For Sale: Shady Panama Hats, Tailors, Laundromats

Proving culpability in the case of Panama papers leak will be difficult, writes Gautam Mukherjee.

Ramon Fonseca, of the suddenly famous law firm Mossack & Fonseca – housed in an impressive steel and glass building in the canal country of Panama – could be the real Tailor of Panama.

Did John Le Carre’s fictional Harry Pendel just come to life? Except that Fonseca tailor-makes companies to suit his purpose.

He does so for the rich, famous, powerful, and dangerous too. The fictional ex-convict Harry made bespoke suits for the Who’s Who of Panama, pretending he was Savile Row, not prison-craft. Plus he tailored information for MI6 to overthrow the government.

The juicy ‘Panama Papers’ from Fonseca, involving laundered money, dodged sanctions, and evaded taxes of some 240,000 companies over 40 years, has just come to light.

Fonseca insists THAT his is a respectable firm, perfectly legitimate, and he is just a ‘victim of an international campaign against privacy’.

But this line isn’t working, particularly when the top link in the scandal involves Vladimir Putin, and at least $2 billion. Xi Jinping, running an anti-corruption drive in China, along with protectee Nawaz Sharif, features too.

The client list roll-calls kings, 72 former heads of state, prime ministers, lawyers, international mafia, solo gangsters, politicians, dictators, businessmen, bankers, actors, footballers – and FIFA too.

News Organisations Lap it Up

It is so ubiquitous that it seems as if those who are not using Mossack-Fonseca must be using someone else. But, the tax haven/offshore company business is badly threatened. Discretion is clearly breached. The old pen-and-ink code secreted in vaults has given way to hackable computers despite encryption.

This present lot, passed on over a year ago, is from just one anonymous ‘partial hack’. It exposed 11.5 million documents, 2.6 tetrabytes, on 214,000 shell companies, set up between the 1970s and 2016.

The trove was sent first to the German paper Suddeutsche Zeitung, and then distributed to a filmy-sounding ‘International Consortium of Investigative Journalists’, in 78 countries, and 107 media organisations, to make sense of it.

This is practically everybody in the international media business.

India received its portion through The Indian Express where staffers have been beavering away for over eight months on code-named ‘Project Prometheus’. Discovering ‘beneficial ownership’ through a thicket of proxies is no easy task! That’s where Ramon Fonseca earns his money.

The analysed news has now just broken, and unlike in the old print era, there are no ‘yesterday’s papers’. This stuff is going to be immortal in cyberspace.

False Indictment?

• Indian names popping up on the Panama list does very little in terms of proving the culpability or lack thereof.
  
• Shell companies set up before 2004 were not allowed for resident Indians but if you had a non-resident friend or relative signing up, there is no prima facie wrong-doing involved.
• Legal loophole exists, with limit for foreign remittance being but terms and conditions of setting up offshore companies not made clear.
  
• The ambiguous drafting of our laws and administrative orders leaves room for interpretation.
  

Proving Culpability

The Indian actors on the list pose various dilemmas of culpability or lack thereof. It is to do, at least partially, with the ponderousness of a closed economy opening up at snail’s pace.

All the shell companies set up for Indians before 2004, were simply not allowed for resident, repeat resident, Indians. But if you had a non-resident friend or relative signing up, there is no prima facie wrong-doing involved.

Then, if there is business and profit, and resident Indians are indeed ‘beneficial owners’, there may be a case of possible tax evasion. But, usually it is seen to that there are no profits to tax, given the expensive lawyers and financial experts that attend. And people turn NRI at will.

Why go so far? It’s amazing how many domestic companies with prosperous promoters/shareholders, happily run at a loss year after year, all profits presumably gone to cash!

Legal Loophole

The legal position is also typically tortuous. In 2004, the RBI allowed, for the first time, $25,000 per resident individual p.a., to be taken abroad officially, no questions asked. Even this amount was quite enough to set up shell companies, because nobody explicitly said you couldn’t.

This was subsequently liberalised, in stages, to $250,000 per individual, reduced in a foreign exchange crunch, increased again etc. So now, individuals and families could buy property, shares, but still, though it was not made crystal clear, set up offshore companies.

In August 2013, an ODI, overseas-direct- investment permission was, at last granted by the RBI.

Early days as it is, many named Indians, have responded they are not the ‘beneficial owners’ anyway.

Mere Jamboree?

It will take a month of Sundays to prove anything, and it is doubtful if the Indian authorities have the expertise, political will, or the manpower to accomplish the task.

It makes for a fine entertainment though- imagining so many prominent people caught in embarrassing circumstances. Look at the names: KP Singh, Vinod Adani, Harish Salve, Jehangir Sorabjee, Amitabh Bachchan, Sameer Gehlaut, Iqbal Mirchi, Garware, Shishir Barjoria, Onkar Kanwar, Poonawalla, Rajendra Patil, the Salgaocars, Sivasailam, Rashid Mir.

There are over 500 Indian names, with more specifics to be revealed.

What prompts this? Maybe income and corporate taxes applied to a mere 3% of the population instead of everyone. And of this hapless 3% , a miniscule section is rich enough to seek Panamanian help. Then consider the onerous indirect taxes applied. Plus the black money sent off via hawala that needs tending.

The ambiguous drafting of our laws and administrative orders leaves room for interpretation. Smart chartered accountants are trained to exploit loop-holes, even now, with the Modi government promising stern action. Its politics versus greed, but greed has guts, imagination, and enormous ingenuity.

(Gautam Mukherjee is a plugged-in commentator and instant analyser)

Also read:

Mossack Fonseca Denies Business With “Most” Names in Panama Leaks
Indians in Panama Papers: Amitabh Bachchan, KP Singh, Aishwarya