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ThePanamaPapers:Allyouneedtoknowabouthowthetaxfraudworked|BusinessStandardNews

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ThePanamaPapers:Allyouneedto
knowabouthowthetaxfraud
worked
MossackFonseca,aPanamanianlegalfirm,helpedindividualsworldwidefindwaystomovetheirearningsinto
secretstructuresandjurisdictionstoavoidpayingtax
ShishirAsthana|Mumbai
April4,2016LastUpdatedat16:30IST

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AmitabhBachchan

ALSOREAD

Inanincredibleworkofcoordinatedinvestigativejournalism,The

PanamaPapers:FromAmitabh
BachchantoAdani'sbrother,
namesof500Indiansleaked

IndianExpressnewspaperhaveunravelledtheworldofoffshore

Govtlookstocurbdomestic
circulationofblackmoney
WhatdidPMModihavetogo
throughtogethiswaxfigureat
Tussauds

InvestigativeConsortiumofInvestigativeJournalists(ICIJ)andThe
accounts.
Morethan11.5milliondocumentstotalling2.6terabytesofdatawas
obtainedbyICIJemails,bankaccountsandclientrecordswhich
representtheinnerworkingsofMossackFonseca,thePanamabased

Section54:Moneylaunderer's
delight

lawfirmwhichspecialisesinhardtotraceoffshorecompaniesfor

Ontheblackmoneytrail:Action
timenow,warnsCentre

berevealed.

clientsaroundtheworldwho,inmostcases,donotwanttheirentityto

Thedatathatwasscannedwasforaperiodoffortyyearsfrom1977
toDecember2015.Theyrevealtheoffshoreholdingsofindividualsand
companiesfrommorethan200countriesandterritories.

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SowhatdoesthePanamaPapersrevealandisthereacaseoffraudor
moneylaunderinginvolved?Wetakeastepwiseapproachintryingto
understandthePanamapapers.
TheFirm:MossackFonseca
APanamabasedlegalfirmwhichICIJlikestodescribeasgatekeeper
tothesecretsofitsclients,eventhosewhoarecrooks,mafioso,drug
dealers,corruptpoliticiansandtaxevaders.MossackFonsecais
consideredoneofworldsfivebiggestwholesalersofoffshoresecrecy.
Ithasmorethan500employeesandcollaboratorsinmorethan40
officesaroundtheworld,includingthreeinSwitzerlandandeightinChina.
ModusOperandi
Thelawfirmhelpedclientsclandestinelycreateamazeofaccountsandfrontentitiestopreventatraceforthe
moneytheywanttoholdintaxhavens.Ithelpedclientsrespondswiftlytochangesinlaws,shiftingbusiness
fromonesecretjurisdictiontoanother.MossackFonsecahasbeenaccusedofprovidingstructuresdesignedto
hidetheidentityoftheowners.
AccordingtoICIJtherealownersofbankaccountsthatappearunderthenameofanonymousoffshore
companiesregisteredbyMossackFonsecamaybehiddenbehindsocallednomineedirectorsstandin
directorssuppliedbyMossackFonsecawhoprovidecoverfortherealowners.
Dependingonhowmuchaclientpays,morethanonejurisdictionandmorethanoneanonymouscompanycan
beinvolved,addingtothefrustrationofauthoritiesiftheytrytotracetherealowners.
InPanama,MossackFonsecasproductsincludeprivatefoundations,whicharenotsubjecttotaxesinPanama
andoperateunderalawthatdoesnotrequirethenamesofthefoundersorbeneficiariestoberevealed.
OtheractivitiesfoundinthefilesbyICIJincludeMossackFonsecachangingandbackdatingdocumentswhena
clientisintroubleandallowingcustomerstohidetheirassetsbysettingupfoundationsinPanamathatinitially
listnonprofitssuchastheWorldWildlifeFundasthebeneficiarybutallowthecustomertochangethe
beneficiaryatwill.
TheIndianangle
Amongthemanypersonalitiesinvolvedworldwidemorethan500Indiannameshavealsobeenfeaturedinthe
listofpeoplewhohavetakentheservicesofthelawfirm.AmongthemareBollywoodsuperstarAmitabh
BachchanandhisdaughterinlawAishwaryaRaiBachchanrealestatemogulKPSingh,promoterofDLFtwo
politiciansShishirBajoriaandAnuragKejriwalandtheerstwhiledonIqbalMirchi.

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Around36,000fileswerefilteredoutfromthe11.5milliondocumentsbyTheIndianExpressteamwhichcontain
500Indiannamesonthefirmslistofoffshorecompanies,foundationsandtrusts.Therearealso234Indian
passportsdetailsthatwerehandedoveraspartoftheincorporationprocesswhichthejournalistsextracted.
Needforoffshoreentities
BecauseofthehightaxstructureinIndia,someIndianswhoearnedforeignincomepreferredtokeeptheir
moneyabroad.ButindividualIndianswerenotallowedtoconverttheirrupeetoforeigncurrencyandinvest
abroadpriorto2004asperRBIguidelines.Companieshowever,werenotboundbythisruleandwereableto
buyoutcompaniesabroadaftertakingrequisitepermissionsfromthecentralbankerandthegovernment.
SinceindividualIndianswerenotlegallyallowedtoopenbankaccountsabroadorbuyassetstheyneededa
structuretodoso,wherethemoneyortheassetisnotundertheirnamebutisheldbysomeothertrusted
personholdingapowerofattorney(POA).ThelawfirmMossackFonsecaprovidedthetrustelementon
accountofitssizeandstandinginthemarket,beingamongthetopfiveinthebusiness.
HowRBIslackofclearguidelinesresultedinmushroomingofoffshoreentities
RBIguidelinestill2004wereveryclear:noindividualcouldconvertmoneyandinvestabroad.SinceRBIdidnot
allowindividualIndiantotaketheirmoneyoutofthecountryorinvestinassetsabroadtill2004,anyonewhohas
openedanaccountinanyofthetaxhavenpriortothatisprimafacieinviolationofthelawasdefinedatthattime.
However,inFebruary2004RBIallowed$25,000(steadilyincreasedto$250,000presently)ayeartobetaken
outsideIndiaundertheLiberalisedRemittanceScheme(LRS)bythosegoingabroad,butitdidnotspecifythe
purposewhereitcannotbeused.RBIsaidthatthemoneycanbeusedformedicalexpenses,donation,college
feesandevenbuyingandsellingshares.
AnIndianExpressexplainervideosaysthattheconfusionariseswhenbuyingofshareswasinterpretedas
buyinginshellcompanieswhichareusedasinvestmentvehicles.MossackFonsecawasinthebusinessof
sellingsharesofshellcompanies.
IttooksixyearsforthecentralbankertoissueaclarificationwhichcameinSeptember2010whenitclearlysaid
thatIndianindividualscannotsetupcompaniesabroad.Thiswasinterpretedbyexpertswhoadvisedthe
individualsthatthoughyoucannotsetupcompaniesabroad,youareallowedtotakeovercompanies.Mossack
Fonsecasservicesagaincameinhandyasithadaproductwhereitsellsshellcompaniesofftheshelf.
Finally,in2013,theRBIcameoutwithanotificationallowingawindowforsettingupa100%subsidiaryor
allowingtoenterintoajointventurethroughanoverseasdirectinvestment(ODI)window.
TheIndianExpressvideosaysthataRBInotificationsaysthatthoseindividualswhosetupcompaniesabroad
priorto2013wereintechnicalviolationoftherulesofLRS.

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Thefraudangle
Whatisclearisthatanyoneinvestingbefore2004isinviolationoftheact.AsperRBInotification,thosesetting
uporbuyingcompaniesbefore2013areintechnicalviolationoftheact.
However,thekeytotheentirePanamaPapersisthedisclosureelement.Ifindividualshavekeptthecentral
bankerandthegovernmentoftheirinvestmentsabroadthroughthesecompanies,thenthereisaweakcase.
Butiftheauthoritieswerenotinformedoftheassetsheldabroadthentherearevariousactsthataretriggered,
suchasthemoneylaunderingactandFEMA,amongothers.
IndianindividualsearningincomeabroadtooneedtodiscloseittoIndiangovernmentauthorities.Iftheyhave
usedthevehiclesprovidedbylawfirmslikeMossackFonsecatohidetheirearningstheyareclearlyevading
taxesandshouldbeprosecuted.
TheimportantpointgoingforwardistolookoutforthoseindividualswhosenameshavebeenprovidedbyICIJ
andTheIndianExpressistofindoutiftheyhavedisclosedtheirassetstothegovernment.Ifnot,thenwehavea
taxevader.

READMOREON

PANAMAPAPERS

MONEYLAUNDERING

FRAUD

AISHWARYARAIBACHCHAN

INDIANEXPRESS

BLACKMONEY

CURRENTAFFAIRS

PREVIOUSSTORY

FirstconvictioninCoalScam:
4yearjailforRungtasof
JharkhandIspat

RBI

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AMITABHBACHCHAN

NATIONAL

NEXTSTORY

TechnicalsnaghitsDelhi
MetroservicesonBlueLine

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competeinNASA'sro
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