While there is no direct evidence of wrong-doing or illegality, the leaks provide an interesting window into the manner in which money is moved, manipulated and hidden behind complex corporate structures around the world.
New Delhi: A new international journalistic investigation based on data leaks from Bermuda and Singapore based firms has named and identified the secret offshore dealings of over 700 Indians, including politicians Jayant Sinha (MoS, civil aviation ministry) and BJP Rajya Sabha MP Ravindra Kishore Sinha, Bollywood personalities Amitabh Bachchan and Dilnashin Dutt (Sanjay Dutt’s wife) and industrialists such as Vijay Mallya.
This investigation involving the scrutiny of over 13.4 million tax documents from Bermuda’s Appleby and Singapore’s Asiaciti by nearly 100 media groups was launched on the basis of a leak from an anonymous source to the German daily Sueddeutsche Zeitung and was shared globally by the International Consortium of Investigative Journalists (ICIJ). The organisation in India responsible for the local-leg of reporting is the Indian Express.
While the India portion identifies a number of individuals and Indian corporates, the documents themselves do not as yet point to any evidence of wrongdoing or illegality.
Crucially, this time around, when compared to the earlier Panama Papers leak, a number of Indian companies also figure in the documents. According to Indian Express, these “include firms in the Sun-TV-Aircel-Maxis case; Essar-Loop 2G case; SNC-Lavalin in which Kerala Chief Minister Pinarayi Vijayan was named, then cleared; the Rajasthan ambulance scam which has recently been routed to the CBI and which names a company called Ziquista Healthcare (Sachin Pilot and Karti Chidambaram were early Honorary/Independent Directors of the firm respectively)”.
Appleby’s second-largest client internationally interestingly is an Indian company called the Sun Group, founded by Nand Lal Khemka; the group has as many as 118 different offshore entities.
Is this illegal?
Owning or contributing to an offshore fund isn’t an automatic crime in most jurisdictions. In India, as per the Reserve Bank of India guidelines, citizens were not allowed to start an overseas entity before 2003. However, this changed in 2004 when the central bank allowed individuals to remit funds of up to $25,000 a year under the Liberalised Remittance Scheme (LRS).
In 2013, the legal groundwork for offshore funds was finalised after individuals were allowed to set up subsidaries or invest in joint ventures abroad under the Overseas Direct Investment window. This means that before 2013, owning or contributing to an offshore bank account was mostly restricted.
In previous data leaks on high net-worth individuals who had offshore accounts, most noticeably the HSBC Geneva leaks, the people who were identified recieved tax notices and some have started being prosecuted for not declaring these offshore companies. In 2015, NDTV reported that the government started legal proceedings against 60 people who had been named in the Swiss leaks, indicating that they parked black or illegally obtained money in those offshore accounts.
What exactly do the Paradise Papers show?
In the Panama Papers or HSBC Geneva leaks, the issue was more about certain individuals holding offshore bank accounts.
In the Paradise Papers, the leaks come mostly from offshore service providers like Appleby. As the Indian Express puts, Appleby helps out with “offshore legal, fiduciary and administration services for facilitating tax avoidance to concealing identity of beneficial owners; round-tripping of funds and raising capital across numerous jurisdictions including Bermuda, British Virgin Islands, Cayman Islands, Guernsey, Isle of Man, Mauritius and Seychelles”.
Therefore, while wrong-doing or illegality cannot be assumed it provides an interesting window into how Indian firms use offshore havens to route money and carry out transactions.
Take the case of the Jindal Stainless Group. Indian Express reports that when a law firm approached Appleby in 2013 to appoint two nominee directors on two Mauritius-based companies of the Jindal Stainless Group (Jargo Investments and Vasava Investments), the offshore service provider “decided against going ahead with the appointments”.
The reason? The “compliance manager of Appleby raised a red flag that since the beneficial owner (Abhyuday Jindal) was of Indian nationality and investments were being made in India, there is the risk of ‘round tripping'”.
“We need to be careful on any potential round tripping issue (it appears that the beneficial owner is from India and investments have been made in India), as such we might need to ensure that the company has the necessary approval from the revenue authorities in India,” the compliance manager wrote in records accessed by the Indian Express.
Other issues that may need to be investigated include a potential conflict-of-interest transaction between Fortis-Escorts boss Ashok Seth and a Singapore-based company that manufacturers stents and a massive corporate restructuring exercise carried out by Mallya that appears to have been done for the express purpose of diverting funds.
Why is BJP MP R.K. Sinha on the list?
According to the investigation, Ravindra Kishore Sinha, who founded the private security service firm SIS or Security and Intelligence Services before becoming a MP, heads a group which has two offshore entities.
“According to records of the Malta registry, SIS Asia Pacific Holdings Ltd (SAPHL), registered in Malta in 2008, is a subsidiary of SIS. Sinha is listed as a minority shareholder while wife Rita Kishore Sinha is a director of SAPHL. Records show that SIS International Holdings Limited (SIHL), a company incorporated in British Virgin Islands, holds 3,999,999 shares in SAPHL while 1 share is with Ravindra Kishore Sinha,” the report notes.
In his Election Commission affidavit submitted during his nomination for the 2014 Rajya Sabha election, Sinha allegedly made no mention of this and his wife’s association with SAPHL nor did he did declare this link to the Rajya Sabha after becoming a member. In his statement to the Indian Express, Sinha notes that due to “prevailing regulation” in foreign countries, he is required to hold “1 share each in these companies” and that “all disclosures required to be made in my personal income tax returns, in respect of my assets, have been made.”
MoS civil aviation
Jayant Sinha’s name appears on the list as a result of his earlier disclosed work with the Omidyar Network; he was its managing director in India.
According to Indian Express, Omidyar Network invested in a US company called D.Light Design which has a subsidiary in Cayman Islands in the Caribbean Sea.
“Records of offshore legal firm Appleby show Sinha served as Director of D.Light Design — he did not mention this in his declaration to the Election Commission when he contested the Lok Sabha polls in 2014, nor to the Lok Sabha Secretariat or the Prime Minister’s Office as a Minister of State in 2016,” the report notes.
Sinha’s name appears on the list because D. Light Design took a $3 million loan through its Cayman Island’s subsidiary from an investor based in the Netherlands; Appleby’s records “mention a loan agreement dated December 31, 2012. Sinha was Director at D.Light Design when these decisions were taken”.
In a series of tweets on November 6,Sinha said the transactions were legal and bona fide. “The transactions were undertaken on behalf of highly reputed world-leading organisations in my fiduciary role as partner at Omidyar Network and its designated representative on the D.Light Board,” the minister of state for civil aviation said.
While D.Light Board was not specifically mentioned in his 2016 declaration to the PMO, Sinha did mention: “The declarant may be entitled to carried interest in certain investments made by Omidyar Network entities in the years 2009 to 2013. The value of the carried interest that may be received by the declarant (if any) is not capable of determination”.
On joining the union council of ministers, Sinha severed his association with D.Light Board.