Panama Papers: What is hiding behind the secrecy walls?

One of the leading controversies of our time is the perpetual ability of the elite to keep money in foreign countries. Equally matching is the government’s inability to block it not to say its inability to bring back it.

Despite higher return are in India, rich and the affluent park their money abroad because of the many inbuilt advantages with offshore options. Choices are wider – there is scope for keeping money in secret accounts and in the form of ‘companies’ to get the advantage of the most attractive feature of having offshore wealth – secrecy.

“The offshore world has really only one product that is secrecy.” -asserts one of the journalist who belongs to International Consortium of Investigative Journalists (ICIJ) who brought the Panama papers in public. Many describe Panama Papers as a massive blow to secrecy.

The profile of the leaked law firm-‘Mossack Fonseca’ itself indicate the volume and depth of the offshore money keeping business. Mossack Fonseca is the fourth largest law firm in the world and it created nearly 200000 companies for its clients.

The law firm operates in major tax havens including British Virgin Island and Panama. Its client base is wide and the company has operations in 42 countries.

In offshore money holding, law firms are the anchors. They provide the brain to escape from taxes and at the same time to be safe in front of laws. Legal firms generally tailor two important products to their beloved clients – companies and accounts. Companies are formed within days and the cost is just a few hundred dollars. Such companies are called as shell companies.

Shell Company is a corporate entity without active business operations or significant assets. They are often created to avoid taxes and many big companies create shell corporations to avoid taxes without attracting legal actions.

 Russian and Chinese connection to the leak

The largest number of people in the Panama Paper are from China, Hong Kong and Russia. Though developing country rich are having a more than proportionate representation in the list, it contains less Indian names- around 500. India has not mapped big in the Panama Papers. Russian President Putin is the ‘catch’ of this fishing. Western media has celebrated the involvements of Putin’s close associates in the documents.

For China, many of the existing and former Chinese leader’s relatives are mentioned. A notable figure is President Xi Jinping’s brother in law. China has censored internet related to the Panama leak news.

Why Panama Papers matters for India?

The revelations will test the ability of India’s existing arrangements to act on offshore accounts and other transactions.

Offshore accounts are not illegal. Many accounts are supposed to be legally fit as they have valid ratifications though the accounts keep privacy. Already few mentioned Indians in the papers claimed that they are holding their wealth after using the Liberalized Remittance Scheme. LRS allows citizens to remit up to $250000 in a year for selective current account and capital account purposes.

But some pertinent questions will haunt the government of India about the Panama leak in future.

  • Whether residents who held money offshore under the leaked document reported their income to the tax authorities to pay tax?
  • Whether these assets are disclosed under the Undisclosed Foreign Income and Assets Act?

As per tax laws in India, residents should pay tax for their income and assets held in foreign countries. Hence, not disclosing the income from foreign accounts is tax evasion. Similarly, all citizens and entities should make statements about the undisclosed income as per the UFIA Act 2015. If the Indians who have account or companies in overseas as per Panama revelations and if they haven’t revealed so far, the government has the responsibility to initiate prosecution under the Act. 


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