Citizens' Issues
Piracy at sea and the commerce behind it –Part 2

It is open knowledge in financial circles that the real strength behind ocean piracy, and the hijack for ransom, is the money laundering business

Is it possible that the merchant seafarers from India do not make enough of a noise about piracy to protect the interest of insurance companies and benami ship owners hiding behind their tax havens? In addition, the underlying sentiment could be that if the Indians keep quiet, getting cheaper seafarers from other countries would not be too difficult either.
Consider the issues that affect India most. First, there is a full-scale invasion and war going on right next door in the Horn of Africa. The Somalians are bound to retaliate against the Kenyan attack. And they will possibly assume that India is supporting Kenya, since the Indian Navy will be responsible for protecting sea lanes while the NATO and EU forces will be free to assist Kenya. Meanwhile, the cost of sea-trade, which accounts for over 92% by value and more by weight/volume of India's export/import trade, is going to go through the roof and make us less competitive.
What are the solutions?
To start with, the Indian government must speak only to real ship-owners and not their agents or nominees. In addition, the real owners need to be identified publicly and held liable for their ships and the lives of their seafarers. When that happens, a large number of "real pirates" will be exposed, and they will not be in fancy dress like Johhny Depp either. This can happen only if the Indian Government starts doing what other developed country "world class" regimes do!
So far, the pirates have not captured any ship with armed guards onboard. In the short term, armed guards onboard merchant ships in the Indian Ocean would work, but it is a question of time before the pirates are armed better. Once that happens, no amount of mercenaries onboard with Kalashnikovs and some ammunition will be able to fend off pirates. There are reports of pirates acquiring long-range rocket propelled grenades and missiles. However, legal issues, such as the right to innocent passage of armed merchant ships will remain.
In the short to mid-term, ship-design will have to go through some rapid improvements like "hardening" ships and making them more resilient. The idea being that unless the pirates are determined to sink the ship, which negates the whole point of piracy and hijack, it would make sense to prevent pirates from boarding and the crew hostage. This will give the navy time to arrive and launch recovery operations as in the case of the mv MONTECRISTO on the 10th/11th of October 2011. European ship-owners are already bringing about these changes but domestic ship owners and shipping authorities are not even considering such an idea.
In the long-term, however, some bitter medicine will be needed. Bluntly speaking, financial circles know that the real strength behind ocean piracy worldwide is the money laundering business. It is the darling of all tax havens. Prominent banks, insurances, consultants and ship owners of the world operate from these havens. They make for a closed circle in the business of shipping where human life is just an inexpensive and disposable issue.

Piracy has always been an integral part of shipping. But instead of Johhny Depp in fancy costume, the power behind the pirates are probably dressed in Savile Row suits. The long term solution has to lie here. Merchant ships have, by convention and by established law have to be protected by war-ships of their flag state anywhere, especially in international waters. Whether it was British gunboats sent into China past Canton to protect opium clippers flying the British flag; or the US Navy sent to rescue the Master of the pirated and hijacked MAERSK ALABAMA; or it could be Indian warships protecting Indian flag oil-rigs in the South China sea off Vietnam;– in all these cases the rules remain the same.
In modern merchant shipping, a large number of ships are registered in what are known as "flags of convenience" or "FOC". For example, over 98% of Greek owned ships trading internationally are believed to be registered under these FOCs. Likewise, many ships of owners in developed countries, ply under these FOCs. The reasons are many - tax avoidance, cutting potential liabilities, hiding ownership where nationality comes in the way - eventually, because it makes sound commercial sense.
Nevertheless, all this comes at a price. These tax-havens do not have a state navy to protect their ships in international waters. Often, the real owner is hidden behind three or more layers of investment entities or tax havens, none of which are protected by a national navy. The Swiss flag, for example, loved by some of the largest ship owners in the world, or the newly emerging Mongolian register are land-locked countries. Even those with ports and coastlines, like Liberia, Panama or Bahamas who have links or allegiance to larger countries with a proper navy cannot protect their ships in international waters. Pirates know this.
The long-term solution to this lies in the world reverting to ships flying the flag of their own nationality – this will happen when owners and companies do not hide behind numbered accounts in tax havens.  It is the only way to ensure a sustainable solution and safe commerce via the high seas. Until then, a seafarer from a poorer country will continue to be at the bottom of the food chain and will risk his life for a livelihood. That is a simple truth.
Meanwhile, copycat piracy attacks gain speed and strength in other parts of the world: South China Sea, West Africa, Bay of Bengal, Malacca Straits, South America East Coast . . .  the list goes on.

(This is the concluding part of the two-part series)

You may also want to read:

Piracy at sea and the commerce behind it –Part 1


Union KBC Asset Allocation Fund, an open ended hybrid scheme. Is it worth it?

Similar schemes have had mixed success in the past

Union KBC Asset Allocation Fund is just like any other asset allocation fund. It will invest in equities, debt instruments and gold exchange-traded funds (ETFs). There will be separate plans, aggressive, moderate and conservative. Over the past two years, we have had a new class of mutual fund schemes that offer to allocate your capital into equity, bond and gold so that you don’t miss out on a class of asset that is doing well. For instance, the equity market has gone down sharply and gold has glittered over the past year, an asset allocation fund like the one Union KBC is offering would have done better than an equity fund or a bond fund.

For aggressive plan: The scheme will invest 55% to 75% of the assets in equity and equity related instruments, 5%-25% will be invested in debt & money market instruments and up to 20% in gold ETFs.

For moderate plan: The scheme will invest 20% to 40% of the assets in equity and equity related instruments, 40%-60% will be invested in debt & money market instruments and up to 20% in gold ETFs.

For conservative plan: The scheme will invest 15% to 25% of the assets in equity and equity related instruments, 55%-85% in debt & money market instruments and up to 20% in gold ETFs.

Benchmark Index: The plan-wise customised benchmark Index is as follows:

Aggressive plan: 70% S&P CNX Nifty (+) 15% CRISIL Composite Bond Fund Index (+) 15% CRISIL Gold Index. Moderate plan: 30% S&P CNX Nifty (+) 55% CRISIL Composite Bond Fund Index (+) 15% CRISIL Gold Index. Conservative plan: 15% S&P CNX Nifty (+) 70% CRISIL Composite Bond Fund Index (+) 15% CRISIL Gold Index.

How have such funds done in the past? Canara Robeco InDiGo, Peerless MF Child Plan and Axis Triple Advantage have given returns of 14%, 9%, and 9%, respectively, since inception. But Fidelity India Children’s Plan - Marriage Fund, ING Optimix Financial Planning Fund - Prudent and ING Optimix Financial Planning Fund - Aggressive have managed returns of 2%, 2% and -1%, respectively, since inception. Thus, investors are dependent on the great market-timing skills of the fund manager to magically move in and out of equities, bonds and gold.


Citibank fraud: I-T initiates re-assessment of investors

The I-T department’s various tax assessment wings will undertake the process of re-checking of I-T returns and issuing subsequent notices after a high-level probe by its investigation wing found ‘capital gains’ at the hands of some of the high-networth individuals

New Delhi: In a double whammy for investors who lost their money in the Rs400 crore Citibank Gurgaon scam as the Income Tax (I-T) department has initiated a re-assessment of tax returns of these people to ascertain whether the money invested was reflected in their annual returns.

The department’s various tax assessment wings will undertake the process of re-checking of I-T returns and issuing subsequent notices after a high-level probe by its investigation wing found ‘capital gains’ at the hands of some of the high-networth individuals (HNIs).

“The various I-T ranges where these HNIs are assessed will begin a fresh check on the tax returns. They may also be summoned for questioning and production of additional documents from the assessment year 2009-10,” a senior I-T official said.

A capital gain is a profit that results from investments into stocks, bonds or real estate and is taxable under special rates.

A Gurgaon court has recently framed charges against former Citibank relationship manager and alleged mastermind of the scam Shivraj Puri and various others.

Different I-T offices including one in Chandigarh were involved in the probe to ascertain the flow of money and check if taxes have been evaded by these individuals—by way of non-reporting the funds that they put in the ‘investment scheme’ or by Mr Puri who is alleged to have duped them.

Several depositors and HNIs were duped in the Rs460.91-crore fraud.

Mr Puri is said to have perpetrated the fraud by mobilising these funds in an unauthorised manner from customers and certain companies for the purpose of investing in stock market.

Mr Puri is also alleged to have fabricated a circular of the SEBI to lure people into investing into accounts held by his accomplices Premnath, Shiela Premnath and Deeksha Puri.

The fraud came to light after the bank looked into a query from a customer at Citibank’s Nehru Place branch here about its scheme offering high returns.

After discovering the fraud, the Citibank on 5 December 2010, filed a complaint with the Gurgaon police which is investigating the case.

The entities whose funds were diverted by Puri into the accounts of his relatives include Hero Corporate Services (Rs13.75 crore), OKS Sapan Tech (Rs2 crore) and Satyam Auto (Rs25 crore).

Also, Mayar Infratech (Rs24 crore), Spaid (Rs62 crore), Karopat Pad (Rs8 crore), Sunil Kant and Sons (Rs3 crore), Aero Infratec (Rs25 crore), Hero Exports (Rs97 crore), Rekha Munjal (Rs5 crore), Munjal Investments (Rs2.5 crore) and Munab Braej (Rs71 crore) fell prey to the scam.


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