Scapegoat, Escapegoat, and clawback in 2G

A slightly edited version of the following was published on firstpost.com on feb 8th at http://www.firstpost.com/india/2g-scam-scapegoat-escapegoat-and-clawback-of-loot-206788.html

Scapegoat, escapegoat, and clawback in 2G

Rajeev Srinivasan says the implications of the rulings on the 2G scam are intriguing, but wonders why there is no talk of recouping the moneys spirited away

There is really such a thing as a scapegoat in Jewish lore. According to the Talmud and the Bible, it was customary in Jewish villages in West Asia to declare a particular she-goat as the source/receptacle of all the troubles and/or sins of the villagers. On a particular day (Day of Atonement), the she-goat was banished into the desert wilderness, and the slate wiped clean for the villagers. That is the scapegoat.

Of course, in modern usage, the term refers to a possibly innocent bystander, who is declared to be the one to be blamed so that the others can go off scot-free. In many firms, there is a ritual that follows a failed project, where the culprits anoint somebody as the owner of all the problems: this phase (not usually mentioned in process manuals) is called “the massacre of the innocents” and is religiously followed.

But there could also be ‘escapegoats’: that is, the really guilty, who, by dint of adroitly blaming the ‘scapegoat’, manage to look innocent. It is usually these people who do very well in corporations, as they have figured out the fine art of teflonizing themselves – nothing sticks to them (of course other than undeserved praise).

In India, scapegoating has been raised to a fine art by the masters of the universe, the political class. Recently, we have seen a classic case of all this in the twin 2G decisions made by the judiciary.

On the one hand, the Supreme Court made a landmark decision, based on Subramanian Swamy’s plea, to cancel the licenses of 122 spectrum allottees who are accused of benefiting from an unfair, opaque and corrupt process. On the other hand, a special CBI court dismissed an appeal from Swamy to include home minister P Chidambaram in the list of those to be investigated.

The first is a ringing endorsement for the rule of law in India. Taken together with the Supreme Court’s verdict quashing the imposition of capital gains taxes on Vodafone recently (the taxation violated common international M&A practices), this shows that the Indian legal system is dependable and sensible, although it might be slow to act.

That is a particularly good signal to send to investors, especially in comparison to countries with notoriously unfriendly judicial systems (eg. China). Some of those involved (such as foreign telecom companies that had tied up with dubious Indian partners) have claimed that the cancellation of the licenses brands India as business-unfriendly, because decisions made at one point (or by one government) could be overturned at a later point (by another government or the judiciary).

On the contrary, the Supreme Court action suggests that it is not a good idea to go in for illegal hanky-panky in India, and that you do so at your own risk. In fact, many nations in the West already have in place laws to prevent foreign corrupt practices. The US version caused Lockheed to be censured when they tried to sell planes using bribes. More recently, Siemens ended up paying over $1 billion in fines for their use of bribes in developing countries.

Besides, the cancellation sends a signal to those of the political class and bureaucracy in India – both notorious for corruption – that the judiciary may not turn a blind eye. And also that a determined plaintiff (such as the super-energetic Swamy) can use the existing laws to good effect if he persists.

The second decision, letting off P Chidambaram and preventing his being put on trial, is disappointing. If Chidambaram were indeed innocent, why should he not gladly stand trial, so he could exonerate himself? In some sense, the CBI court’s decision is an insult to Chidambaram, as it implies that the latter is, in fact, guilty. After all, the plaintiff merely sought to have him named in a suit, which he could have fought with the best lawyers money could buy. Thus the verdict, which is almost certain to be appealed in a High Court, leaves a little to be desired.

The fact remains, in any case, that there is some reason to believe that A Raja, currently languishing in Tihar jail, has been made the scapegoat, and that there are others, perhaps some of Those Who May Not Be Named, who have made good their ‘escapegoat’ routine. It can only be hoped that the indefatigable Swamy and others will persist in their exertions.

But there is one more aspect that seems, oddly, absent in this whole discussion on scapegoats and other beasts. That is the famous American idea of ‘clawback’, that is to say, a way of recouping the money that has been spirited away. We have seen in the fascinating case of Bernie Madoff, arch-con-artist, how the prosecutor has doggedly gone after the Madoff estate, put it into receivership, and attempted to claw back as much of the money as possible.

Why is there no attempt to do this in India? This is the greatest deterrent to the corrupt: that their pains may end up doing them no good, as the money will be taken away and they will be fined by the dreaded Income Tax authorities, to boot. This is one of the biggest deterrents against criminal behavior: for instance, Al Capone, the Chicago Mafioso, who was able to cover his tracks in all his illegal activity including (allegedly) massacres, was finally convicted of tax evasion.

The Americans are now going after its residents who are hiding money abroad to evade taxes, and have managed to pry open the veil of secrecy that offshore banks have used. For instance, in some settlements with major Swiss banks, they have tracked down billions of dollars in hidden accounts, and it shall soon be “the taxman knocketh on the doors” of those found guilty.

On the contrary, in India every politician and bureaucrat who indulges in corruption knows that after a huge fuss, he may (or may not) be sent to jail, but that his family will be able to enjoy the fruits of their ahem… toils, if not today, but in the future; and that, even if he is jailed, he will be able to rehabilitate himself some years later.

This sense of complacency needs to be attacked. Wrong-doers should have the full amount of their ill-gotten gains tracked down, and confiscated, and then some. The tax authorities should impose stiff fines – I am sure these are on the statute books – on undeclared income. If this is done to a few people – which might reduce them from upper class to middle class, in keeping with their income (remember the interesting phrase “assets disproportionate to known income”?), that would be exemplary.

Thus, in addition to the tamasha and sound and fury of scapegoats and escapegoats, plaintiffs with PILs and other suits should approach the judiciary with explicit pleas for clawing back the funds from those caught with their hands in the cookie jar.

1190 words, Feb 7th 2012