Bhargav Chetankumar Thakkar

BACKGROUND OF PANAMA PAPERS

On 3rd April, 2016 first news story was published by the German newspaper Süddeutsche Zeitung (SZ), about Panama Papers, leak of 11.5 Million documents and files from the records of one of the best offshore Law firms of the world i.e. Mossack Fonseca established in Panama. Though the trail of the event is from way back in 2014 when “John Doe”, (a pseudonym used by anonymous) the whistleblower contacted a reporter of Süddeutsche Zeitung (SZ), Bastian Obermayer. After the contact John transferred around 11.5 million documents, which consist details of financial and attorney-client information, of Panamanian law firm and corporate service provider Mossack Fonseca, for more than 214,488 offshore entities. As the data received was huge consisting chunk of files, SZ asked the International Consortium of Investigative Journalists (ICIJ) for help. The analysis of the law firm operation from the data began by Journalists from 107 media organizations in 80 countries which took more than a year.      

The Database showed how the rich and powerful clients of Mossack Fonseca were able to launder money and avoid huge tax liabilities. In one of such cases, the Law Firm offered an American fake millionaire ownership records to hide money and evade tax from the Authorities. This has attracted direct breach of International regulations and treaties, which were designed to stop tax evasion and money laundering worldwide. It is one of the major leaks in the history of World economy.

WHAT IS THE ROLE OF THE OFFSHORE LAW FIRM

An offshore Law firm undertakes the work of incorporating and selling anonymous offshore companies around the world to its clients. Such companies which commonly known as shell Companies are used by their promoters to hide their big business deals. Such business deals can be illegal or illegitimate but are without any active business operations and noteworthy assets. Such Companies have many offices all around the world.

The major work of the offshore law firm is managing to find and sell the thousands of Companies and thus making a huge amount of profit by helping its client to hide its black money and evade tax liability. It helps its clients in furtively maintaining a maze of accounts to ensure the secrecy of their money and thus converting the black money into white money or evasion of tax. These Offshore Law Firms makes it very easy and convenient for its clients to find and float an offshore company by selling its shell companies across the world in different cities.

They ensure that their clients get a bucket full of services in their minimal fees of say $1000. Their bucket of services include selling of shell companies at cheaper rates, appointing a fake director for such company and also help in hiding the real stakeholders of the company if desired by the client. Thus, overall identity of the Company is concealed.

WHO IS MOSSACK FONSECA

Mossack Fonseca is a Law Firm established and based in Panama a country in Central America. The Firm is into the business of providing its clients with services relating to selling and maintaining shell companies around the World. The Firm can be said to be a concierge to its clients along with maintaining their secret money. The Firm clientele includes mafias, dons, drug dealers, big/ corrupt politicians, entertainers who are tax evaders and another businessperson who are willing to evade tax liability.

WHAT IS THE DATABASE ALL ABOUT

The database contains identity information of shareholders and directors of more than Two Lakh shell companies, set up by Mossack Fonseca and some of their financial transactions. According to ICIJ most of the transactions though are legal; there seem some transactions which are at least ethically wrong if not legally, due to incomplete data the same cannot be verified. Though the offshore shell companies’ transactions as provided in the database seemed to have broken various laws and trade sanctions.

The database contains such financial transaction details of many of the public figures including world politicians, sports persons, artists, etc. these public figures are from more than 200 countries including India. It further shows how wealthy people keep personal financial details private to themselves.

THE NEED BEHIND SUCH FINANCIAL TRANSACTIONS

Most of the transactions turn out to be entirely legal though ethically wrong, amongst them the prime reason turn out to be is tax havens. Tax Haven is the country whose banking infrastructure is of such manner which provides service to such people or business with very little or no disclosure of information of such financial transactions on very low tax rate. This saves person from disclosing the details of transaction and also low tax in compare to the home country. The other reasons for such transactions are money laundering, hiding undeclared income offshore, routing of funds to the non-friendly countries, raise foreign capital when it’s against the law of the land, fraud, kleptocracy, tax evasion, evading international sanctions etc.

PEOPLE NAMED IN THE PAPERS

The papers included the name of the high ranking political figures their relatives, celebrities and business figures. Among many some must mention names are, who were then-current national leaders, including President Khalifa bin Zayed Al Nahyan of the United Arab Emirates, Petro Poroshenko of Ukraine, King Salman of Saudi Arabia, and the Prime Minister of Iceland, Sigmundur Davíð Gunnlaugsson.

Former Heads of State Mentioned in the Papers

Sudanese president Ahmed al-Mirghani, who was president from 1986–1989 and died in 2008. Emir of Qatar Hamad bin Khalifa Al Thani owned Afrodille S.A., which had a bank account in Luxembourg and shares in two South African companies. Al Thani also held a majority of the shares in Rienne S.A. and Yalis S.A., holding a term deposit with the Bank of China in Luxembourg. A relative owned 25 percent of these: Sheikh Hamad bin Jassim Al Thani, Qatar’s former prime minister and foreign minister.

Former Prime Ministers

Prime Minister Bidzina Ivanishvili of Georgia, Pavlo Lazarenko of Ukraine, Prime Minister Ayad Allawi, also a former VP of Iraq, had Mossack Fonseca supply a nominee to stand in for him and screen his identity as owner of the Panama-registered company IMF Holdings. The organization was liquidated in 2013 and possessed a $1.5 million house close to London. An another offshore company, Moonlight Estates, enlisted in the British Virgin Islands, additionally held a property in London for his benefit. His media contact confirmed his sole ownership for two organizations and of Foxwood Estates also, saying IMF was set up to possess land on legitimate guidance for security after an assassination attempt, and including that any income was accounted for and taxes paid “promptly and timely manner”.

• Ion Sturza of Moldova.
• Ali Abu al-Ragheb of Jordan.

The leaked files identified 61 family members and associates of prime ministers, presidents and kings, including:

• The brother-in-law of China’s paramount leader Xi Jinping
• The son of Malaysian Prime Minister Najib Razak
• children of Pakistani Prime Minister Nawaz Sharif
• children of Azerbaijani President Ilham Aliyev
• Clive Khulubuse Zuma, the nephew of South African President Jacob Zuma
• Nurali Aliyev, the grandson of Kazakh President Nursultan Nazarbayev
• Mounir Majidi, the personal secretary of Moroccan King Mohammed VI
• Kojo Annan, the son of former United Nations Secretary-General Kofi Annan
• Mark Thatcher, the son of former British Prime Minister Margaret Thatcher
• Juan Armando Hinojosa, the “favourite contractor” of Mexican president Enrique Peña Nieto.
• Spanish Royal Family: Infanta Pilar, Duchess of Badajoz and her son Bruno Gómez-Acebes, Iñaki Urdangarín, Amalio de Marichalar, and people close to the family like the mistress of former King Juan Carlos I, Corinna Larsen

HOW THE LEAK SHOOK INDIA

Bollywood actor Amitabh Bachchan, Aishwarya Rai Bachchan and actor and producer Ajay Devgan are recorded in the papers. Bachchan has denied any association with abroad organizations, and a representative of Rai likewise questioned the records legitimacy. Bachchan repeated the refusal in response to the 21st August report that he was recorded as a director of two organizations and took part in the board meetings of such organisations.

Further papers provided names of popularly known businessman names, a real estate developer and DLF CEO Kushal Pal Singh, Sameer Gehlaut of the Indiabulls gathering, and Gautam Adani’s senior sibling Vinod Adani. Share price of the two companies fell after the revealing their name in the papers, and thereafter of the Apollo Tires, which had likewise been specified. DLF said it had invested into existing abroad organizations in consistency with the LRS Scheme set up in 2004 and revealed this to the Indian revenue department. An Apollo representative said that the relatives of Chairman Onkar Kanwar who had been accounted for as owning offshore organizations did not live in India and had informed and complied with the law where they were compiled to inform. Gehlaut said he had paid full charges and made necessary compliance.

Indian government officials on the rundown incorporate Shishir Bajoria from West Bengal and Anurag Kejriwal, previous head of the Delhi Lok Satta Party. Bajoria said he possessed two other Isle of Man organizations however not the one attributed to him in the leaked papers. Corporate administrations supplier First Names Group confirmed that they had mistakenly given their data to Mossack Fonseca. MF records indicate Kejriwal as executive of three offshore organizations situated in the British Virgin Islands (BVI), and holding two private establishments in Panama and energy of lawyer of another BVI organization. He recognized having had seaward organizations, however, said he close them down after a brief timeframe.

The name of late drug king Iqbal Mirchi has additionally surfaced in the papers. Around 500 Indian residents seem to be mentioned including individuals and their fiduciaries. Indian PM Narendra Modi in the wake of the leak of papers further ordered an inquiry, and along these lines the Indian government reported that it was constituting an special multi-organization team involving officers from the investigative unit of the Central Board of Direct Taxes and its Foreign Tax and Tax Research Division, the Financial Intelligence Unit and the Reserve Bank of India.

STEPS TAKEN BY THE INDIAN GOVERNMENT TO HUNT BLACK MONEY EVADERS AFTER PANAMA PAPERS

It was informed to the media by one of the officer that a Tax officers’ team and other government officer visited Panama and some other countries for tax data collection in December. The government is trying to finalise the tax data collection/ exchange as soon as possible, possibly by end of year 2017 or first quarter of 2018 as informed by the inside officials to the media sources. Finance Minister’s website portal has uploaded minutes of the Panama meeting, which indicates that Indian Government is pushing the deal of tax data exchange agreement or Tax Information Exchange Agreements (TIEA).

As per the above mentioned minutes “Discussions covered several bilateral, regional and global issues, ranging from the early conclusion of pending bilateral agreements; (to) India’s desire to finalize the tax information exchange agreement at the earliest”. The visits take after the April 2016 leak of the Panama Papers—11.5 million records that detail money related and lawyer customer data for more than 214,488 offshore organisations, generally accepted to be utilized for tax avoidance and reserving of illicit riches. The records made by Panamanian law firm Mossack Fonseca contain names of no less than 500 Indians. The papers were made open by the International Consortium of Investigative Journalists (ICIJ) and other media associations. The issue is additionally being observed by the Supreme Court following a writ appeal. The administration has told the apex court that it is considering the issue important and has framed a team of officers from various agencies to inspect the issue.

The Indian revenue department were facing challenges quite recently working on the incomplete data as revealed under the panama papers as the same number of the people and organizations were denying any association with the offshore entities. The onus of evidence was on the Indian regulatory. Without a TIEA, the authorities were contacting Panama through discretionary channels and the data given to India came with such condition that it can’t be utilized for litigation. On the off chance that the tax agreement is not executed, India has the only choice of naming Panama as a ‘non-cooperative’ jurisdiction and collect a higher withholding tax of 30%.

Conclusion

India’s recent Foreign Exchange Regulation Act (FERA) had for since quite a while ago forced confinements on inhabitants from exchanging reserves abroad because of the outside trade lack in the nation. In any case, it’s a well known fact that billions were redirected to outside safe houses. The remote trade rules were facilitated in 2004 with the Liberalized Remittance Scheme that enabled people to transmit $25,000 every year, a point of confinement that stands at $250,000 today. India doesn’t need rules in regards to outside trade exchanges. There is the Foreign Exchange Management Act ( a less draconian form of FERA), the Prevention of Money Laundering Act, the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, the Prevention of Corruption Act and the Income-Tax Act. Be that as it may, recognition can on a specialized point spurn the soul of these laws. A few people contended that they had not set up seaward organizations, which was illicit yet just procured them, which was allowed. Others said that they are non-inhabitant Indians to whom the Indian assessment and different standards don’t make a difference.