Export Surge Stokes Offshore Sham Suspicions

An amazing surge in India’s exports to the Bahamas has stoked the lingering suspicion that a slice of the country’s trades is sham transactions done to bring back money stashed in secret accounts with offshore banks.

In just two years, exports to the Bahamas – best known as a tax haven – have shot up from $2.2 million in 2008-09 to $2.2 billion in 2010-11, according to commerce department data. The number in no way matches the data on the Bahamas’ global imports, which according to UNCTAD – the global trade and investments monitoring agency – was $2.8 billion in 2010.

According to the CIA data base, India has only a 7.5% share in the Bahamas’ imports, which works out to about $200 million in 2010. The wide gap, some think, is more than sloppy statistics. “This is just a way of bringing black money back into the economy when it needs to be converted into white money and used for other purposes such as investments,” said an economist on the committee appointed by the government to suggest ways to curb black money.

This happens through export ‘over-invoicing’, which boils down to billing the overseas buyer $10 million for cargo that may be worth just $10,000. In such transactions, the buyer may be fictitious, or a shell or front company of the Indian exporter. It’s a ploy to bring back undisclosed money under the garb of cross-border trade. Biswajit Dhar, a trade expert and director-general of RIS, a think tank, felt the government should be looking at these indicators of black money. “They should also look at a detailed list of exporters… I’m sure some of them are fictitious,” he said.

The Bahamas is one of the jurisdictions to have signed a tax information exchange agreement with India. Some of the others include Bermuda, Isle of Man, British Virgin Islands and Cayman Islands. As per the information exchange pact, the countries are required to share information if the other country has reasonable ground to believe that there has been a tax offence. Under the circumstances, Indian residents holding money in banks in Nassau, the capital of the Bahamas, may think it’s safer to either move their money to another destination or bring it back to India.

Difficult to Explain Jump

Nassau is a favourite tax haven for many wealthy Americans. While the Bahamas, a nation of 29 islands, is also a transshipment point, it’s difficult to explain the sudden jump in exports from India. During April-December 2010, India’s exports to the Bahamas were up 217% to $1.6 billion from the year-ago period.