Impact of Panama Leak in India

In this blog, Sunanda Shukla, a student of Lovely Professional University of Law(LLM) discusses the impact of the Panama leak in India.

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 of a total size of 2.6 terabytes contained 11.5 million documents from Mossack Fonseca firm which helped investors around the world to evade tax, launder money and others. The data which was leaked mainly comprises emails, pdf files, photo files and excerpts of an internal Mossack Fonseca database from 1970 to 2016. The information revealed was about, how an 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, and drug smugglers to celebrities and professional athletes. It provided a clear picture of how Mossack Fonseca routinely accepts investments and money from the world’s rich and famous people to engage in business activities that potentially violate the 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 include 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 a strong connection with the United Kingdom as more than half of the companies are registered in British-administered tax havens. Mossack Fonseca 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 the basis for other business transactions. They actually provide anonymity and their ultimate ownership is difficult to trace. It helps in evading taxes and laundering money.

The Involvement of the Indians

The Indian Express which was the partner of the International Consortium of Investigative Journalists project on the Panama Paper Leak 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 Mexx clothing is also there. The list contains the names of big businessmen 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 the 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 the Panama Papers case which have been found under 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 allows individuals to specifically set up a company.

The people were facing 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 the 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 India can be considered legal only if it was done after the year 2013.

The Supreme Court on Panama Leak

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 probe the Panama Papers leak, 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.

Conclusion

The Panama Papers Leak is called the biggest ever leak in 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 leak provided data of around 4 GB in 2014. So, the Panama Papers leak is the biggest leak ever. It is bigger than the leads done by Wikileaks in 2010 and the secret intelligence documents given to journalists by Edward Snowden in 2013.

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