Hawala is an unofficial mode of transferring cash across international borders, bypassing banking and other financial channels. According to a 2013 report by the international organisation, Financial Action Task Force (FATF), to which India belongs, hawala involves four parties: “the criminal customer, controller, collector and transmitter.” The controller instructs his collector, usually in a foreign jurisdiction, to collect the funds from the criminal customer. The collector sends the controller a ‘token,’ usually a copy of a banknote or its serial number for identification, which is then passed on to the criminal customer through WhatsApp or email. The collector hands over the ‘token’ to the criminal customer and receives cash which then is transmitted to the controller through a transmitter. The criminal customer informs or hands over the ‘token’ to the controller as proof of payment to the collector. Thus, the transaction is concluded safely and with complete anonymity of the criminal customer, as the ‘token’ acts as the sole mode of identification to the collector and transmitter.
The Union government with its anti-money laundering laws makes an earnest attempt to curb this practice, as this hawala route is primarily used to fund illegal, and oftentimes, terrorist activities. But what if a government scheme, perhaps, inadvertently promotes such a practice to route political parties’ illegal money into the system? This is the curious case of ‘electoral bonds’ – the ‘token’ in the hawala transaction that is legitimised for electoral funding.
Electoral bonds (EBs) were introduced by the ruling BJP government in the 2017 Union Budget, with a view to curb cash donations to political parties. Electoral bonds are bearer instruments that allow anyone, including corporates in India and abroad, to donate an infinite sum of money to any political party without revealing their identity. This is done by subscribing to EBs through the State Bank of India (SBI), which is the sole authorised dealer to issue electoral bonds. This was introduced by then Finance Minister Arun Jaitley, through a Finance Bill. He argued that the anonymous character of electoral bonds will enable anyone to donate without fear of being victimised by any political party and “will ensure transparency.’
However, the Election Commission, in one of its didactic submissions to the Supreme Court, highlighted the serious repercussions and impact EBs would have on the transparency aspect of funding to political parties. Alarmed over the larger insinuations of the Union government’s move, the then RBI governor Urjit Patel’s laconic yet sedulous reminder, in September 2017, to Arun Jaitley underscores how puzzled he was when he stated, “We are concerned that the issue of EBs as bearer instruments in the manner currently contemplated has the possibility of misuse, more particularly through the use of shell companies. This can subject the RBI to a serious reputational risk of facilitating money laundering transactions.”
Many countries, including Brazil, Germany, France and Chile, are on the path to restricting or banning corporate/private funding of elections, as the blatant quid pro quo would certainly result in fiscal crises and cheerleaders of crony capitalism may well propel elected governments. In India, this has been further exacerbated by the murkier modus operandi with which farm laws were enacted and the outright selling of airports and other public assets, which are indelible blotches on the current political dispensation. This underlines the government’s fathomless geniality with corporate houses and may well debilitate the country's fiscal foundation itself.
To a request under RTI by Association of Democratic Rights (ADR), the State Bank of India (SBI) said that out of Rs 3,429 crore of the total value of EBs generated by the bank, the ruling BJP alone devoured a whopping Rs 2,606 crore – 76% of the total bonds issued so far. Whereas, the major opposition party, Congress, received a mere 9% of EBs.
Further, the anonymous nature of the EBs is not only preposterous but also effectively destroys any citizen or even judicial bodies’ inquisitive pleas to unravel donor details. Further, only the ruling party will be aware of the identities, as the authorised dealer – the State Bank of India is technically under the purview of the Union government, which makes the anonymity of the EBs ‘selective.’
The contours of EBs entail serious scrutiny as they may traverse far deeper than the apparent corporate hegemony. The anonymity clause helps the ruling party. It can conceal the money it coughs up from many of its illegitimate sources and route them abroad through subterranean hawala channels and bring it back into the country through legal financial channels – in the form of fictitious exports of goods or services using shell companies. The funds, thus received, could be used to subscribe to electoral bonds, as the ruling party alone can identify the details of the subscriber due to the selective anonymous nature of the bonds.
This would also enable anyone to subscribe to the electoral bonds and hand them over to the political party for identification. Thus, electoral bonds will act akin to a ‘token’ in the hawala model, to identify a donation and whitewash a ruling political party’s black money and bring it back into the financial system. Further, selective anonymity results in selective accountability. The ruling party can identify the donors and the Union government, with its vast administrative paraphernalia, can persecute a corporate house that is subscribing EBs for opposition parties. At the same time, the government may turn ‘Nelson’s eye’ towards donations received to the Union ruling party through EBs. This was reinforced by the then Finance Minister Arun Jaitley, when he said, “(For) donors who buy these bonds, their balance sheet will reflect (the purchase) and the donor will know which party he is depositing money to. The political party will file a return with the election commission.”
The FM seemed to be batting the opposite, as, if the balance sheet reflects the purchase of EBs coupled with details of the donor with SBI – the intermediary under the control of the Union government – the particular donor can be identified by the ruling party at the Centre.
Jaitley’s statement is proof that the anonymity of EBs is ‘selective’ and actionable at the hands of the ruling party at the Centre. This will discourage corporates from donating to an opposition party, fearing victimisation and thus creating an undue imbalance in electoral funding. The Achilles-heel of the case is the exponential swelling of shell companies ever since the EBs came into play. The Union government’s move to strike down a whopping 3.8 lakh of fictitious entities between 2018-21 via a special task force clearly supports the searing indictment made by the RBI that EBs, along with these companies, accelerate money laundering.
While the Modi government claims credit for various anti-black money and anti-money laundering measures, including demonetisation, the EBs remain quite antithetical to these claims. The ‘bearer’ nature coupled with selective ‘donor anonymity’ converts electoral bonds as equivalent to ‘cash with a promise to pay the bearer,’ leaving no trail of the transactions.
In fact, electoral bonds could even be used to bring back demonetised black money into banking channels in the form of anonymous donations, which the ruling party at the Centre alone will be aware of. Thus, electoral bonds will enable round-tripping of black money into the system, which is a threat to the political economy of the country.
(Views expressed are the author’s own)
Puhazh Gandhi P is an advocate and the state joint secretary, NRI Wing, DMK, and executive coordinator of the Dravidian Professionals Forum. He is an alumnus of NYU, NUS and JNU.