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Banks in tax havens like Switzerland and Mauritius to run checks on Indians looking to open black money account
June, 19th 2015

Banks in tax havens such as Switzerland and Mauritius are seeking to put in place rigorous checks to ensure that they keep out Indians looking to open black money accounts. This comes as the Narendra Modi government implements a tough regime to root out unaccounted wealth.

Overseas banks have approached tax and anti-fraud investigators at consultancies to help them draw up guidelines in this regard. "Before accepting a customer's deposit or opening his account, the banks would run a full-fledged investigation on the individual and his business," said a senior partner at a consultancy investigating such cases. "These investigations take anywhere between one week to a month."

Black money is usually held in the name of fictitious companies or individuals, something the banks have been turning a blind eye to thus far. Henceforth, banks will seek tax returns of the account holder for the past three years before opening an account or accepting deposits.

"The fight against black money is prompting banks to adopt measures to safeguard themselves and ensure that they are not charged with abetting financial crime," said KV Karthik, senior director, financial advisory services, Deloitte Touche Tohmatsu India.

At least 25 banks have approached Indian consultants in the past month as part of such an exercise, said four people aware of this. The banks want to set up systems that will alert them to a customer's background, income tax filings and legal record.

This is apart from know your customer norms on par with those mandated by the Reserve Bank of India. "Frankly, these banks in tax havens do not care much about RBI's guidelines if they do not have offices in India. What has changed is that now India would be signing tax treaties with more and more countries where Indians tend to stash their black money," said a senior partner at a consultancy helping a bank set up such a mechanism. The source of funds and tax records will be examined before deposits are accepted. Further, private investigators and tax experts have been roped in to create processes that will warn banks that are approached by customers not just in these tax havens but anywhere in the world.

"Banks are ensuring that that they get information on account holders, beneficial owners of the account and also understand the source of funds," Karthik said. "This information will be necessary not just to comply with the anti-money laundering guidelines but also with the new tax compliance regulations." Many Indians have been withdrawing money from Swiss banks. Funds held by Indians fell 10% in 2014 to Rs 12,615 crore according to figures released by the Swiss authorities.

The Swiss Banks' Association (SBA) told ET in an email that banks in that country already follow international standards. Swiss banks aim at managing only "tax compliant assets," it said. Experts said black money is increasingly finding its way back to India through round tripping. "Most of this money is being invested in Indian real estate and some other companies," said a partner in the corporate investigation department at one of the major consultancies. "This is the same money which was earlier stashed in banks."

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