In this article, Sachin Vats of Rajiv Gandhi National University of Law discusses the impact of Panama leaks on India.

Panama Papers: Impact on India

The whole world was suddenly flooded by the several big names being accused of storing unaccounted wealth in tax havens in various forms after the Panama Paper leaks. The list included the names of the twelve world leaders who are either serving or ex-heads of the States. Some prominent names are Vladimir Putin (the President of Russia), the Prime Minister of Pakistan Nawaz Sharif, the Chinese President Xi Jinping and former PM of Pakistan Benazir Bhutto and others.

The allegation that was made in the Panama Papers leaks that Mossack Fonseca helped the investors in establishing offshore companies in tax havens countries to evade tax in their respective countries. So, all these activities were done in the garb of providing legal consultancy in financial matters.  

What is Panama Paper all about

• The Panama Papers is an international collaborative project of around 400 journalists from more than 100 media organisations in over 80 countries who worked on an unprecedented leak of 11.5 million files. These files are the records of the database of the Panama-based  world’s fourth biggest offshore law firm named “Mossack Fonseca”.

• The records were leaked by the German newspaper “Suddeutsche Zeitung” which was obtained from an anonymous source not yet known. The German newspaper shared them with the International Consortium of Investigative Journalism (ICIJ).
• The International Consortium of Investigative Journalism then shared those papers with a large network of international partners including the Guardian and the British Broadcasting Corporation (BBC).The leaked data ot total size 2.6 terabytes contained 11.5 million documents of Mossack Fonseca firm which helped the investors around the world to evade tax, launder money and others.

What is there in the leaked Panama Papers

• The data which was leaked mainly comprises of emails, pdf files, photo files and excerpts of an internal Mossack Fonseca database from 1970 to 2016. The information revealed was about, how overseas industry led by major banks, legal firms and asset management companies secretly manages the assets of the world’s rich and famous personalities from politicians, fraudsters, FIFA officials, drug smugglers to celebrities and professional athletes.
• It provided a clear picture of how Mossack Fonseca routinely accepts investment and money from world’s rich and famous people to engage in business activities that potentially violate laws of many countries, besides helping and abetting tax evasion and money laundering.

What is Mossack Fonseca and its work?

“Mossack Fonseca” is a Panama based law firm which provides services that includes incorporating companies in offshore jurisdictions such as the British Virgin Islands. It provides administrative and wealth management services. It is the world’s fourth largest offshore services provider and acted for more than 300,000 companies. The law firm has strong connection with the United Kingdom as more than half of the companies are registered in British administered tax havens.

• Mossack Fonseca is specialised in setting up offshore shell companies in tax havens around the world. An overseas address is provided to the company which cannot be traced to the beneficial owner.

The offshore companies do not have any significant assets or operations. They exist on paper only and serve as basis for the other business transactions. They actually provide anonymity and its ultimate ownership is difficult to trace. It helps in evading taxes and launder money.

The using of offshore services is entirely legal. The business people in countries such as Russia and Ukraine typically put their assets offshore to protect themselves from the criminals and keeping hard currencies with them. So, it is done in the legitimate way and with reasonable cause. Many people use offshore for inheritance and estate planning.

The Involvement of the Indians

The Indian Express which was the partner of the International Consortium of Investigative Journalists project on the Panama Paper Leaks has revealed the names of over 500 Indians in its report after the 8 months long investigation of over 36,000 files. The list shows the names of corporate figures like the DLF owner K P Singh and nine of his family members, the Indiabulls Sameer Gehlaut, Vinod Adani who is also a businessman and elder brother of Gautam Adani. The name of the India born Dutch businessman Ratan Chadha who is the founder of the Mexx clothing is also there..

• The list contains the names from big businessmen to celebrities of Bollywood and politicians. Big names from bollywood are Amitabh Bachchan, Aishwarya Rai Bachchan. Two politicians who figure on the list are Shishir Bajoria from West Bengal and Anurag Kejriwal, the former chief of Delhi unit Loksatta Party.
• Mohan Lal Lohia, Abdul Rashid and others are also named in the list revealed by the Panama Papers leak. The list also shows the addresses of businessmen in Panchkula, Dehradun, Vadodara and Mandsaur. It also includes cricket franchise deals and linkages of those people who are already under the scrutiny of the Central Bureau Of Investigation and Income Tax department.
• The allegation against Indians is that they set up their offshore companies long before the rules were changed and their intention was to place foreign exchange in a tax haven. It was only in 2013 that individuals were allowed to set up subsidiaries or invest in joint ventures under the Overseas Direct Investment window.

Violations of Indian Laws Under Panama Papers Leak

There are mainly laws which are being violated in Panama Papers case which have been found under the investigation,

1. The Incorporation of Companies Overseas.
2. Acquisition of the majority shares of overseas companies in contravention of FEMA rules.
3. Violation of RBI’s Liberalised Remittance Scheme.

According to Indian laws, Indians could not incorporate companies outside India because remittances to foreign countries were not allowed before 2004. The Reserve Bank of India in 2004 introduced a scheme called as Liberalised Remittance Scheme which permitted individuals to remit upto $250,000 in phases. The remittances could be for various purposes like medical, gifting, buying shares, etc. But, the Reserve Bank of India allow individuals to specifically set up a company.

• The people were facing with a lot of confusion on this issue. So, the Reserve Bank of India came up with a notification in the year 2010 that though Liberalised Remittance Scheme allows for buying shares, it specifically prohibits setting up of companies abroad by individuals.
• The Reserve Bank of India came up with another notice in 2013 in which it allowed resident Indians to invest directly in joint ventures and through the Overseas Direct Investment route. So, the setting up of a company overseas by Indian can be considered legal only if it was done after the year 2013.

The Supreme Court on Panama Leaks

Advocate Manohar Lal Mishra filed a PIL before the Hon’ble Supreme Court to probe independently against all those whose names were revealed in the Panama papers. The allegation was made against 500 Indians including celebrities and industrialists. They parked their funds in offshore accounts and they need to be prosecuted. It was pleaded that the Centre was not inclined to proceed against them and sought Court monitored investigations against them.

A bench headed by Justice Dipak Mishra and comprising of Justice A.M. Khanwilkar and Justice M.M. Shantanagoudar asked Assistant Solicitor General PS Narasimha to seek instruction on whether a separate SIT can be tasked to probed the Panama Papers leaks, besides Multi-Agency Group (MAG) set up by the government to probe into the black money case. The Supreme Court decided that the probe into these cases are not like normal crime incidents as it involved various aspects, like treaties with foreign countries, agreements for disclosures, etc.

Constitution of Multi-Agency Group by the Central Government  

• The central Government constituted a Special Investigation Team (SIT) on Panam Papers leak. The government has constituted a Multi-Agency Group on 4th April, 2016 for facilitating coordination and speedy investigation in the cases of Indian Person’s allegedly having undisclosed foreign assets and whose names are reportedly included in Panama Papers leak.
• The MAG consist of the officers of Investigation Division of the Central Board of Direct Taxes (CBDT), Enforcement Directorate (ED), Financial Intelligence Unit (FIU) and Reserve Bank of India (RBI). The convenor of the MAG is one of the member of the investigating team from CBDT.
• It has been asked to report the progress in such cases on regular basis. The investigation team has been ordered to conduct a time bound enquiry in the Panama Papers leaks. The Government has taken necessary measures for expeditious investigation in such cases including through enhanced international cooperation.
• The members of the Multi-tasking Agency which is headed by the CBDT have informed the Government that of the 415 Indians out of which 71 are NRIs. 184 have admitted that they incorporated the offshore entities listed against their names. The CBDT has found 70 people as ‘not traceable’.
• The Income Tax Department has sent over 250 requests to the British Virgin Islands and about 20 to Switzerland. The responses have been received in about 100 of the requests sent.

The Mother of all Leaks

The Panama Papers Leaks is called as the biggest ever leak in the history. It contains data of around 2.6 terabytes which is greater than adding all previous leaks. In 2010, the Wikileaks provide the data of around 1.7 GB about the United States Diplomatic Cables. The ICIJ in 2013 leaked the data about offshore leaks which was 260 GB and about the Swiss leaks in 2015 which was around 3.3 GB of data. The International Consortium of Investigative Journalists in Luxembourg leaks provided the data of around 4 GB in 2014. So, the Panama Papers leak is the biggest leak ever. It is bigger than the leas done by Wikileaks in 2010 and the secret intelligence documents given to journalists by Edward Snowden in 2013.      

Conclusion

We cannot come to the conclusion right now only after seeing the name of the people. The investigation in the case is at preliminary stage. The Washington-based organization International Consortium of Investigative Journalists has clearly displayed on its websites that it should not be assumed that everyone who appears in the Panama Papers is involved in tax avoidance or evasion. There are legitimate reasons to create a company in an offshore jurisdiction and many people declare them to their tax authorities when that is required. So, in view of the above, the further course of actions depend upon the outcome of the investigation.