Thursday, 2 April 2020

Much ado about Panama Papers disclosures

Updated: April 20, 2016 10:09 am

Bachchan is the one big name to cause so much flutter from night shelters to night clubs. Shocked as if bolt of lightning had hit the world was the unprecedented reaction to the revelation of names of celebrities, industrialists and politicians holding bank accounts in tax havens. It came out of 11 million leaked documents—called Panama Papers — of Panama-based law firm Mossack Fonseca, which  helped many, including 500 Indian companies set up accounts in tax havens around the world. This one is the biggest leak ever in the world and it is for the first time that senior politicians in the west have been named.

Leading the list is a friend of Russian President Vladamir Putin, which, observers said, meant that actually the account was a nest for Putin. The Russian President has denied and promised to take action. But Iceland’s Prime Minster has reigned pending inquiry. British Prime Minister’s relatives have also figured in the list. But the west has not shown any alarming signs. The media has not taken up the matter, the opposition has not cried itself hoarse, most have treated the exposure as  personal matter of those named.

In India, we find that unlike in the past when lists surfaced  from Germany, Luxembourg and Switzerland, apart from a bit of flutter in the media and the upper middle class no one even noticed the ‘revelations’, this time it seems the whole country is interested to know the truth. Are those named guilty or not?

The reason for such unprecedented interest was apparently because of two names in the list—the living legend and one of the most respected person in the world Amitabh Bachchan and Aisharwarya Rai, the most known face in the world. Others in the list include Garware family, Harish Salve, Zavaray Poonawalla, Mohan Lal Lohia, KP Singh of DLF, Iqbal Mirchi but these names do not came much interest.

The opinion on these holdings cannot be formed until we refer to the Liberalised Exchange Rate Management Scheme (LERMS) introduced in 1991. Until then anyone going abroad from here could carry only $500. But subsequent to it one could carry up to $500 a day. As foreign exchange reserves continued to improve, liberalisation became more liberal.

Over the years many circulars have been issued and Indians can now deposit money, which has been taxed here, in a foreign bank for buying shares, securities and partnerships. One restriction is that they cannot buy a company on their own.


What Panama Papers Reveal


As per RBI norms, no Indian citizen could float an overseas entity before 2003.  In 2004, for the first time individuals were allowed to remit funds of up to $25,000 a year under the Liberalised Remittance Scheme, and this limit stands at $250,000 a year now.

But while RBI let individuals buy shares under LRS, it never allowed them to set up companies abroad, having clarified it through an FAQ mid-way in September 2010.

In most of the cases in The Panama Papers, companies were set up long before the rules were changed and the purpose, experts said, was to park foreign exchange in a tax haven. It was only in August 2013 that individuals were allowed to set up subsidiaries or invest in joint ventures under the Overseas Direct Investment window.

Indeed, records investigated reveal detailed correspondence between Indian tax authorities and those in British Virgin Islands, Seychelles, Panama or other tax havens seeking shareholder, bank account and asset details of offshore companies set up by Mossack Fonseca for Indians.

It is revelatory that authorities in these tax havens had no choice but to depend on Mossack Fonseca for information since, unlike India, the government is not a repository of ownership details.

The Panama Papers come at a time when the Special Investigating Team (SIT) on black money headed by former Supreme Court Judge M B Shah is finalising its new action-taken report.

The formation of the SIT was the very first decision taken by the Narendra Modi Government in May 2014.

The treasure trove of records was accessed by Munich-based newspaper Suddeutsche Zeitung which a year ago collaborated with the International Consortium of Investigative Journalists (ICIJ) and, in turn, with over 100 media organisations to investigate its contents.

In July 2015, The Indian Express signed an agreement with ICIJ for being the Indian partner for The Panama Papers project. Since then, a team of 25 reporters, led by the newspaper’s investigative team, joined 375 journalists in 76 countries.

Scouring electronic databases of documents registered in tax havens, joining digital dots (emails, PDF and TIFF files with one document sometimes yielding attachments with hundreds of pages of correspondence, agreements and contracts), cross-referencing company data with lists of names, The Indian Express reporters did field visits across the country to check on addresses mentioned in these records.

The Indian Express claims to have asked each one named whether they had informed RBI or the Income Tax department about these companies. The results of that investigation tell a story that’s as much about draconian foreign investment laws as it’s about glaring gaps in the regulatory apparatus.

The Mossack Fonseca data contains details of entities set up almost four decades ago from 1977 up to those registered just four months ago, that is, December 2015. Clearly, it covers the period when India began signing tax agreements with other countries to accelerate cooperation on undisclosed and untaxed assets. And the years when tracking black money has become the centre of political and economic discourse.

The worldwide expose also comes just six months after the 90-day “compliance scheme” for declarations of offshore assets and accounts ended on September 30, 2015 and brought just Rs 3,770 crore from 637 declarants.

The window now closed, strict penalties and a jail term have been announced for anyone found to have undisclosed and undeclared foreign assets and accounts.


The disclosures have been made without any explanation from the Indians named. But most have responded and explained.  Big B and his daughter-in-law Aishwarya Rai have made independent statements.

But Indian Express holds: More than 11 million documents have been unearthed from the secret files of Mossack Fonseca, a law firm headquartered in tax haven Panama, known for its factory-like production of offshore companies for its worldwide clientele of the well-heeled. These records reveal a list of individuals who have paid the firm — and bought the benefits of the secretive, lax regulatory system in which it operates — to set up offshore entities in tax havens around the world.

And Mossack Fonseca’s eagerness to meet their demands, each one for a fee, helps mask real ownership, seeks to shows its compliance.

Over 500 Indians figure on the firm’s list of offshore companies, foundations and trusts. There are also 234 Indian passports (handed over by clients as part of the incorporation process), as an eight-month-long investigation of over 36,000 files by The Indian Express has revealed. Of these, The Indian Express claims to have checked the authenticity of over 300 addresses.

From film stars Amitabh Bachchan and Aishwarya Rai Bachchan to corporates including DLF owner K P Singh and nine members of his family, and the promoters of Apollo Tyres and Indiabulls to Gautam Adani’s elder brother Vinod Adani the list seems infinite. Two politicians who figure on the list are Shishir Bajoria from West Bengal and Anurag Kejriwal, the former chief of the Delhi unit of Loksatta Party.

“ With Mumbai ganglord the late Iqbal Mirchi, the list includes scores of businessmen with addresses in nondscript neighbourhoods in Panchkula, Dehradun, Vadodara and Mandsaur. Addresses of individuals, in many cases, The Indian Express found out, led to physical locations, but with no trace of the individual. Or, as in one case, belonged to a tenement in a chawl in Mumbai.

Not just individuals, a close scrutiny of The Panama Papers by The Indian Express also reveals details of hitherto unknown deals, in some cases involving the government, too. These include cricket franchise deals and, in several cases, linkages to those who have previously been under CBI or Income Tax scrutiny.

By Vijay Dutt

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