THE Reserve Bank of India (RBI), has referred cases of violations of the law by at least 20 individuals and firms linked to offshore entities set up by Panamanian law firm Mossack Fonseca to the Enforcement Directorate (ED) for investigation, sources familiar with the development told The Indian Express. The Income-Tax department, too, has referred some cases to the agency.
The move comes after the RBI received information on these accounts from banks in India and abroad. The cases referred to the ED will be investigated under the Foreign Exchange Management Act (FEMA), said sources.
According to a source familiar with the RBI development, a large number of cases referred to ED pertains to individuals and firms which have violated provisions of the FEMA. These include not securing approvals from the central bank for remittances beyond the threshold of $200,000 which was set earlier under the Liberalised Remittance Scheme (LRS). Even after the violations, none of these individuals or firms opted for compounding of contraventions under FEMA, the sources said.
Under the norms, an individual or a corporate can voluntarily seek compounding of an admitted violation. It provides comfort to any person who breaches any provision of FEMA, by minimising transaction costs. Wilful and fraudulent transactions are, however, excluded from the purview of compounding. In cases where entities do not opt for compounding, the issue is referred to the ED for further action.
“The RBI has found some discrepancy in these cases and has referred it to ED for further investigation. Apart from the RBI, the income tax (IT) department, too, has referred several cases to the ED for investigation,” said official sources.
In May, the RBI had sought year-wise details from banks on outward remittances under the LRS, of individuals whose names figure in the Panama Papers. Under the current LRS, a resident Indian can freely remit $250,000 overseas every financial year for a permissible set of current or capital account transactions.
The Panama Papers is an ongoing investigation by the International Consortium of Investigative Journalists (ICIJ), involving more than 100 media organisations including The Indian Express, into leaked data of offshore entities set up for clients by Mossack Fonseca.
The Indian Express investigation unearthed the names of over 500 Indians on the firm’s list of offshore companies, foundations and trusts — there are also 234 Indian passports that were handed over by clients as part of the incorporation process.
After The Indian Express published the list of names, the Income Tax department sent queries to several individuals as a part of its investigation. Along with the standard queries sent nationwide, the tax authority sent a set of specific questions, seeking details of declarations and permissions obtained to float offshore firms.
In some cases, the tax department conducted searches and surveys of business establishments of certain individuals who had incorporated offshore companies through Mossack Fonseca.
Subsequently, the government announced a special multi-agency probe to look into all cases of Indians with offshore entities in tax havens. The RBI is part of the multi-agency group.
Several Indians named in The Panama Papers have claimed that the offshore accounts they set up via Mossack Fonseca conform to RBI rules and were declared to the I-T department.