24 November 2016

Readies Under The Bed

Narendra Modi takes note.

by Neil Tidmarsh

If you’re puzzled by the prime minister of India’s decision to scrap his country’s two highest denomination bank notes, and by the fortnight of social and economic chaos it’s unleashed, consider these recent news stories from around the world.

This week, from France, it was reported that a man in Normandy discovered €3.5 million in gold hidden in a house left to him by a relative.  Imagine it.  You find a tin hidden under a piece of furniture and open it up to discover it’s full of gold coins.  Then you look in a box which once held a bottle of whisky and find that, too, full of gold coins.  You find gold ingots under a pile of linen, gold bars behind the bathtub… One hundred kilos of gold in all; 5000 gold pieces, two bars of 12 kilos each and 37 ingots of 1 kilo each.

It’s thought that the relative bought the gold in the 1950s and 1960s and hid it away to avoid paying taxes.  Well, the tax man has finally caught up with it, claiming 45% of it in inheritance tax and hitting the honest heir with an annual wealth tax bill of €35,000.  And if they find that the relative failed to pay wealth tax in the decades before he died, the heir will have to pay for that, too.

And it’s estimated that there’s another 3000 tonnes of gold (that’s about €90 billion) stashed away in other homes across France, hidden from the tax man.

Last month, a court in China found high-ranking official Wei Pengyuan guilty of corruption and gave him a suspended death sentence. Police had found an apartment of his literally stuffed with bank notes.  All the furniture (except one single bed) had been removed to make way for the cash, which was kept in suitcases, cardboard boxes and assorted bags stacked from wall to wall and floor to ceiling.  Officials used sixteen bill-counting machines (four of which burnt out during the operation) to count the stash (although another account says five were used – with one burnt out – continually for 14 hours).  The notes were mostly in yuans, but also in Euros, US dollars and UK pounds.  The total came to 134 million yuan, worth about £25 million.  It weighed over one ton – the floorboards in that apartment must have been groaning.

Wei Pengyuan was considered a modest and honest character by his colleagues because he cycled to work every day.  In fact, he drove to work in an Audi, parked it a block or two away from his office, and completed the journey on a fold-up cycle he kept in its boot.

Two months ago, in Russia, high ranking official Dmitri Zakharchenko was arrested on charges of bribery and corruption after police found 15 million roubles in cash in his car and even more cash in an unoccupied apartment reportedly belonging to his sister.  The total stash came to 8.5 billion roubles, worth about $131 million.  Police also discovered a Swiss bank account, reportedly in his father’s name, containing $337 million.

Dmitri Zakharchenko is a police colonel and the deputy head of the interior ministry’s central directorate for economic security and anti-corruption.  Yes, he’s the boss of an anti-corruption agency in the Russian government.

Four months ago, in Argentina, it was announced that Jose Lopez, who was secretary of public works when Cristina Kirchner was president, is under investigation for corruption; he was caught allegedly hiding plastic bags filled with bank notes worth £7 million in the convent of Our Lady of the Rosary of Fatima.  Four nuns are also under investigation.

All of a sudden, prime minister Narendra Modi’s surprising and mysterious move makes sense.  OK, it has brought India’s largely cash-based economy grinding to a halt.  The scrapped notes represent 85% of all cash in circulation, and people are scrambling to find somewhere to spend them, and queuing for hours at banks to change them for new or smaller ones, and at cash machines to get their hands on cash they can use.  Over 50 deaths have been reported – people collapsing in the queues, being crushed by crowds, committing suicide.  But what an audacious blow against India’s equivalents of Wei Pengyuan, Dmitri Zakharchenko, Jose Lopez and the anonymous Norman.  The prime minister announced it as a measure to combat tax evasion, corruption, money-laundering, counterfeiting and terrorist financing – and at a stroke, the hoarded wages of those sins have been rendered worthless.

Only one thing continues to puzzle me.  The scrapped notes – India’s two highest denominations – are the 1000 rupee note and the 500 rupee note. How much do you think that’s worth? £1000 and £500? No. £100 and £50? No. In fact, 1000 rupees is worth only about £12, and 500 rupees about £6.  Imagine the vast volume of the kind of fortune mentioned above, hoarded in such small denominations. Imagine the storage problems. It’s clearly difficult finding the space in China or Russia or Argentina for your illicit stash, but it must be so much worse in India. The people Narendra Modi is after must be hiding their criminally obtained and now unspendable cash under very big beds indeed. They must have massive mansions, rather than single apartments, stuffed with cash from wall to wall and floor to ceiling. And they must have more than only four nuns helping them to move their bulging and innumerable plastic bags around.

 

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