The Enforcement Directorate (ED) has instituted formal investigations against 41 Indian nationals whose names cropped up in the Panama Papers leak for alleged undisclosed business interests in offshore companies. Notices have also been served on several entities to join the probe.
In at least 20 cases, the Reserve Bank of India (RBI) has confirmed prima facie violations of the Foreign Exchange Management Act (FEMA) rules by the suspects, mandating further scrutiny by the Directorate.
The agency, which is also conducting preliminary inquiries in more than 300 cases, is gathering details to quantify the exact amount involved.
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Indian authorities are also approaching their counterparts abroad to permit use of the data shared with the Income-Tax Department under the Double Taxation Avoidance Treaty for probing money laundering offences. Over 250 requests seeking information are pending with the tax authorities.
3 types of violations
Now under investigation are largely three types of violations: the first being the incorporation of companies overseas, and the second, acquisition of the majority shares of such companies, in contravention of FEMA rules that were valid till 2013.
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If investments for acquiring the shares were not made through the RBI’s Liberalised Remittance Scheme, it would amount to yet another violation attracting penalty.
However, the third and most serious violation is opening the accounts of such companies and using them to stash slush funds diverted from various sources abroad.
The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act stipulates that even those who took recourse to the voluntary disclosure of income scheme, launched in 2015, will come under the scanner if they are found to have not fully declared the overseas assets they held during the check period.
The ED has sent 13 requests to the Egmont Group, an international platform comprising Financial Intelligence Units of 152 foreign jurisdictions for secure exchange of expertise and financial intelligence on money laundering and terror funding, seeking information on suspicious transactions.
After the Panama papers were made public last year, the Income-Tax Department had initiated investigations against more than 400 individuals and on a follow-up, over 200 admitted that they had interests in offshore companies. In about 30 cases, the tax authorities are learnt to have received sound evidence from overseas, on the basis of which the violators may be prosecuted.
The Income-Tax Department has sent over 250 requests to the British Virgin Islands, and about 20 to Switzerland and 10 to UK for details. Responses have been received in close to 100 cases.
Action against the violators under the new anti-black money law can also lead to their prosecution under the Prevention of Money Laundering Act. Investigations in the Panama Papers cases, which blew the lid off offshore entities set up or controlled by many prominent Indian nationals, have given strong reasons to the agencies to believe that a major portion of funds held in those companies ultimately made their way to the United Kingdom.
An analysis of the data available thus far with the investigating agencies has indicated that some parts of the fund stashed abroad were brought into the country through Mauritius, while the rest got diverted to London. However, officials said, the final picture will emerge when all the transaction details are handed over to India.
Incidentally, several alleged financial offenders - including Vijay Mallya, arms dealer Sanjay Bhandari and former IPL chief Lalit Modi - are currently in the UK. Indian authorities are in talks with their UK counterparts to facilitate their prosecution. About 37,000 files pertaining to Indian entities were part of the 11.5 million financial and legal records leaked from the Panama-based law firm Mossack Fonseca and released by the International Consortium of Investigative Journalists last year.