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TIMES NATION | Panama Channel

THE TIMES OF INDIA, NEW DELHI

TUESDAY, APRIL 5, 2016

Who Leaked Panama Papers & Why? Men In Black: A Nazi soldiers
Stash 100 Times BIGGEST LEAK OF INSIDE INFO IN HISTORY
WHAT ARE THE PANAMA PAPERS?
Bigger Than
A huge cache of les, being
dubbed the biggest leak of inside
Wikis Cablegate
information in history, exposing
Chidanand.Rajghatta
@timesgroup.com

Washington: The name Mossack Fonseca, evocative of an

arch Bollywood villain, broke
like a thunderclap over many
world capitals on Monday as a
treasure trove of documents
pointing to illicit foreign holdings, slush money, and corruption involving scores of
world leaders, tycoons and celebrities was leaked anonymously through a union of global
investigative journalists.
Leaders in Moscow (Vladimir Putin) and Beijing (Xi JinPing) among major powers,
Pakistan (Nawaz Sharif) and
Iceland (Sigmundur Gunnlaugsson) among lesser powers, and familiar suspects
such as Egypts Hosni Mubarak and Libyas Moammar
Gaddafi, were named and shamed. Notable exceptions to the
list of crooked leaders included US President Obama and
Indias PM Narendra Modi.
Nepotism coursed through the expose with Nawaz
Sharif s daughter Maryam
Nawaz, Li Xiaolin, daughter of
former Chinese PM Li Peng,
Mohd Nazifuddin Najib, son
of Malaysian PM Najib Razak, Clive Khulubuse Zuma,
nephew of South Africa Presi-

Photo: Corbis

almost 40 years of shadowy

nancial dealings

Data stretches from

1977 through end of 2015;
12 current and ex-world
HAVE THEY EXPOSED
leaders, 128 politicians
ANY CRIMES?
and public ofcials,
Dealings exposed not in
billionaires, celebrities and
Jersey, on the Channel Islands,
themselves illegal, but ICIJ says
sportstars among those
is among territories used for
they show how dark money
named in the cache of
offshore accounts
11.5 million records
ows through the global nancial
system, breeding crime and
Documents belong to
stripping national treasuries of
WHAT ARE OFFSHORE
Panama-based law rm
tax revenues
ACCOUNTS
Mossack Fonseca, one of
Bank accounts located
the worlds biggest creators
Offshore accounts
of shell companies, leaked by
outside a clients country of
and shell rms among
an anonymous source
residence, usually in tax
methods used to conceal
havens, to evade regulators
ownership of assets
German newspaper
and tax obligations
Sddeutsche Zeitung said it
received about 2.6 terabytes of
Panama, the Channel Islands and
data 100 times bigger than Wikileaks
Bermuda among more than a dozen
Cablegate and more than what would t on 600 DVDs
such small, low-tax locations
Source: The Independent

dent Jacob Zuma, and Kojo

Annan, son of former UN secretary-general Kofi Annan,
featuring in the expose.
Although graft, kleptocracy and nepotism is not new to
most countries, the responses
were predictable: It was all a
grand conspiracy to undermine them and their countries.
Why are there no leaders from
the West except from Iceland
was a question that erupted in
several forums after the Panama-based law firm and corporate services provider itself

withdrew into a shell after asserting its operations were

above board and broke no law.
Russias government has
dismissed Mossack Fonseca
reports as unfounded and based on Putinophobia while
10 Downing Street refused to
comment on information in
the files which showed that
British PM David Camerons
father, Ian, used offshore techniques to avoid paying UK tax.
The PMs family said their investments were a private
matter. Icelands PM Sig-

mundur Dav Gunnlaugsson

announced on live TV that he
will not be resigning.
Conspiracy
theorists
dubbed it a CIA false flag
operations, pointing to the
absence of any American
in the list, and maintaining
that the real corruption lay in
Nato and the UN.
But who leaked the documents and what did they hope
to gain from it? According to
the ICIJ, the lead for the leak
came in late 2014 when an unknown source reached out to the

Probe & file first report by April 25,

black money SIT directs agencies

German newspaper Suddeutsche Zeitung, which had reported previously on a smaller leak of Mossack Fonseca files to
German government regulators. The source reportedly
contacted Suddeutsche Zeitung reporter Bastian Oberway via encrypted chat offering some sort of data intended
to make these crimes public.
However, the source warned that his or her life is in
danger, was only willing to communicate via encrypted channels and refused to meet in
person. How much data are
we talking about, Obermayer
asked, according to an account
in Wired. More than you have
ever seen, the source responded. The eventual stash added
up to 2.6 terabytes, a 100 times
bigger than Wikileaks Cablegate, and enough to fill 600
DVDs. Obermayer says he communicated with his source over a series of encrypted channels that they frequently changed, each time deleting all history from their prior exchange.
In their Suddeutsche Zeitung report, Obermayer and
his co-authors write that the
source wanted neither financial compensation nor anything else in return, apart
from a few security measures. To this day, Obermayer
says he does not know the
name of the person or the
identity of the person who leaked the documents, but feels
he knows the person. For
certain periods I talked to
(this person) more than to my
wife, he told Wired.

Leak takes
social media
by storm
TIMES NEWS NETWORK

Dhananjay.Mahapatra
@timesgroup.com

New Delhi: The Supreme Court-appointed Special Investigation Team (SIT) to unearth black money on Monday
asked the Enforcement Directorate, Central Board for
Direct Taxes and Department of Revenue Intelligence to analyse the Panama documents and launch a probe
to detect possible money laundering and black money
angles. It sought a preliminary status report by April 25.
The SIT headed by two
former apex court judges
Justices M B Shah and Arijit
Pasayat asked the three
agencies to do an in-depth
analysis of the released documents and investigate Indian firms and persons who
prima facie appear to have
indulged in money laundering, tax evasion or attempted to convert black money
into white by floating offshore companies.
Sources in one of the probe agencies said the first task
was to authenticate the contents of the documents with
facts, whether the offshore
firms were actually set up
and the nature of transactions they indulged in.
Once the transactions are
tracked, the agencies will have to find out whether any
money was routed back to the
Indians named in the documents followed by examination of the income tax returns filed by them.
Investigations into tax
evasion or action under criminal law would be launched
only if there is evidence to
show that the personalities
indulged in money laundering or turned black money
legitimate through these
transactions, sources said.

LINE OF NO CONTROL

SANDEEP ADHWARYU

Def min probes claims of

kickbacks against Italy co
TIMES NEWS NETWORK

New Delhi: The defence ministry is examining reports of

commissions allegedly being
paid by Italian firm Elettronica SpA, which specialises in
electronic warfare systems, in
arms and spares contracts for
the Indian armed forces through a web of offshore firms.
As per the ICIJ, references
have been found in the leaked
files of Mossack Fonseca to
commissions, ranging between 5% and 17%, allegedly being
paid to two companies, one owned by an Indian no longer alive, in the 1996-2000 timeframe.

This was allegedly done

through two offshore firms
acting as sales agents registered as a Panamanian company in Dublin (Ireland) in
1997, which were set up with
the help of Mossack Fonseca.
The two firms, in turn, entered into sub-agency agreements with a company owned by the now deceased Indian. Incidentally, the Indians
company was also embroiled
in a UN procurement scandal
around a decade ago.
Elettronica SpA, however, has strongly denied
any wrongdoing.
But there are no details of

the contracts inked between

Elettronica SpA and the Indian defence establishment in
the leaked documents. We
are examining the reports but
have nothing concrete yet, said a defence ministry official.
Interestingly, Italian defence and aerospace conglomerate Finmeccanica, which
is currently under a partial
ban in India after its UK-based subsidiary AgustaWestland got entangled in the infamous VVIP helicopter kickbacks case, owns a substantial
stake in Elettronica SpA. The
Italian government, in turn,
owns 30% of Finmeccanica.

New Delhi: Netizens scrambled to catch up with the biggest leak in journalistic history. Hashtag #PanamaPapers
trended throughout Monday
on both Twitter and Facebook.
Social news site Reddits
front page had a thread from
the ELI5 (Explain Like Im five)
subreddit or forum, discussing the import of the leaked
documents over 2,900 comments were posted on the thread within 13 hours. A video about offshoring accounts and investments from ICIJ amassed
over 4 lakh views on YouTube.
By Monday noon alone,
over 1.15 million tweets had
been posted with the hashtag
#PanamaPapers on Twitter.
Besides India, the hashtag and
related terms also trended in
Germany, Italy, and the UK.
Panama President Juan
Carlos Varela also tweeted from
his verified account responding
to the controversy. US whistleblower-in-exile Edward Snowden was among the first to tweet: Biggest leak in the history of
data journalism just went live,
and its about corruption.

MERE PAAS
PANA-MA HAI
@Joydas: Amitabh: Mere
paas gaadi hai, bangla,
tumhare paas kya hai,
Shashi: Mere paas Ma hai,
AB: Mere paas Pana-Ma hai
@sagarcasm: Vladimir has
been Putin money aside.
Nawaz is not Sharif. Lionel
is Messing with taxes.
Jinping's anti-corruption
drive is Xit #panamapapers
@AIRVIND: My name would
to be in the Bermuda
Triangle Papers, my salary
disappears even before it
is credited to my account.
#panamapapers

son & a celebrated author

Photo: Twitter

Andrew Buncombe

Mossack Fonseca, formed in 1977

by Jurgen Mossack and Ramn
Fonseca (in pic), specialises in
commercial law, trust services
and investor advisories

ohn le Carres 1996 novel,

The Tailor of Panama, tells
the story of Harry Pendel, a
British tailor who serves the
great and good but whose refusal to come clean about his
past almost leads to his downfall. In Panama, he believes,
discretion is the only way.
For more than four decades, the law firm Mossack
Fonseca whose twisting saga may even have been beyond
the imagination of le Carre
has adopted a similar strategy
of discretion and survival.
If the documents obtained and analysed by the ICIJ
are to be believed, the firm
has its headquarters not far
from those of the fictional
Harry Pendel. The ICIJ says
the documents provide an insight into the financial affairs of 12 current and former
world leaders. (By contrast,
Harry Pendel made suits for

just three presidents.)

The firm was formed in
1977 by Jurgen Mossack and
Ramn Fonseca, and specialises in commercial law, trust
services, investor advisory
and international structures.
Its website says it can help reduce costs, incorporate and
manage private interest foundations, conduct business anywhere and carry out transactions in any chosen currency.
In a boast that may seem
ironic given the massive leak
of documents, its website says
offices are supported by secure, state-of-the-art technology
that is upgraded continually.
The ICIJ says that Mossack

Five Indian biz

houses deny
any wrongdoing
TIMES NEWS NETWORK
New Delhi: TOI tried to get
reactions from the Indian
business houses named in
the documents of Panama
law firm Mossack Fonseca
(MF). Of them, five reacted
by saying theres no wrongdoing on their part and all
laws have been followed.
Reacting on behalf of
DLF promoter KP Singh, executive director and CEO Rajiv Talwar said the promoter
had followed all the rules and
regulations of government,
RBI, FERA and Income Tax
department to the last detail.
He stressed that details of
three companies in British
Virgin Islands Alpha Investments Global Limited, Beckon Investments Group Limited, and Wilder Limited,
which were named in MF documents were duly disclosed in DLFs annual report
under the head, Other enterprises under the control of the
key management personnel
and their relatives.
Talwar said the allegation that the promoters had
any secret accounts in tax
havens was completely
wrong as all the investments
were disclosed to the RBI at
every step.
IndiaBulls
chairman
Sameer Gehlaut, said in a
statement: I have made
overseas investments after
paying full taxes in India,
each and every overseas remittance is disclosed to RBI
on the date it has been made.
All disclosures related to these investments are also made
with the I-T authorities in yearly returns as well as with
RBI in Annual Performance
Reports. All my overseas investments are done strictly
in accordance with RBI
framework of Overseas Direct Investments. The returns filed by SG Family
Trust have been duly scrutinised by the I-T department
and SG Family Trust has received a clean order without
any tax demand from the Income Tax authorities.
An authorised spokesperson of Apollo Tyres
whose chairman Onkar
Kanwar and his family

members were reported to

have floated an offshore entity, J&S Systems Corporation, in British Virgin Islands said: India lawfully permits foreign investments in accordance with
certain regulations. Any investment abroad, that the
Kanwar family may have, is
in due compliance with the
Indian laws, where applicable, including making disclosures wherever required.
Much of family mentioned, are Non Residents of India (NRIs). They are covered
by other nations permissible
laws for their foreign investments, and are not covered by
Indian laws & restrictions on
residents, in matters such as
Income Tax and RBI, the statement further read.

Companies say
investments
were made in
accordance with
Indian laws and
the RBI was kept
in the loop
Shishir Bajoria, chairman of the $200-million S K
Bajoria Group, told TOI that
he has a composite entity
in Isle of Man in the British
Isles and has an investment
company as well under the
liberalised exchange rate
management system of RBI.
What we did is as per
norms, he said.
Bajoria pointed out that
the group which has interest in refractories and insurance has operations in
US, UK, China and Germany.
Our company in Isle of Man
is the holding firm of all our
overseas operations. This is
in turn a 100% subsidiary of
our Indian firm IFGL Refractories Ltd, he said.
Mallika Srinivasan, chairman of Tractors and Farm
Equipment Ltd, who MF records list as a shareholder in
Stanbridge Company Ltd,
which was incorporated in
1999 in BVI, said: I wish to
clarify that I did not set up any
offshore company and have
no connection with Stanbridge Company Ltd. It belongs to
V P Ahuja, an NRI.

is a German immigrant whose

father sought a new life in Panama for his family after serving in Hitlers Waffen-SS during World War II. The elder
Mossack also offered to spy for
the US on former Nazis turned Communist or unconverted Nazis cloaking themselves
as Communists, after the war,
according to US intelligence files obtained by ICIJ. Jurgen
Mossack studied at the Santa
Maria La Antigua University
School of Law in Panama.
Ramn Fonseca is an
award-winning novelist who
has worked in recent years as
an adviser to Panamas president, it said. THE INDEPENDENT

Have papers
struck gold on
$40m crime of
the century?
London: A Panamanian shell
company may have helped hide millions of dollars from the
Brinks-Mat heist, a British
gold bullion robbery that is etched in criminal folklore, tax
documents leaked by the ICIJ
allege. Dubbed the crime of
the century by British media, the caper saw a masked
gang make off with three tonnes of bullion worth nearly
$40 million from a BrinksMat warehouse at Heathrow
Airport in November 1983.
The gang tied up security
guards and doused them with
petrol, with one of the villains
quipping thanks so much for
your help, have a nice Christmas as they made off in a
transit van laden with gold ingots. Most of the loot was melted down and never recovered, despite a number of convictions over the crime.
British detectives believe
the money still swills around
criminal networks through
property investments and
shadowy overseas holdings.
Mossack Fonesca, the law
firm at the centre of a massive
online Panama Papers leak,
may have helped shield the
cash from British police investigators, according to the ICIJ.
Sixteen months after the robbery, Mossack Fonseca set up a
shell company registered in Panama called Feberion Inc on
behalf of a London-based money launderer Gordon Parry
according to the ICIJ. Parry
was jailed in 1992 over his role
in handling the bullion stolen
in the heist. One of the law
firms founders, Jurgen Mossack, was named as nominee
director at Feberion, the ICIJ
said citing an internal company memo it has obtained. The
memo, written by Mossack and
dating from 1986, said he was
aware that Feberion was apparently involved in management
of money from the famous theft
from Brinks-Mat in London,
the ICIJ report says.
The company itself has
not been used illegally, but it could be that the company invested money through bank accounts and properties that was illegitimately sourced, the memo was quoted as saying. The
law firm denied the allegation,
the ICIJ said in its report. AFP

Whats illegal in owning a firm abroad? Does LRS enable round-tripping?

Whats illegal in owning
a company abroad?
The amount and purpose of
remitting money abroad has
historically been tightly controlled by the RBI. Till 2004, all
investments abroad required
prior approval of the central
bank. Sending money overseas by resident Indians was
made simpler in 2004 with the
introduction of the Liberalised
Remittance
Scheme
(LRS). Since then, the amount
of money that can be remitted
without approval has been increased by 10 times from
$25,000 to $250,000.
Along with liberalisation,
disclosure norms under
other legislations have been
changed. For example: details of foreign assets have to be
disclosed in the I-T returns.
An amnesty scheme the
Black Money (Undisclosed foreign income and assets) and
Imposition of Tax Act, 2015
had provided a three-month
window which expired in
September last year, to declare undisclosed assets held
abroad and pay taxes and penalty on the value of assets
declared. Under this scheme,

644 declarations were made

involving Rs. 4,164 crore.
The Panama Papers disclose that certain Indian residents hold shares in firms incorporated through Panamabased firm Mossack
Fonseca. TOI walks
you through key disclosure
requirements relating to remittance of money
and shows the potential misuse of the
LRS regulations.
What is LRS?
Under LRS, all resident individuals (including minors),
are allowed to remit up to
$250,000 in a financial year for
any permissible current account (such as for medical treatment or education) or capital
account transactions (such as
buying property overseas, or
holding shares in an overseas
company) or a combination of
both. No prior permission
from the RBI is needed.
On June 1, 2015, the RBI
reiterated that the permissible capital account transactions include the following:
opening of foreign currency

account abroad with a bank;

purchase of property abroad;
making investments abroad;
setting up wholly owned
subsidiaries and joint ventures abroad; and extending loans to NRI relatives.
Another circular issued recently on January 1 this year also states the same.
However,
remitting money overseas
to certain countries
(such as Pakistan) or
for certain purposes
is prohibited under
LRS. For instance, buying
overseas lottery tickets or
sweep stakes is not allowed,
nor can one purchase foreign
currency convertible bonds
(FCCBs) issued by Indian
firms abroad.
Did grey areas exist
about holding of shares in
an overseas company or
setting up of a company
abroad?
While holding of shares of
an overseas company has been permitted since 2004, a
grey area prevailed for a few
years on whether a resident

Indian individual was permitted to set up a company

overseas as opposed to acquiring shares in an existing
overseas company.
In an FAQ dated September 17, 2010, the RBI had said:
LRS did not permit remittance by an individual for
setting up a company overseas. This FAQ did not specifically prohibit investing
in shares of existing overseas companies.
Representations were made to the RBI and subsequent
notifications cleared the air.
The RBIs notification dated
March 5, 2013 but published
on August 5, 2013 clarified
that an overseas company
can be set up by a resident Indian individual. However, experts claim that for the period
between 2010-2013 a grey area
continues on the legality of
setting up of overseas companies by resident individuals.
The 2013 notification has
added that the joint venture
or wholly owned subsidiary
to be acquired or set up by a
resident individual shall be
an operating entity only.
This overseas company

could not in turn act as an

investment company and
acquire another subsidiary
or set up another subsidiary
(In technical terms, there
was a prohibition on stepdown subsidiaries be it fully
owned or by way of controlling interest.
In other words, a company in a tax haven, be it Panama, or the British Virgin
Island, which has been set up
under the LRS scheme by a resident individual, cannot invest in another company, say
a company in India.
Does LRS enable roundtripping?
Round tripping involves getting money out of one country (say India) and sending it
to a tax haven only to be dressed up as foreign capital and
sent back to India.
While LRS permits holding shares in an overseas
company or even setting up a
JV or WOS overseas, it is clear that such an overseas company has to be an operating
entity engaged in business.
Such a company cannot have
a step down subsidiary (as ex-

10-FOLD INCREASE
Annual remittances allowed over the years under LRS
LRS limit (Figs in $)
Feb 4, 2004
Dec 20, 2006

25,000
50,000

May 8, 2007

100,000

Sept 26, 2007

Aug 14, 2013

75,000

June 3, 2014
May 26, 2015

200,000

1,25,000
2,50,000

Source: RBIs Master circular dated January 1, 2016

plained above). Thus, round

tripping isnt permissible.
However, experts point
out that there are instances
where the overseas company
in a tax haven (set up under
the LRS route), buys shares
in an Indian private company at prices lower than
fair market value (the shares
are undervalued) and subsequently on sale of such shares makes a killing. In other
words, the overseas company
makes investments in an
Indian company contrary to
the LRS norms.
For instance, if the over-

seas company is a Mauritius

firm, the capital gains arising on a subsequent sale of
shares of the Indian investee
company is not taxable in India under the India-Mauritius tax treaty. If a Panama
Company has been incorporated, typically the shares in
the Indian company are held
via an intermediary company in Mauritius, to avoid tax
on capital gains.
As the ownership in some
offshore companies is opaque, such as in Panama where bearer shares do not have
the name of the shareholder,

keeping track of such roundtripping is difficult for Indian

regulatory authorities.
Have
tax
disclosure
norms been strengthened?
For the first time, in respect
of the financial year 2011-12,
resident individuals had to
file details of foreign assets
in their income-tax returns,
which included: bank accounts held in foreign countries (details of the bank, the
account held and peak balance during the year); financial interest in a foreign
entity (including the investments made); overseas immovable property, any other assets held outside India.
The disclosure details have been tightened with the income-tax returns for the financial year 2014-15 calling
for disclosures in foreign
trusts (even if the Indian resident taxpayer was a beneficiary or trustee).
Failure to furnish I-T
returns or furnishing incorrect details entails significant penalty of up to Rs 10
lakh and imprisonment of
up to seven years.