Long before the leak of 11.5 million documents of Panama law firm Mossack Fonseca (MF), including over 500 Indians linked to offshore entities, India’s Income Tax department has been pursuing individuals and companies that have sought to evade taxes by parking money in tax havens.
MF documents show that India has reached out to authorities controlling various tax jurisdictions, such as the British Virgin Islands (BVI), Seychelles and Panama, for financial details and ownership structures of offshore entities. Internal mails of MF also reveal how difficult it is to extract information from these jurisdictions.
The documents reveal that MF is the registered agent for at least seven offshore entities about whom Indian authorities have sought information from the jurisdictions they were registered in. The files also indicate that MF did not seek any ownership information but helped these clients with nominee shareholders and nominee directors — for a fee. Often, the files show, MF depended on its own intermediary clients for such data.
After The Indian Express published the first set of The Panama Papers on Monday, Union Finance Minister Arun Jaitley said the government had begun prosecution of Indians on the list of account-holders in HSBC Geneva and the European tax haven Liechtenstein.
Among the seven cases, the case of Aberlady Holdings illustrates how the Indian enquiries have floundered. India approached the British Virgin Island’s International Tax Authority on October 28, 2013, for details on directors, shareholders and other activities of the offshore entity, based on a Tax Information Exchange Agreement (TIEA) signed on February 9, 2011. BVI’s tax authority subsequently set a five-day deadline for MF to provide information on Aberlady, including its total assets as of 2010-end.
In an internal mail, MF’s managing director of BVI, Rosemarie Flax, wrote: “Mrs. Lorna Smith, wife of the Premier… has been asked by the Government to assist with getting the BVI off the French Black List. She called me this morning to say that there are basically three Companies remaining from the list that has caused the BVI to be blacklisted and one of those is… Aberlady Holdings Limited.” Lorna Smith is the wife of BVI Premier and Finance Minister B Orlando Smith.
In other words, it was the French government’s threat that finally prodded MF into action. But that did not result in any significant disclosures.
MF did pass on details of the beneficial ownership, but another mail by another managing director reveals: “…We were unable to provide banking information, which we are not required to keep on our files but should be accessible once requested…”
While Indian tax officials had undertaken due diligence before sending the request related to Aberlady Holdings, it was just the starting point. The structure of the offshore company was so layered that even local authorities were unable to ferret out information from MF. India is still waiting for the complete information.
It’s not that MF was oblivious to rapidly-changing regulatory environment in the world. Such security issues were frequently discussed during lunch and tea sessions that MF had with its clients, in the backdrop of the “offshore leaks” that was pursued by the International Consortium of Investigative Journalists (ICIJ), including The Indian Express, in 2013. Record show that clients discussed the latest in information-exchange and AML (anti-money laundering).
“The AML laws in Switzerland are changing and in the future, the reports of suspicious activities will be shared with foreign authorities. One interesting side note was that they have more requests for information from India (Mumbai) based on the data that was stolen with HSBC; Switzerland started to exchange information which they have not done so far for requests based on stolen data,” an MF executive wrote in her report to Panama.