Last year the Panama Papers lifted the veil on the illicit accounts of a huge number of rich and famous people from a host of countries stashing away money in tax havens. Those disclosures came to light when someone broke into the computers of the law firm, Mossack Fonseca, and provided the print-outs to the International Consortium of Investigative Journalists of which The Indian Express is a member. Several Indians were holding tax-evaded money in the tax havens, such as the British Virgin Islands.
The resulting public outcry forced the authorities to investigate. According to an official Finance Ministry statement, over two hundred such account-holders were prosecuted and in a majority of cases slapped with tax demands and requisite penalties. Last week, another secret tranche of papers was exposed world-wide. Some 13.4 million files from two offshore service providers, Bermuda’s Appleby and Singapore’s Asiaciti, relating to 19 tax havens were sourced by the German newspaper, Suddeutsche Zeitung, which in turn shared these with the ICAJ.
After thorough sifting, the media outlets which are members of the ICAJ have systematically serialised the findings from these evocatively called Paradise Papers. These feature well-known figures from the world of industry, business, Bollywood, politics and, of course, media as well. Among the prominent foreigners, the most famous, of course, is the British Queen whose private estate has invested millions in a Cayman Islands fund. There are a couple of senior figures in the Trump Administration and members of Vladimir Putin’s inner circle, including a company linked to his son-in-law. Canadian Prime Minister Justin Trudeau’s financial manager too figures in the list. Again, world-renowned universities, such as Oxford and Cambridge, besides a number of equally well-known British colleges, have invested their endowment funds in offshore entities.
It has been said on behalf of the Queen that her estate manages her private finances and though she had no personal knowledge such investments were fully in conformity with the law. Ditto for the two British universities. Maximising yields from such investments being the objective, tax havens come in handy, though how far these are morally tenable is unclear. Significantly, the law firm, Appleby, whose computers yielded the bulk of the payload, claims that it violated no law and is engaged in providing legitimate offshore legal services to its clients. Besides Bermuda, it has operations in Cayman Islands, the British Virgin Islands, the Isle of Man, Jersey and Guernsey. Not only does Appleby assert its own legitimacy, but, it maintains that its clients too broken no law.
Whether the Indians uncovered by the Paradise Papers had lawful accounts can be known only after the probe announced by the Finance Ministry is completed. They may well be holding legitimate accounts in tax havens, given that an increasing number of Indians operate legally in multi-jurisdictions. Yet an air of suspicion surrounds such accounts. Distrust and suspicion might be a hangover of the socialist era, but is not misplaced since most Indian businesses do tend to cut moral and legal corners. As in the Panama Papers, it is hard to rule out wrong-doing in the latest expose.
Before the Panama Papers, the Germans had uncovered the illicit accounts of a number of Indians with the HSBC Bank. The guilty were duly penalised, according to the Finance Ministry. Likewise, how many in the Paradise Papers are guilty is now a matter of inquiry. But given the serial disclosures about offshore illegal accounts, it may be time for the principal nations maintaining them to shut down their operations. Post- 9/11, the heightened scrutiny of terror funding has made the tax havens vulnerable to sudden public exposures. The old iron-clad secrecy of the legendary Swiss accounts stands pierced.
Led by the Swiss, a number of tax havens have reviewed their laws to make it harder for tax thieves to stash away their illicit hordes in secret accounts. In some cases, conscientious employees hastened the move against excessive secrecy, no doubt encouraged further by sections of the public-spirited media. Admittedly, quite a few tax havens rely on banking operations for a large part of their income.
However, the periodic breach of secrecy and the resulting embarrassment to the account-holders ought to spur a relook at the need for persisting with these tax-free islands when transparency in global money movements is absolutely essential for fighting jehadi terror. India, on its part, should consider making its tax laws simple and rates attractive to obviate the attraction of tax havens. Tax evasion, at least, partly, stems from high rates and irksome requirements. Complexity and excessiveness of taxation ought to be removed to facilitate easier compliance. Simultaneously, ways to stanch the growth of black money at source will help end the flight of funds to tax havens.