swiss banks and Dubai is an obvious choice for many Indians," said a senior chartered accountant who has structured such transactions.Before October, the highest jump in monthly deposits was 14.6 billion dirhams ($3.9 billion) in June - less than two months after Indian tax authorities notified they had initiated information exchange agreements with nine jurisdictions, including British Virgin Islands, Isle of Man and Jersey, which has been a favourite tax haven. "Some of these pacts are yet to be notified, and data will be shared by a tax haven only after precise information is sought. But, such announcements push people to move their money," said a finance professional who specialises in foreign exchange norms.The pact with Switzerland will come into force from April 1, 2011."But nobody wants to wait till the last day. Structuring the deal and remitting the money can take two to three months," he said.Dubai is convenient because there is no tax and banks ask few questions if money deposited has no drug or terror trail. The whole transaction can be broken into a few simple steps. First, a firm is floated in the Dubai Free Trade Zone and then staffed with local directors, many of whom are Indians working in the Gulf. Secondly, a bank account is opened in the firm's name. The money is then wired from Switzerland or a tax haven to either a Dubai bank, or to the UAE arm of an MNC bank. Finally, it is transferred to a local Emirate bank. The cash received by the newly-formed company in Dubai is shown as trading income or consultancy fee from international clients.But persons moving unaccounted money have to submit a list of names as to who will own the shares of the firm in the event of their deaths. Under the principles of Shari'ah (or Islamic law), one must name the inheritors."It can be easier if the person is a private banking client in a Dubai financial centre. If a wealth manager is simultaneously given to run a portfolio worth a few million dollars, the relationship becomes stronger," said a banker in Abu Dhabi. He said non-residents also ask foreign institutions and funds outside the Emirates to invest the money in the UAE financial and property markets. "There is a slow revival in interest among hedge funds and arbitrage funds," said the person.