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Panama Papers and What They Mean to India
The biggest ever leak is a bit of a damp squib about India; but that is precisely why it may be an opportunity for putting ground rules in place to stop tax evasion
 
Edward Snowdon said it well when he tweeted, the “Biggest leak in the history of data journalism just went live, and it’s about corruption.” The whopping 11.5 million files of the Panama-based law firm, Mossack Fonseca & Co, investigated for almost a year by the International Consortium of Investigative Journalists (ICIJ)—a global alliance of newspapers and investigative journalists—released simultaneously around the world on 4th April is, indeed, an explosive new development in the history of media and journalism. Revealing the names of so many global political leaders, celebrities, sports stars and businessmen, has the potential to force countries around the world to rewrite tax polices and stop the super-rich from evading taxes and also to rationalise taxes for disincentivising evasion. 
 
Think about it. In a highly competitive media world, every single media organisation has been forced to report and reproduce the findings of news and television companies that were part of the alliance, with due acknowledgement. This is an immense credibility boost for the media and for investigative journalism at a time when advertising had been dictating ‘breaking news’ on TV and all that is fit to print. 
 
At the time of writing, the Panama Papers had already snagged one major political scalp—that of the Prime Minister of Iceland. Other global leaders will face serious political repercussions in the days to come. Ironically enough, the leak has also nailed the Chilean branch head of Transparency International (TI), forcing him to resign. TI, a Germany-based NGO publishes a global corruption index, in which India figures somewhere near the bottom of the heap. And, yet, when it comes to India, the Panama Papers have been a damp squib. 
 
A handful of industrialists, a couple of movie stars, a deceased mafia-type and someone who says he has $100 in his son-in-law’s company are among the Indian names that made headlines on the day of the big-bang global release. It will be hard to find any Indian who believes that our politicians do not have a fat stash of funds abroad; they were probably fortunate to patronise a different tax haven and law firm. 
 
Apart from the Prime Minister of Iceland, the Panama Papers reveal offshore accounts and companies of British Prime Minister David Cameron’s late father, several Tory MPs, Russian Vladimir Putin (transactions worth $2 billon, albeit through a childhood friend Sergei Roldugin), links to China’s powerful Politburo members, President Xi Jinping and former Premier Li Peng through their kin, the Presidents of Pakistan, Argentina and Ukraine, the President and Prime Minister of Azerbaijan and the King of Saudi Arabia. Yet, not a single heavyweight Indian politician, or even a small-time one, figures in the revelations.  
 
As hard as this is to comprehend, it is probably the best thing to have happened. It allowed the government to react quickly and decisively. Finance minister Arun Jaitley’s move to set up a multidisciplinary committee (comprising the RBI, central board of direct taxes and financial intelligence unit of the finance ministry but not the enforcement directorate or the directorate of revenue intelligence) to investigate the Panama Papers was among the fastest reactions to the leak by any country. Even the US Department of Justice had only said that it is studying the papers. 
 
Also, contrast the government’s swift reaction this time with how the Congress-led United Progressive Alliance responded to Germany’s offer to share information on tax-evaders. In February 2008, the German authorities had bought information about illegal money stashed away by citizens of various countries in LGT, a Liechtenstein bank. The list contained the names of 1,400 clients of whom 600 were Germans. A spokesman for the German finance ministry, Thorstein Albig, had said in March 2008 that information on the other accounts would be shared with other countries for free. Finland, Sweden, and Norway quickly obtained the data, but the UPA government did not wish to have anything to do with it. Only after much prodding by the Opposition did it ask for the list in late-2008.
 
A multi-disciplinary committee comprising officers who are senior enough is the only way to ensure an investigation that is not marred by investigative agencies working at cross-purposes or indulging in mindless one-upmanship and undermining one another’s efforts. It also reduces the chances of information being compromised by corrupt officers. In 1992, in the aftermath of the Harshad Mehta scam, such an inter-disciplinary committee headed by R Janakiraman produced excellent and detailed fact-finding reports. In fact, the Joint Parliamentary Committee (JPC) set up after the Ketan Parekh scam of 2000-01 pointedly recorded the view that it “did not have the benefit of a report on the lines of the Janakiraman Committee Report which was made available to the previous JPC on the scam in securities and banking transactions. Reliable evidence was difficult to find and took much time to cull.” (para 2.18). A multi-disciplinary committee lends credibility to the government’s action. This time, the fact that the Supreme Court-appointed special investigation team (SIT) on black money headed by Justice (retired) MB Shah has already announced its intention of investigating the list ‘thoroughly’. This will further keep the government-appointed committee on its toes. 
 
However, I must mention that the Janakiraman committee’s hard work did not lead to faster filing of charge-sheets by the Central Bureau of Investigation (CBI) and the cases continue to drag through the courts for nearly 25 years. Hopefully, there will be pressure to address this issue with the SC-appointed SIT watching the action. The Reserve Bank of India (RBI) governor injected the necessary sobriety into the investigation process by saying,  “there could be genuine reasons for having offshore accounts” and the multidisciplinary committee (of which RBI is a part) will probe the legitimacy of the offshore accounts. It is important to do this without a needless witchhunt, because several of those named by The Indian Express reports have emphatically claimed that they have legitimate accounts whose transactions have been disclosed in their tax filings. RBI’s Liberalised Remittance Scheme (LRS) has permitted resident Indians, including minors, to freely remit funds overseas for permissible current or capital account transactions or both. The sum that is allowed to be invested overseas has increased from $25,000 in 2004 to as much as $250,000 since then; the remittances could easily have been routed through tax havens which permit extraordinary ease of transactions. 
 
The multi-disciplinary committee will, at some point, come up with its report; but, all said and done, India’s political class has nothing to fear from this particular leak. What will worry them, though, is that the Panama Papers may just be the beginning of a new trend—of hacking and leaking information available with top tax lawyers. The big message from Wikileaks, Edward Snowden’s disclosures and the Panama Papers, to politicians and the super-rich is that nothing is secret anymore; every database can be hacked sometime and the disclosures can ruin political careers.
 
If world leaders, including those in India, react to the Panama Papers by implementing sensible tax policies that make it unattractive to evade taxes by routing them through expensive offshore structures, that would be the most positive outcome of this path-breaking journalistic exercise. But that is a utopian expectation so long as tax havens are useful in routing illicit funds to terrorist groups and to finance insurgencies or the machinations of spy agencies of powerful nations.
 
Correction: Corrected for adding proper designation as Prime Minister of Iceland instead of the President.
 

User

COMMENTS

MG Warrier

10 months ago

Copied below is an extract from my moneylife.in article "Cobra Post Exposure: What next?" published here on May 20, 2013:
"The question arises, in 2013, do we need a Cobrapost, a Tehelka, Wiki-leaks or a new TV channel struggling to improve its own TRP to tell us that all is not well in the goings on in India, when it comes to handling public funds (“public funds” comprise money collected from public which includes bank/company deposits and other funds with private organisations)? After all, this much has been told to us by the highest court (Supreme Court of India), Comptroller and Auditor General, Election Commission and several other “usually reliable” government and private bodies, from time to time in recent years. Most of the political parties also have endorsed this view during their bickering among them. What the common man is waiting for is a change which will reduce corrupt practices and infuse a semblance of ethical behaviour, on the part of individuals and organisations handling public funds, on which, in reality, they have only trusteeship rights.

While delivering the Second Annual Lecture at Transparency International in Delhi on 19 February 2011, Dr Bimal Jalan, ex-governor, Reserve Bank of India made the following observation:
“Thus, taken as a whole, corruption is undoubtedly an important cause for rising disparity, persistence of high incidence of poverty, and enormous delays and low productivity of public investments in India.”

On an earlier occasion (Seventh Nurul Matin Memorial Lecture, Bangladesh Institute of Bank Management, Dhaka, 2007) speaking on “Ethics in Banking” Dr Jalan had this to say: “Adherence to the ‘Rule of Law’ in a democratic society is an essential minimum requirement of ethical behaviour” He agreed with Professor Nurul Islam who had observed on the same dais that “…..ethics in banking, economic transactions and in society in general, are all interrelated. The solution needs to cover all related areas, including the systematic political factors.”

Remembered the above, in the context that deterioration in ethical behaviour is not confined to financial sector alone. I genuinely feel, we need all voices which bring to surface unethical practices including corrupt behaviour on the part of “public servants”. More importantly, media should help citizens to follow up such cases until the guilty meet with exemplary punishment."

Mahesh S Bhatt

11 months ago

Minimum taxes maximum governance.

But here maximum tax maximum avoidance.

Could we reduce defence/public expenditures every thing justs bloats till breakdown bankrupcy.

Man always finds ways to manipulate.when Ministers also match fix with JPC's USA also /UK also everywhere Leaders are brokers & traders of National Assets sales/restructures.

Reduce laws/delete laws/taxes/introduce political accountabilty/

Remove that which donot get implemented as per expectations in 1-3 years & see things working in law itself.

Law & Justice are State instruments of trade & business


Mahesh bhatt

S.S.A.Zaidi

11 months ago

Struggle for more transparency on beneficial ownership. PEPs irrespective of whether domestic or Foreign should be categorized very very high risk and perhaps financial institutions may start de risking the accounts wherein PEPs involved-(though may b a difficult task)
Separating the legitimate transactions from the illegitimate ones may also b a hard exercise (RBI Gov ,s assertion that transactions routed thru Tax Heaven may not necessarily mean transactions are illegal)
Panama Papers are eyeopeners

Chandragupta Acharya

11 months ago

If media reports are anything to by, the performance of the Black Money SIT is disappointing. The Terms of Reference of the SIT task it with “investigation and prosecution” of all such black money holders who hold illegal money abroad, and makes a special reference of Hassan Ali. Instead the SIT seems to be only making periodic “recommendations”, and Hassan Ali has apparently been bailed out. What the SIT has achieved beyond the HSBC & Liechtenstein lists (which were already leaked) is not clear. The outcomes from the multi-disciplinary committee will mostly be similar – a set of recommendations, which we don’t need.

Admittedly, it is virtually impossible for anyone to actually bring back money that has already left the shores. Therefore, I am glad you mention “sensible tax policies” as the most ideal solution for this whole problem. Ultimately, there is no alternative to a real “minimum government”. Reducing government spending can automatically reduce taxes and do away with the motive to stash money in tax havens.

Unfortunately, the actual effect of disclosures such as the Panama Papers is usually the opposite – an even closer scrutiny (and even witch hunt) of the wealthy, leading to even more of them fleeing the system. That is what we are doing, in India as well. The new Tax Return forms for those earning more than Rs. 50 lacs p.a., higher income tax for Rs. 1 crore and above, increased PAN disclosures for high value transactions, tax on dividend above Rs. 10 lacs etc. only help in smothering the wealthy and driving them away to more friendly jurisdictions.

Chandragupta Acharya

11 months ago

If media reports are anything to by, the performance of the Black Money SIT is disappointing. The Terms of Reference of the SIT task it with “investigation and prosecution” of all such black money holders who hold illegal money abroad, and makes a special reference of Hassan Ali. Instead the SIT seems to be only making periodic “recommendations”, and Hassan Ali has apparently been bailed out. What the SIT has achieved beyond the HSBC & Liechtenstein lists (which were already leaked) is not clear. The outcomes from the multi-disciplinary committee will mostly be similar – a set of recommendations, which we don’t need.

Admittedly, it is virtually impossible for anyone to actually bring back money that has already left the shores. Therefore, I am glad you mention “sensible tax policies” as the most ideal solution for this whole problem. Ultimately, there is no alternative to a real “minimum government”. Reducing government spending can automatically reduce taxes and do away with the motive to stash money in tax havens.

Unfortunately, the actual effect of disclosures such as the Panama Papers is usually the opposite – an even closer scrutiny (and even witch hunt) of the wealthy, leading to even more of them fleeing the system. That is what we are doing, in India as well. The new Tax Return forms for those earning more than Rs. 50 lacs p.a., higher income tax for Rs. 1 crore and above, increased PAN disclosures for high value transactions, tax on dividend above Rs. 10 lacs etc. only help in smothering the wealthy and driving them away to more friendly jurisdictions.

Hemant Chitale

11 months ago

It was the Prime Minister (not the President) of Iceland.

MG Warrier

11 months ago

There could be motives beyond tax evasion behind keeping huge balances in 'secret' accounts abroad. If there is political will, there would be ways to unearth the motives and then handle individual account-holders. Without belittling the magnitude of the current revelation, one is tempted to say that it has never been 'lack of information' that has been preventing pursuit of black money.

ARUL KUMAR

11 months ago

What Mr. Ram Jethmalani is doing now? He can suggest right actions.

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