The
recent leak of financial data in 13.4 million documents— the largest ever— of
Bermuda’s Appleby and Singapore’s Asiaciti has only reiterated the extent to the
rich and mighty world over use shell companies and secret bank accounts for
concealing illegal, ill-gotten, tax-evaded and laundered money in tax havens.
The
treasure trove of financial evidence, corporate assets and transactional data,
named “Paradise Papers”, spans 180 countries. Scores of Indian nationals, 714
to be precise, are featured in these documents. Companies of several prominent
politicians, journalists, lobbyists, businessmen and film artistes are featured
in the list. Those embroiled in the various leaks, to name a few, include Harsha
Moily, Kalanithi Maran, Jayant Sinha, Karti Chidambaram, Sachin Pilot, YS Jagan
Mohan Reddy, Vijay Mallya, Nand Lal Khemka (of Sun Group), Hinduja Brothers,
Subhash Chandra (of Essel Group), Raghav Bahl (of Network18), Harish Salve,
Shobhana Bhartia (of Hindustan Times Group), Sanjay Dutt, Amitabh Bachchan and
Niira Radia.
The Emergent Pattern
The
“Paradise Papers” expose comes on the heels of other collaborative
investigations into offshore banking transactions in recent times. The first instalment
of ‘offshore leaks’ made public in April 2013 related to companies incorporated
in the British Virgin Islands. Next, the “Swiss Leaks”, which gave out data
from the HSBC branch in Geneva, followed in February 2015. The “Panama Papers”
leak came thereafter in April 2016.
Each
of these leaks underscores the enormity of the deep-rooted, systemic malaise. The
Tax Justice Network estimated the total volume of liquid, cross-border assets
held in secret offshore accounts to be in excess of US$ 20 trillion in 2012. The
quantum of illicit funds stashed abroad by Indians has been put between US$ 500
billion, as reported in the Supreme Court of India in July 2011, and US$ 1.4
trillion, as derived using unscientific, back-of-the-envelope methods by Global
Financial Integrity (GFI) in 2008.
Regardless
of the magnitude of the illicit funds abroad, it is clear that Indian black money stashed illegally abroad has become a
multi-headed, Hydra-like monster. A large, global
network of lawyers, bankers, accountants and other operatives is at work
overtime. They offer advisory services to help clients conceal their
illegitimate wealth in secret tax haven destinations with devious ingenuity.
Action, Not Lip Service
The
Finance Minister Arun Jaitley has promised to constitute a multi-agency team to
probe the matter and act swiftly. Yet, the assurance of effectively unearthing
foreign holdings of Indian citizens and entities rings hollow.
Why?
For
one, initiatives of many such probe teams, committees and commissions
instituted in the past have yielded zero results.
Two,
Double Taxation Avoidance Agreements (DTAA) facilitate treaty shopping, which
enable overseas corporate bodies (OCBs) incorporated in countries with lower
taxation to enjoy tax benefits legally. Besides, DTAA is aimed at avoiding
double taxation of declared ‘white’ incomes and not hidden ‘black’ incomes or
assets.
Three,
changing ownership of offshore companies, through trusts, investment funds and
other vehicles, to unlawfully alter ownership of shares of Indian companies
without paying capital gains tax is a common modus operandi adopted. It is extremely
difficult to even track and detect, let alone the levy and collection of taxes.
Four,
corporations are well within their rights to plan and manage financial affairs
in a manner that reduces tax liability legitimately. This enables companies to
engage a battery of professionals, who identify and exploit loopholes for
avoiding, if not evading taxes through innovative book-keeping and financial
planning practices under rather opaque and impermeable corporate veils.
Five,
the burden of proof of tax evasion or financial impropriety rests with
regulatory authorities, who are discouraged from second-guessing motives or
fishing for evidence of suspected wrongdoing if prima facie transactions appear legitimate. Only if fraud seems to
have been committed beyond reasonable doubt do courts permit the piercing of
the corporate structure and the obscurity that it affords.
Six,
Indian Government has often contended in Courts that it has to
refrain from divulging names of Indian national holding monies in foreign bank
accounts in order to not infringe upon the privacy rights. These tenuous
arguments have stalled the revelation of names of “dirty” entities and their
murky monetary affairs.
Finally,
in the Indian context, the multitudinous enactments have so many lacunae, not
to mention endemic delays in the Indian judicial apparatuses, that effective
enforcement is a big challenge.
Checkmating Black Wealth Hoarders
Thus,
in this cat-and-mouse, catch-me-if-you-can game, it appears that the hoarders
of black money abroad are winning.
Thus,
many offshore companies, as the Paradise Papers reveal, are “sham”, “shell” entities.
They are created typically to facilitate such nefarious purposes as tax evasion,
stock market manipulation, money laundering (entailing structuring,
micro-structuring and cuckoo-smurfing), hawala
operations, over-invoicing of imports and under-invoicing of exports, round-tripping
(i.e., taking untaxed money out of the country through inflated invoices and
then bringing it back as investment), parking of dirty, tainted money obtained
through criminal activities (such as, drug trafficking, illegal betting/gambling,
prostitution, etc.), graft, bribery, concealment of income, inflation of
deductions or expenses and so on.
Clearly, the ingenuity of the corrupt and the
criminals has reached a crescendo. The existing laws of the country— such as
the Benami Transactions (Prohibition) Act, 1988, the Foreign Exchange
Management Act, 1999; the Prevention of Corruption Act, 1988; the Prevention of
Money Laundering Act, 2002; the Securities Contracts (Regulation) Act, 1956;
and so on— are ill-equipped to
handle this kind of sophistication in moving funds across borders and managing
finances stashed abroad.
Everlasting Solution
So
then, is there a solution?
Well,
desperate times call for desperate measures. Indeed, if the political
dispensation is serious about fighting the scourges of: (a) tax evasion; (b)
stashing of proceeds from crime & corruption; and (c) flight of capital to
foreign destinations, it has to enact legislation for automatically nationalizing
any and all illegal foreign properties of Indian nationals, be they liquid or
illiquid, movable or immovable. The provisions should be stringent enough to
presume guilt of owners of illegal foreign assets and holders of illicit monies
abroad. Indeed, summary trial proceedings should be instituted in fast track
courts with the onus of proving innocence squarely placed on the accused.
As
a precursor to any such legislation though, government can introduce a
“Voluntary Disclosure and Amnesty Programme”.
Can
any sane, sensible voice deem the passing of any such law as extreme?
I
mean, did past governments not have the moral spine, steely resolve and noble
uprightness to do national good through measures such as bank nationalisation;
zamindari abolition; annulment of privy purses; and, land reforms?
Unless
a paradigm shift is brought in, all governmental assertions of sincerity in the
fight against black wealth is mere lip service. A weak will in this endeavour
to bring back home the loot stashed abroad is not only tacit approval, nay,
abetment of crime, but also a mockery of law enforcement and abuse of
legislative power.
