The Wheels of Justice Grind Slowly in Prosecuting Illegal Offshore Dealings

The income tax authorities, the courts and the Enforcement Directorate have all started making some headway into investigating previous leaks on money stashed away in offshore tax havens

Various agencies are making slow headway into previous data leaks on offshore dealings. Credit:

Various agencies are making slow headway into previous data leaks on offshore dealings. Credit: GSTIdea

New Delhi: At a time when the leaked documents of Panama law firm Mossack Fonseca have revealed how nearly 500 Indians, including well-known film stars, politicians and lawyers, had stashed away their money abroad, a look at the progress of similar cases in the past  shows that the wheels of justice have turned very slowly, albeit steadily, in the last three years.

Exactly three years to this day, the findings of a similar expose by The International Consortium of Investigative Journalists were reported by The Indian Express and the names of some Indian connected to companies floated in British Virgin Islands were revealed. The report had revealed how BVI, a Caribbean tax haven was much sought after by Indian barons for parking their ill-gotten wealth abroad.

The information on BVI companies came out following a massive data leak at Portcullis TrustNet Group, the service provider. It was revealed that after opening bank accounts with the help of overseas agents, Indian residents were remitting funds through the hawala route to them for investing in companies being floated there.

While nearly three years have passed since, the action against those named has been slow. But the matter has now reached the courts and summons have been issued to some of the accused persons on the complaint of the Income Tax authorities, which have been probing the tax evasion cases.

Last month, the Bombay Metropolitan Magistrate Court issued summons to at least four persons following complaints against them by the Income Tax department. The prosecution notices stated that the Income Tax authorities had “credible information” to believe that the persons named in the complaints were dominant shareholders of BVI firms having bank accounts in Singapore, but had neither disclosed their shareholding or the bank accounts in their tax returns.

A legal source was quoted by the report as saying that since the companies set up in British Virgin Islands could be holding properties in other countries, the accused persons could even face arrest, if they were unable to obtain a stay from the High Court. “These summons relate to the primary charge that overseas assets were not disclosed in the tax returns. It’s not about the quantum of money for which additions and appeals would go on a parallel track. Clearly, the government is intensifying the probe as earlier this year several shareholders of BVI firms had received notice from the Enforcement Directorate,” the source said.

In the case of the Swiss Leaks too, which primarily involved information on secret accounts many Indians had opened with the Geneva branch of HSBC bank,  the investigation by the Indian agencies has made some progress. Income Tax authorities had taken to investigating the tax evasion angle by the nearly 1,195 names which had finally emerged after the total list of 1,668 – that included 628 provided by the French authorities and the remaining emerging from the second HSBC list released in February 2015 – was checked for duplication and other factors. These accounts were found to be having a balance of Rs. 25,420 crore till 2007.

The Income Tax authorities had launched prosecution against 140 individuals, bringing undisclosed income of over Rs 3,000 crores in foreign accounts under the tax net. They had also issued 50 notices in cases related to the ICIJ data.

The Enforcement Directorate, which deals with issues of foreign exchange violation, later joined in the investigations and launched its own parallel probe as the Supreme Court-appointed Special Investigation Team wanted it to probe the foreign exchange violation aspect in these cases.

It was in November 2015 that ED began  a preliminary investigation into these cases to probe the hawala and money laundering angles. It later began obtaining court documents into the Income Tax department’s probe against some of the accused.

Though both the ED and the SIT wanted the Income Tax authorities and its apex policy-making body Central Board of Direct Taxes to share the documents with them, the request was ostensibly turned down every time on the ground of it being violative of various foreign treaty obligations to which India is bound.

The Directorate subsequently has so far issued notices to 30 Indians whose names had figures in the list of account-holders that was shared by HSBC.

Those put to notice by ED have been asked to furnish information on their assets under Section 37 of Foreign Exchange Management Act (FEMA), especially with respect to their domestic and overseas accounts between 2005 and 2015, which coincides with the period for which HSBC had provided the account details.

Most of those served with notices are from Mumbai or Bengaluru. Sources said the agency has asked the respective Swiss bank account-holders to disclose details of their domestic and overseas accounts from 2005 to 2015. The recipients of these notices are mostly based in Mumbai and Bengaluru.

An official said these people have a substantial amount in their bank accounts. “Attachment of accounts can be made in a bid to prevent siphoning of money to other friendly countries, before the investigation comes to a logical conclusion,” said an ED source.

In the case of the investigation by ED, there has also been a change in the approach in the past couple of months. While to begin with, it was a little coy about making its intentions clear as it had issued notices to about seven people, later it became quite candid.

Though legal experts believe that the Directorate could have trouble in explaining how it got the information on the personal details of the HSBC account holders since the Income Tax authorities are not supposed to share them with any other agency and because information obtained from other countries for recovering of tax can also not be used for other purposes, the fact that SIT was in support of such investigation may have helped ED in opening out.

Meanwhile, the fight against money laundering seems to gaining strength with nations coming forward to disclose information on secret accounts. After Singapore, which shared information on 1,200 individuals, with about 400 of them being Indians, the authorities have not started charging such people under the Foreign Exchange Management Act (FEMA) and stringent provisions of the Prevention of Money Laundering Act (PMLA).

The fight, as Union Finance Minister Arun Jaitley hinted today could get more teeth from 2017 when “G20 initiatives, FATCA (Foreign Account Tax Compliance Act) and bilateral transactions in place” come into effect.