April 10, 2016

Panama Papers: Modi Regime’s Toothless Action

THE Panama papers have given a glimpse of the extensive network of shell companies and secret entities in tax havens around the globe which service the needs of the wealthy and powerful of the world. The Indian Express has published details of Indians who have utilised the services of a law firm, Mossack Fonseca, headquartered in Panama for acquiring shell companies off the shelf. These shell companies are registered in various tax havens such as the British Virgin Islands and Cayman Islands. A leak from the Mossack Fonseca of 2.6 terabytes containing 11.5 million documents has facilitated this exposure. They have been processed and analysed by the International Consortium of Investigative Journalists and the findings published in hundred newspapers around the globe. The Indian Express, as part of the collaborative effort, has published a series of reports revealing the 500 Indians who are involved in this murky business. The Panama papers have already created an international furore. The prime minister of Iceland, Gunnlaugsson, was forced to resign after his name appeared in the setting up of a shell company which was later transferred to his wife. The resignation came after big protests outside the parliament. The prime minister of Pakistan, whose sons and daughter have shell companies in tax havens, has farcically appointed a committee to enquire into the matter headed by a retired Justice. The British prime minister, David Cameron, is hard pressed to explain whether he or his family benefitted from a fund set-up by his father through Mossack. Various other countries have ordered probes into the involvement of their citizens. Much of this is posturing considering the fact that it is well known that the world’s wealthy and big corporations have been putting their funds and assets into shell companies to avoid taxes in their home countries or to facilitate money laundering. Criminal syndicates have been using such entities for funneling drug money and for buying of weapons. The Fonseca papers reveal information on 2,14,000 offshore companies. There are other companies engaged in similar business in tax havens which indicate the extensive network which has been built up over the decades to help the corporations, the rich and the criminal elements to flourish. This is one of the ways inequality has also gained since governments have been deprived of tax revenue which could have been used for public welfare. According to Gabriel Zucman, an economist at the University of California, 8 percent of the global financial wealth estimated at $ 7.6 trillion is hidden in offshore tax havens. The list of Indians revealed by The Indian Express analysis consists of big businessmen, politicians, film stars, corporate executives and lawyers. Earlier, The Indian Express had through the same consortium of investigative journalists published a list of Indians who held secret accounts in a Swiss branch of the HSBC Bank. There was also the earlier exposure of the account holders in a Liechtenstein Bank. These were all indications of how wealthy Indians and companies use tax havens for evading taxes, funneling away illegal wealth acquired and money laundering. The Modi government which made the most noise about unearthing and bringing back black money from abroad is being shown up as being toothless in enforcing its pledge. The government has announced that as per the direction of the prime minister, it is constituting a special multi agency group to look into all cases of Indians set-up offshore entities in tax havens. The finance minister, Arun Jaitley, is eloquent about how such exposures will help the government rack down illegal money kept abroad. However, the track record of the government inspires no confidence. Two years after the Modi government’s coming into office, very little has been accomplished so far to bring black money back into the country. The Modi government has only taken a technical view of those who have kept money illegally in secret accounts and operated shell companies. The earlier exposures have only led to some tax notices to those who have not declared their money or assets abroad. As for Jaitley’s claim that multilateral treaties will help India track down those who indulge in such illegal activity, Jaitley is only indulging in wishful thinking. For instance, Panama is not a signatory to the International Automatic Information Exchange Treaty devised by the OECD. Most of the loopholes in such treaties are sufficient for the tax havens to ignore their directives. The finance minister and the RBI governor harp on the fact that many of these acquisitions and accounts abroad may be legitimate. This is evading the real issue. Why does the government have to legitimise shell company acquisitions and maintenance of secret accounts in tax havens? Earlier the government had failed to get information from Mossack Fonseca on queries about certain accounts and business dealings. It did not even take the step of blacklisting Panama as an uncooperative tax territory, a step which the French government has taken. If the Modi government is serious about cracking down on black money, tax evasion and money laundering, then it should impose a blanket prohibition on Indians acquiring shell companies and operating secret accounts in tax havens. This is apart from confiscating the illegal money and assets of those in the Panama list. But the BJP government will not dare to do so as the whole system of international finance capital is intertwined with the elaborate structure of tax havens and shell companies. After all, it was the earlier NDA government which opened up the Mauritius route for financial investments from abroad which has become a big source for money laundering and round tripping. The action proposed to be taken on the Panama papers further confirm that the Modi government will only scratch the surface and is unwilling to touch the structure of tax havens, money laundering and the generation of black money. (April 6, 2016)