The Panama papers
An international coalition of media outlets on Sunday published an extensive investigation on offshore financial dealings of the rich and famous, based on a vast trove of documents provided by an anonymous source.
International Consortium of Investigative Journalists (ICIJ) and Süddeutsche Zeitung (Munich) has revealed a list of names who are linked to offshore entities in tax havens around the world.
The Indian Express was part of this to investigate for Indian firms.
What are tax havens?
- A tax haven is a country that offers foreign individuals and businesses little or no tax liability in a politically and economically stable environment. Tax havens also provide little or no financial information to foreign tax authorities.
Who are ICIJ?
- The International Consortium of Investigative Journalists, a non-profit organisation based in Washington
- The International Consortium of Investigative Journalists is a global network of more than 190 investigative journalists in more than 65 countries who collaborate on in-depth investigative stories.
What is Money laundering?
- Money laundering is the generic term used to describe the process by which criminals disguise the original ownership and control of the proceeds of criminal conduct by making such proceeds appear to have derived from a legitimate source.
What is Round-tripping?
- Round-tripping, also known as round-trip transactions or “Lazy Susans”, is defined by The Wall Street Journal, as a form of barter that involves a company selling “an unused asset to another company, while at the same time agreeing to buy back the same or similar assets at about the same price.”
Salient Features about The Panama papers
- Cache of 11.5 million records detailed the offshore holdings of a dozen current and former world leaders, as well as businessmen, criminals, celebrities and sports stars.
- A Munich-based daily, Sueddeutsche Zeitung, was offered the data through an encrypted channel by an anonymous source who requested no monetary compensation and asked only for unspecified security measures.
- The data concerned internal documents from a Panama—based law firm, Mossack Fonseca. Founded by German—born Juergen Mossack, the firm has offices across the globe and is among the world’s biggest creators of shell companies
What is a shell company?
- A shell corporation is a company which serves as a vehicle for business transactions without itself having any significant assets or operations. Some shell companies may have had operations, but those may have shrunk due to unfavorable market conditions or company mismanagement. A shell corporation may also arise when a company’s operations have been wound up, for example following a takeover, but the “shell” of the original company continues to exist.
- Shell corporations are not in themselves illegal, and they do have legitimate business purposes. However, they are a main component of the underground economy, especially those based in tax havens. They may also be known as international business companies, personal investment companies, front companies, or “mailbox” companies.
- Shell companies can also be used for tax avoidance. A classic tax avoidance operation may utilize favorable transfer pricing among multiple corporate entities to lower tax liability in a certain country; e.g. Double Irish arrangement.
- It’s important, however, to understand that the term “shell corporation” does not describe the purpose of a corporate entity. In general, it’s more informative to classify an entity according to its role in a particular corporate structure; e.g. holding company, general partner, or a limited partner.
Companies using offshore tax havens were accused of using these funds for bribery, arms deal, tax evasions, financial frauds, drug trafficking, human trafficking and many more like war crimes.
Syrian air force rained death over civilians from past three years, by exploding bombs dropped on homes, businesses, bus stops and even hospitals. Companies using these off shore tax haven were accused to supplying fuel to Syrian air force.
In 2014 multiple govt. including USA, UK issued bans on doing business with these co’s.
It exposed the secret offshore dealings of aides to Russian president Vladimir Putin, world leaders and celebrities including Barcelona forward Lionel Messi and many more.
Panamanian President Juan Carlos Varela issued a statement saying his government would cooperate “vigorously” with any judicial investigation arising from the leak of the law firm’s documents. He said that the revelations shouldn’t detract from his government’s “zero tolerance” for any illicit activities in Panama’s finance industry.
Are global banks helped Mossack Fonseca?
According to the media group’s website, global banks including HSBC, UBS, Credit Suisse, Deutsche Bank and others have worked with Mossack Fonseca to create offshore accounts.
- over 500 Indians, including high-profile actors and businessmen, could have links to secret firms in overseas tax havens.
- The BJP-led NDA government on Monday ordered the formation of a special agency to investigate Indians who figure in the ‘Panama papers’
- Multi-agency group will consist of officers from the investigative units of the Central Board of Direct Taxes, the Financial Intelligence Union and Foreign Tax & Tax Research division and the Reserve Bank of India.
- The Special Investigation Team on Black Money, appointed under the Supreme Court’s directions, had in its third report submitted last year to the court said that various departments were not prepared to share the information received in tax evasion cases.
- Among those the newspaper named in its reports are actors Amitabh Bachchan and Aishwarya Rai Bachchan, real estate firm DLF’s promoter K.P. Singh and Vinod Adani, elder brother of Adani Group founder and chairman Gautam Adani. Several of those the newspaper named have denied any wrongdoing.
What India should do now?
- India should make it clear what is the exact legal position for those who acquired already existing companies — such as the ones that Mossack Fonseca supplied off the shelf. The government as well as the RBI must now spell out rules that are lucid and explicit.
- The second key issue framed by the Panama Papers is of propriety, or its absence, on the part of those on the list. It is this — the adherence to the law not just in letter but also in spirit — that separates tax planning from tax avoidance.
- The finance minister has rightly said that those who did not take advantage of the compliance window last year to declare illegal assets abroad will find “such adventurism extremely costly”. It is time now for the government to do as it says.