As Paradise Leak Rages, What Have Agencies Done on Panama so Far?

Just 46 of the over 500 Indians whose names cropped up in the Panama Papers have been charged with FEMA violations.

Panama Papers leak.

(Photo: Rahul Gupta/The Quint)

In April 2016, the Panama Papers hit headlines when 11.5 million secret files of a Panamanian law firm, Mossack Fonseca, were leaked. The documents revealed the names of the individuals who paid the law firm to set up offshore entities in tax havens. These files were first reported by the International Consortium of Investigative Journalists (ICIJ).

Almost a year and a half later, ICIJ has conducted another global investigation into the offshore activities of some powerful people in tax havens - the Paradise Papers. Around 13.4 million leaked files were obtained by the German newspaper Süddeutsche Zeitung.

Around 714 Indians are named in the Paradise Papers, including big names like Amitabh Bachchan, BJP Rajya Sabha MP RK Sinha, corporate lobbyist Niira Radia, Sanjay Dutt’s wife, who figures under her former name Dilnashin, Minister of State for Civil Aviation Jayant Sinha, and Vijay Mallya.

So far, it is not clear whether those Indians named in the Paradise Papers have violated any law or not - that is now a matter of investigation for a multi-agency group. But it will be interesting to find out whether the multi-agency group made any substantial progress in their probe into the Panama Papers.

FEMA Against 46 Individuals: Panama Papers

Out of the over 500 individuals named in the Panama Papers, according to the Enforcement Directorate (ED), it has registered a case of Foreign Exchange Management Act (FEMA) violations against only 46 Indians. These individuals hadn’t informed the Reserve Bank of India before setting up offshore entities.

According to the ED sources:

• 381 Indians named in the Panama Papers were sent notices by the ED
• Of these, 181 admitted to owning an offshore entity
• 46 individuals were charged with FEMA violations on the RBI’s directions
• The remaining 154 individuals are yet to file a reply on the ED’s notice

Probe against all 381 individuals are on. So far, no clean chit has been given to any individual named in the Panama Papers, which includes names of politicians, celebrities and corporates.

Investigating Officer, Enforcement Directorate

The agency had issued these notices to the individuals named in the Panama Papers asking them to explain their foreign remittances since 2004 under the Liberalised Remittance Scheme (LRS) of the RBI.

But even if charged, the maximum penalty for the guilty is paying thrice the amount involved in the contravention, and at minimum a small penalty of up to Rs 2 lakh.

Will the Black Money Act Be Invoked On Top of FEMA?

The investigation doesn’t end with the registration of the FEMA case. During the investigation, if the Income Tax department finds that an individual has not declared foreign remittances in their Income Tax return, and that led to the generation of unaccounted money, the agency might then book the individual under the new Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

Now the question is, will all those charged for the FEMA violation also be booked under 2015’s Black Money Act? The answer is no.

According to sources in the Income Tax Department, if an individual had only set up an offshore firm without informing the RBI - and had not carried out any business activity through that firm - they are likely to be charged only under FEMA.

But if the individual had not only set up an offshore firm without informing the RBI, but had also opened a bank account to carry out business activities, then they will be charged under the new Black Money Act for generating unaccounted money and not declaring it to the Income Tax Department.

According to the Central Board of Direct Tax (CBTD) sources:

• 426 individuals named in the Panama Papers are under the CBDT scanner
• Of these, details of 349 individuals are available
• Details of 60 named individuals are yet to be identified
• The remaining 17 individuals might be charged under the new Black Money Act

We are likely to register case under the new black money law against a dozen individuals. The matter is under investigation.

Senior Officer, Income Tax Department

The CBDT is looking into undisclosed wealth worth around Rs 792 crore.

If caught under the new Black Money Act, an individual might face imprisonment of a minimum of six months and a maximum of up to 7 years.

Action against the violators under the new black money law can also lead to further prosecution under the Prevention of Money Laundering Act.

Earlier, the Income Tax Department had sent over 250 Letters Rogatory (letters of request) to countries like the British Virgin Isles, Switzerland and the UK, seeking details of several individuals. The department had received responses in around 100 cases.