Panama Papers 2.0: Everything you need to know about India and the Paradise Papers

A new trove of 13.4 million leaked documents dubbed the Paradise Papers have been published by the International Consortium of Investigative Journalists (ICIJ) exposing the offshore banking activities of thousands across the globe.

After Panama-based Mossack Fonseca’s documents caused a storm, the leaks from Appleby, a law-firm, has sent shockwaves among the global rich and top politicians.

Impact in India

Reacting to the global Paradise Papers leak, the finance ministry says that the investigation units of the Income Tax Department (ITD) have been alerted to take note of the revelations for immediate appropriate action.

According to the statement, “The government has directed that investigations in cases of Paradise Papers will be monitored through a reconstituted Multi Agency Group, headed by the Chairman, CBDT, having representatives from CBDT, ED, RBI & FIU.”

The Paradise Papers leak comes just a day before the government celebrates the anti-black money day on 8 November, lauding the demonetisation move which has come under intense criticism from other quarters.

Earlier, Security and Exchange Board of India (SEBI) said it would investigate issues of fund diversion and other disclosure lapses on part of corporates who find their names on the Paradise Papers.

Christened Paradise Papers by ICIJ, as many as 714 individuals from India are said to be part of the huge cache of documents leaked from Appleby. The list names businessmen like Vijay Mallya, politicians including Union Minister Jayant Sinha, lobbyist Niira Radia and film actor Amitabh Bachchan. Coincidentally, Bachchan, who is a brand ambassador for many government projects, figured on the Panama Papers as well.

Opposition Congress, meanwhile, has upped the ante, demanding resignation of Jayant Sinha even as there are companies connected to kin of Congress leaders on the list. RK Sinha, the BJP Rajya Sabha MP on the list has gone on a 'maun vrat', according to reports.

“Prime Minister Narendra Modi’s so called fight against black money and corruption remains a ‘complete flop',” spokesperson Randeep Surjewala said in a statement. “Even as the Government did not register a single FIR till now in the 500 names which had surfaced during Panama Papers expose in May 2016, new set of investigations known as the ‘Paradise Papers’ have surfaced where 714 Indian links of tax havens have emerged including that of a Union Minister, Shri Jayant Sinha and a BJP Rajya Sabha MP, R K Sinha,” he added.

Only a fraction of the 714 names have come out so far as the ICIJ says it will take up to weeks to update its database and make it available on its website.

Exploiting the loopholes

Meanwhile, market regulator SEBI will ascertain if the listed companies have failed to disclosed their offshore entities, in line with the statutory and regulatory mechanisms. Mere existence of an offshore company does not constitute any offence lest it is proceeds of a crime, a result of tax evasion or other illegal activities.

Experts say businesses set up offshore firms for reasons of both legitimate business interests, to route ill-gotten wealth or to subvert the host country’s regulatory system.

Firms like Appleby and Mossack Fonseca come handy for their expertise in exploiting loopholes in the host country’s legal system.

Jindal Steel is an interesting entity on the list. As the Indian Express reported, when there was a proposal for appointment of two Appleby nominees as directors of two offshore entities, pertaining to a requirements of a loan of $35 million being provided by Credit Suisse AG Singapore to the two Jindal Group Companies, officials at Appleby raised a red-flag for potential roundtripping of funds.

“We need to be careful on any potential round tripping issue (it appears that the beneficial owner is from India and investments have been made in India), as such we might need to ensure that the company has the necessary approval from the revenue authorities in India,” the compliance manager wrote, as per the Indian Express report.

Jindal Group holding companies in India have already been in the crosshairs of investigating agencies including the CBI for its alleged involvement in the coal scam.

Vijay Mallya’s case has more details of what firms like Appleby offer to their clients. Indian Express reports how a London-based law-firm along with Appleby, after Diageo bought USL, worked on restructuring to simplify the complex structure Mallya had created. According to the report, the main reason for such a complex holding structure was aimed at allegedly “diverting funds through USL Holdings Ltd (BVI), an entity in a tax haven (British Virgin Islands); and three subsidiaries in the UK. These were USL Holdings (UK) Ltd; United Spirits (UK) Ltd and United Spirits (Great Britain) Limited (UK).”

The report says that documents from Appleby, show that funds “amounting to over $1.5 billion were funnelled, as debt, into these four subsidiaries over a period of seven years till 2014.”

Mallya, who fled to the UK, is facing investigations and extradition proceedings initiated by ED and the CBI.

There are other entities, too, who were helped by Appleby despite their high-risk profile for their alleged involvement in illegal activities in India. Global Medical Response of India ltd, company which has son of senior Congress leader Vyalar Ravi as one of the founders was registered by Appleby in Mauritius despite the high risk profile. GMRI, earlier called Radec X ltd, had invested in Ziqitza healthcare, a company in the eye of the storm for its involvement in what is called the Ambulance Scam in Rajasthan. The investigations by the CBI and the ED into the scam include names of senior Congressmen Karti Chidambaram and Sachin Pilot who were associated with the company.

All these individuals and companies have meanwhile denied any wrongdoing.

The Finance Ministry, meanwhile, claims that “that many cases of offshore entities are already under investigation on fast track. As soon as further information surfaces, swift action as per law will follow.”

Investigations into offshore dealings are easier said than done for they involve painstakingly waiting for information from other countries.

However, as one waits for other names to tumble out, these lists throw in other interesting details. For example, the names of the offshore tax havens in vogue among the investors - Bahamas, Bermuda, Vanuatu, Belize, Malta, and British Virgin Islands among others.