Converting black money into white

Recently, at a public meeting, the prominent NPP politician Sunil Handunneththi remarked that once they come to power, they would start a State project fund. He added that anyone in the country can channel their financial resources to the proposed fund while elaborating even black money can be contributed as their future administration would not have the time to find out how they earned such money. The former COPE Chief has turned into a subject of ridicule among the public in the recent past over his naive remarks. 

Nevertheless, NPP Presidential candidate Anura Kumara Dissanayake in an interview given to the BBC Sinhala Service when he visited the UK a few months ago pointed out Handunneththi as a contender for the highly responsible post of Finance Minister under an NPP Government.

When former President J.R. Jayewardene opened up the economy, he famously remarked, “Let the robber barons come.” Ironically, a leading politician who began his political career from a movement which championed the cause of the downtrodden and oppressed communities has gone even beyond the foremost Capitalist politician in the history of Sri Lanka. The controversial statement by the former MP is completely at odds with their rhetoric to fight corruption and undertake a complete systemic change based on the foundations of law and order.

Handunneththi’s endorsement of injecting black money into the formal economy has to be evaluated in the context of the prevailing world order in which money laundering has been strictly prohibited by international conventions as well as UN decrees. The Financial Action Task Force (FATF) – an intergovernmental organisation founded in 1989 on the initiative of the G7 to develop policies to combat money laundering – has imposed regulations regarding illegal black money circulation, investment, etc. 

It might be recalled the FATF at its General Meeting held in October 2017, listed Sri Lanka as a jurisdiction with strategic Anti-Money Laundering (AML)/Countering the Financing of Terrorism (CFT) deficiencies and as a result the country was added to the FATF’s Grey List in November 2017. Subsequently, as Sri Lanka strengthened the effectiveness of its AML/CFT regime and addressed the related technical deficiencies, the global anti-money laundering body took the island off its Grey List in October 2019.

Whether black money should be brought into the formal economy is a contentious topic, especially among South Asian economies that possess large informal or hidden economies. Last month, the Government of Bangladesh proposed a “no-questions-asked” provision via its Budget for the next financial year, allowing individuals to invest undisclosed money into the economy by paying a 15% tax on declared amounts. The initiative of the Sheikh Hasina administration aims to bring black money back into circulation and mirrors the proposed measure of Handunneththi. The South Asian nation’s move has been severely castigated by economists and anti-corruption activists as the chance to raise questions about the sources through which undeclared money was generated would be lost.   

By and large, granting amnesties to black money holders is condemned severely worldwide as it encourages corruption and discriminates against the honest tax payers. Such amnesties benefit the earners of income through illegal means such as smugglers, black marketers, hoarders, etc. On the other hand, politicians and powerful bureaucrats who amass wealth by demanding commissions and bribes stand to gain through such regressive schemes. Ill-conceived programs as advocated by the NPP’s main spokesman on economic affairs could further intensify the departure of educated professionals from the country as they would get dejected by moves that reward the rent-seeking activities of a corrupted few.

Interestingly, while the Finance Minister hopeful is receptive towards black money, few months ago, he compared the famous entrepreneur Elon Musk to an economic hitman and criticised the President’s move to attract such investors to the country. His comments raise serious question marks about the objective of the NPP’s economic policy and what this much-talked-about system change represents.