With the Pama Papers expose making headlines around the world, the issue of tax justice is back in public debate. It is the latest in a series of revelations unearthed through an intertiol jourlistic collaboration — about how the rich and the powerful are stashing money in overseas tax havens, with hundreds of Indians figuring among them. In the ‘Offshore Leaks’ in 2013, there were 612 Indians, followed by the ‘Swiss Leaks’ in 2015 with 1,195 Indians found to be holding offshore accounts in the Geneva branch of HSBC alone. Now comes the news that there are about 500 Indians who paid a Pamanian law firm Mossack Fonseca to set up offshore entities in tax havens like Cyprus, Switzerland, the British Virgin Islands, and British crown dependencies Guernsey, Jersey and the Isle of Man. Taking advantage of Pama’s secretive regulatory system, this firm has grown to be the world’s fourth biggest provider of offshore services in four decades. For a handsome fee, Mossack Fonseca helped clients evade tax, dodge sanctions and launder money in the me of ‘maging their wealth’. Its modus operandi was to set up offshore shell companies in tax havens where the money of clients was invested. Over 3 lakh such companies were set up and administered by Mossack Fonseca, with its employees fronting as company directors and high officials. To hide the real beneficiary owner, a maze of intermediary law firms or banks were appointed as directors or nominee shareholders, while bogus overseas addresses were used liberally. The Pamanian government was happy, getting a percentage of the fee for setting up such companies. Having no significant assets or operations, these shell companies are so opaque, there is no way tiol tax authorities can know about a client’s investment — leave alone taxing such fincial transactions..
It is hardly surprising that the Pamanian firm did so well in attracting the world’s moneyed elite, operating in 42 countries and having franchises and affiliates in many others soliciting customers. The lid over its activities was blown off supposedly by an insider, who provided a staggering database of 2.6 terabytes containing 11.5 million documents about 214,000 offshore entities set up in last 40 years. However, Mossack Fonseca bosses are claiming that its interl database was hacked and the contents ‘taken out of context and misinterpreted’ by jourlists; they are also trying to paint the expose as an attack on Pama itself — a victim of a slur campaign ‘by certain countries which don’t like it that Pama is so competitive in attracting companies.’ But all this bluster cannot cover up for the impact on global politics by the Pama Papers expose, ming as it does 12 current and former Heads of State including Chinese president Xi Jinping, Pakistan prime minister waz Sharif, friends of Russian president Vladimir Putin and Syrian president Bashar al-Assad, along with 128 other politicians and top bureaucrats of various countries. Iceland’s prime minister Sigmundur David Gunnlaugsson has already become the first casualty of the expose, quitting on Tuesday under huge public pressure. For a change, the Indian political establishment is unscathed by this revelation with only Anurag Kejriwal, former Delhi president of the Lok Satta party med as director in three offshore entities in British Virgin Islands having stakes in two private Pamanian foundations. However, the prominent Indians med include Bollywood celebrities Amitabh Bachchan and daughter-in-law Aishwarya Rai Bachchan, several leading businessmen including real estate tycoon KP Singh, as well as late Mumbai gangster Iqbal Mirchi.
The Central government has instituted a multi-agency probe, including the Reserve Bank, the Central Board of Direct Taxes and the Fincial Intelligence Unit (FIU) to find out whether the money invested through Mossack Fonseca was legitimate or not. The Special Investigation Team (SIT) on black money will also probe into the matter. The RBI has pointed out that Indians can legally hold accounts outside and send money up to 2,50,000 dollars abroad per fincial year under the Liberalised Remittance Scheme (LRS). But the grey area is the setting up of offshore companies, which can be used for money laundering. In the meantime, the government may try to frame more complex tax laws rather than tighten up tax evasion monitoring, which will only be detrimental to economic growth. With India joining the global effort to pelize black money and tax avoidance, the Pama Papers probe has to be taken up in right earnest. The investigations are likely to be tedious and long-drawn, considering the size and complicated ture of the data — but there must be no let up. Fincial secrecy is the root to continuing economic inequality, allowing the powerful elite to keep a permanent wrap on their wealth.