Wild Goose Chase?
The recent leak of papers of a Panama-based law firm that helped people and companies open companies and trusts in tax havens has added fuel to the politically sensitive issue of black money. However, investigations into names revealed in earlier such exposes have rarely led to prosecutions or detection of big unaccounted money. In fact, in many cases, the people named were not found to have done anything wrong as opening companies or trusts in tax havens is not illegal per se.
In 2011, too, the government had got information about 628 Indians having accounts in HSBC, Switzerland. It could trace 569 people, of which 214 cases were found "not actionable on account of no balance or (beneficiaries) being non-residents or non-traceable", according to the finance minister. The I-T department has filed 154 prosecution complaints. The ED is investigating 23 cases.
The 11.5 million documents of Panama-based law firm Mossack Fonseca have names of 500 Indians, including industrialists, renowned lawyers, ex-cricketers and celebrities. Some big names include DLF promoter K.P. Singh and family members, IndiaBulls owner Sameer Gehlaut, Apollo Group Chairman Onkar Kanwar, Gautam Adani's elder brother Vinod Adani, besides Bollywood actor Amitabh Bachchan and his daughter-in-law Aishwarya Rai Bachchan. The papers say they have formed offshore companies or trusts in jurisdictions such as British Virgin Islands, Bahamas and Panama that are known for lax tax laws.
Public outrage at such revelations is not uncommon. The government was, therefore, quick to react, with the finance minister warning Indian residents with undisclosed assets and bank accounts abroad against such "adventurism". It also set up a committee of officials from the tax department, the Financial Intelligence Unit and the Reserve Bank of India to investigate the matter.
Will the investigations be different this time or is this mere posturing by the government?
Taxing Task
"There are many legal ways of sending money abroad. It is wrong to say that one has done anything wrong just because one's name has appeared in the list," says Himanshu Sinha, Partner, Direct Tax, Trilegal. He says investigators have to work hard to find the source of money invested in the overseas company or trust that is under the lens.
Many named in the Panama leaks have already given similar explanations. In an interview to a website, well-known lawyer Harish Salve said his investments in the British Virgin Islands-based company were legal, and the details were declared in tax returns. While many in the list may have invested legally, there could be some who might have violated the country's tax laws. However, establishing this is difficult.
"These lists require a lot of investigation as what they have is names of people and companies. We have to find out if they are shareholders, owners or just directors of these companies. We have to see if they have put money in the companies, if there are bank accounts somewhere, and only then can we do anything," says an official of the Central Board of Direct Taxes. He says the I-T department will see if these people have declared these assets in their returns.
An official from the ED, which is probing 43 such cases from the earlier leaks, says the investigations are at different stages. "In some cases, there are violations; in some cases, the names are those of NRIs (so no violations) ... in some cases, companies were formed but there were no operations," he says. He listed a number of reasons why investigating such cases was difficult. "These are civil offences and so foreign countries do not usually cooperate. For other countries to cooperate, there is requirement of dual criminality, which means the offence must be culpable under the law of the other country as well," he says. Availability of limited information is another factor that makes such cases hard to pursue. "A person may have a company, say, in British Virgin Islands, but it is difficult to establish if he has any operations in that country. In many cases, the accused deny involvement as the documents usually do not have their signature," he says. Both Amitabh Bachchan and Aishwarya Rai Bachchan have denied having such accounts.
Finance Minister Arun Jaitley has expressed hope that once bilateral information exchange treaties come into force from 2017, such cases will be easy to trace. However, experts says these treaties, too, have limitations.
"Even if India signs tax information exchange agreements, everything will depend on the willingness of the government concerned to share information. Economies of many of these countries survive on financial secrecy," says Sinha of Trilegal. The tax information exchange treaty does not require a country to share information if this requires changes in its tax laws and administrative practices.
If the past experience is anything to go by, nothing much is likely to come out of the recent leaks either.
