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.
(Sucheta Dalal is the managing editor of Moneylife. She was awarded the Padma Shri in 2006 for her outstanding contribution to journalism. She can be reached at [email protected])