As UK Becomes a Haven for Financial Fraudsters, How Can India Improve its Extradition Success Rate?

While the UK no doubt has a soft approach, which can be made stronger post Brexit, the real test lies in ensuring that substandard prison conditions are amended. Mere assurances without actually providing better conditions will only to be used as a case in point by other fugitives.

The extradition of numerous embezzlers booked under India’s Fugitive Economic Offenders Act which allows the confiscation of all properties and assets of people who are charged in offences measuring over Rs 100 crore and are evading prosecution by remaining outside the Indian jurisdiction  has been a consuming affair for the Enforcement Directorate (ED).

Earlier this month, hearings in the extradition case of fugitive economic offender, diamond merchant Nirav Modi concluded in London’s Westminster Magistrates’ Court. This round of arguments was held to determine the merits of a prima facie case of fraud and money laundering mentioned in the material supplied by the Indian government. After further hearing in November-December, a judgement is expected at the end of the year or early next year.

Several points made in the Modi case are similar to those of Vijay Mallya’s case. Indeed, the UK has over the years become the most preferred tax haven destination for economic offenders like Vijay Mallya, Nirav Modi, Lalit Modi, Sanjay Bhandari just to name a few.

Before being taken into custody by the ED, YES bank founder Rana Kapoor was camping in London. Had an intricate entrapment by Indian agencies not succeeded in luring him back into India, he would have joined the list of fugitive financial fraudsters who are living the high life in the United Kingdom (UK). Among the hundreds of entities that the Sandesara brothers of the Stearling Biotech group incorporated many were in the UK and British Virgin Island among other places.

Barring Kapoor, all these businessmen facing charges are subjects of extradition effort by the Indian Government to return to India to face charges of financial crimes.

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Foreign safe havens

India and the UK signed an extradition treaty in 1992. Since then the UK has accepted only two requests for extradition of a fugitive living in that country. All other requests remain pending till date. Extradition proceedings are slow in the UK. Most of the extradition cases involve high value economic offenders.

The country has become an attractive destination for financial or other fugitives because of the inadequate scrutiny and limited number of restrictions on establishing a business. Until now the so-called tax havens were usually small countries with access to larger markets. But the past few years has seen the UK becoming the most significant tax haven, and the preferred destination for laundering money. The Corporate Tax Haven Index, published by the Tax Justice Network, has identified the UK and its controlled network of satellite jurisdictions as most responsible for the breakdown of the global corporate tax system. While the UK ranks 13th its Overseas Territories and Crown Dependencies dominate the top of index. The British Virgin Islands, Bermuda, the Cayman Islands and Jersey ranked 1st, 2nd, 3rd and 7th respectively. Bahamas, a British Commonwealth territory, ranks at 9th place. Former British colony Hong Kong, which maintains close ties to the former mother country ranks 10th on the tax haven index. From Guernsey to the Bahamas, Singapore to Anguilla, many of the world’s major tax havens are either current or former British Overseas Territories in one form or another. 

Nearly 14% of foreign direct investment reported by the International Monetary Fund – over $6 trillion – is booked in the UK network, where the lowest available corporate tax rates averaged 1.73%. Post Brexit the UK is becoming more aggressive in trying to lure international investment by lowering corporate taxes, which boosts government revenue because the profits which escape tax have almost all been earned overseas. The ease with which a company can be established is frequently exploited by criminals who set apparently legitimate companies both within UK and offshore, but which are primarily a mechanism for laundering illicit funds. The property market is another route exploited by criminals, particularly in London. Money laundered in the UK is often the proceeds of crime generated in another country; large financial centres are attractive destinations or transit points for the proceeds of crime.

In order to deal with the growing number of fugitive economic offenders, in 2018 the Fugitive Economic Offenders Act was passed by parliament to allow confiscation of the properties and assets of the offenders that evade prosecution by remaining outside the jurisdiction of Indian courts. UK’s departure from the European Union and the new political will in both countries to enhance criminal co-operation could mean that this is a right time to improve the current extradition situation. But there are extreme right-wing advocates in the UK who have in fact begun campaigning for eliminating corporate income tax altogether in the hope it will boost investment and jobs. This could affect extradition processes, making it more difficult to bring economic offenders’ home.

Nirav Modi. Photo: Nirav Modi Jewels/Facebook

Major hurdles

In an earlier hearing Nirav Modi, told a UK court that he would “kill himself” if he was extradited to India. His barrister informed the court of an attack on Modi by two inmates, “It is obvious that it was a targeted attack following renewed media coverage recently in which Modi is wrongly referred to as a billionaire diamantaire,” said Keith, accusing the Indian government of having “thoroughly blackened” Modi’s name as a “world-class schemer”. Alluding to Nirav Modi’s medical report associated with his bail application, his lawyer also accused the Indian government of leaking it to the media. This influenced chief magistrate Emma Arbuthnot at Westminster Magistrates to state: “It is very unfortunate indeed that the doctor’s report was leaked. It should not happen and would undermine the court’s trust in the government of India, if indeed that emerges to be the source of the leak.”

Extradition from the UK has been hitting a wall because either general extradition requirements are not met or that the applicable bars to the process are successfully invoked. In all the cases the respective defence teams have sought to malign the Indian authorities by accusing it of bad faith and egregious behaviour. 

Article 9 (c-iii) of the Extradition Treaty between India and the UK recognizes “accusation against him not having been made in good faith” as ground to refuse extradition. Vijay Mallya’s defence team has resisted extradition by manipulating article 9 and asserting that the Central Bureau of Investigation is not independent and is often influenced by the government and hence proceedings against him would be oppressive and unjust. His lawyer also argued that the poor conditions in Arthur Road Jail in Mumbai will be tantamount to inhuman and degrading treatment. 

The extradition of bookie Sanjeev Kumar Chawla was held up for a long time on the grounds that the conditions in Tihar Jail in Delhi were appalling and detention there would amount to a violation of human rights. He was finally brought back to India in February 2020 in the first high-profile extradition of its kind under the India-UK Extradition Treaty, signed in 1992. 

Sanjeev Chawla extradited to India. Photo: PTI

After the success in bringing back Sanjeev Chawla, there is an understanding that assurances regarding prison conditions and timely paperwork are crucial is securing the extradition of criminals. Lessons learnt by the government on proper assurances about prison conditions, human rights and establishment of prima facie case are beginning to yield results.

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Most recently, a report said the ED is approaching counterparts in the UK to execute a provisional attachment order, trying to prevent the sale of a Rs 127-crore London flat of Yes Bank co-promoter Rana Kapoor by seizing it under the Prevention of Money Laundering Act (PMLA). 

Vijay Mallya’s contentions regarding prison conditions in India were declined by the Magistrate’s Court following which the British Secretary of State also approved his extradition. On April 20, 2020 his appeal to the high court and later to the Supreme Court was also dismissed. Yet to be extradited his only chance of escape lies with the European Court of Human Rights.

Although assurances can achieve extradition, the real test for Indian judiciary lies in ensuring that substandard prison conditions are amended. Mere assurances without actually providing better conditions, may in future be the basis of lack of trust, only to be used as a case in point by other fugitives to the UK.

Over and above this, the India-UK extradition law and practice needs reform. This is particularly acute as regards the rendition of persons from the UK to India. The UK doesn’t require an individual to hold a valid passport in order to remain in the country if their passport was valid when leave to remain or enter the UK was conferred. Cancellation of passport by the GoI does not result in automatic deportation by the UK. 

While there is a need to match treaty obligations with domestic enforcement laws, and assurances of human rights obligations, the fact remains that for now UK’s soft approach towards extradition hearings has made it a new sanctuary for economic offenders. It becomes pertinent to ponder whether the UK has used the easiest route, of becoming a money launderers’ haven, to attract investment. The number of Indian requests especially given the nature of the crimes demands reform as extant law and practice is being exploited by economic offenders.

Vaishali Basu Sharma has worked as a consultant with the National Security Council Secretariat (NSCS) for several years, and is presently associated with the think tank Policy Perspectives Foundation.