Pandora Papers – Hide & Seek Lucre

Whatever be the ostensible reasons for stashing away money in offshore tax havens, the main objective is to hide the money from family, associates, creditors, tax liabilities, the nation. All indicators suggest that it is ill-gotten wealth, else why would someone spend money to keep it in hiding?

We used to be taught in our childhood ‘united we stand and divided we fall’. I do not know as to how many of us remember this maxim and follow it. But the recent paper leaks have established that there is a section of the elite who stand by this great principle but for a bad reason. The paper leaks earlier came as ‘Panama Papers’ and now these leaks have been dubbed as ‘Pandora Papers’. Pandora Papers are a reincarnation of the Panama Papers after a gap of five years. These leaks have been made possible by a consortium of international journalists grouped as the International Consortium of Investigative Journalists (ICIJ), the body based in the USA.

Ill-gotten stash

A powerful section of people is together in this, hiding their ill-gotten wealth in offshore companies and offshore Trusts. These people think alike as they transfer their black wealth clandestinely to tax havens and keep them in hiding under the names of some shell entities. They take the services of some well-known professionals having expertise in creating and managing these shell entities in tax havens. The choice of tax havens is because of no tax or very less in those areas. The choice of these areas is also determined by the laws, which do not reveal the real investors. The identity of the real investors is hidden but the wealth so kept can be used anywhere in the world for acquiring assets.

The Panama Papers related to the tax haven, Panama and the leak came from the documents created by Mossack Fonseca, a leading law firm of Panama, having offices worldwide in 42 countries. Mossack operated in Switzerland, Cypress and the British Virgin Islands, to name a few countries of his operation. The leaked papers were named ‘Panama Papers’, as the creator of the documents was mainly based in Panama.

Of the rich and mighty

The trove of leaked financial documents now under the name of ‘Pandora Papers’ comprises 11.9 million confidential documents. These papers once again reveal as to how the world’s ultra-rich and powerful shield their fortunes from prying eyes, high taxes and law enforcement agencies. The documents now leaked are from the collective work of many professionals and not just one legal eagle. The leaked documents under Pandora Papers include names of many serving heads of the countries, together with some former heads too. One head of a very powerful country is linked with it because of his mistress who acquired a property in Monaco with the use of the hidden wealth in an offshore company. About 300 names of Indians have come up, which include well-known industrialists, top sportsmen, film people, hoteliers, and many such others.

The leaked papers show that billionaires and celebrities have used their offshore companies to acquire mansions, private jets, and stakes in companies with little or no transparency. The name ‘Pandora Papers’ has been given as the findings that shed light on the previously hidden dealings of a section of the elite and the corrupt. Between the Panama Papers and the Pandora Papers, there have been similar leaks like ‘Paradise Papers’ in 2017 and ‘FinCEN files’ in 2020.

It is ironic in this world of billions of poor, starving, and malnourished people, that there are people who have so much wealth that they keep on hunting for places to hide their wealth. I recollect what Mahatma Gandhi said on the issue of the rich and the poor. He said that the rich should consider themselves as trustees of wealth, held on behalf of the poor. If the rich associated with these offshore entities had remembered what Mahatma had said, then they would not have transferred their wealth into tax havens but instead would have spent the excess wealth to meet the needs of the poor. What is equally painful is that some scholarly legal brains get involved in helping such rich people in their endeavour to hide their excess wealth.

"Black money to the global economy is what pollution is to the environment. There is no scientific survey about the quantum of black money in tax havens but studies estimate that it is anywhere between $5 trillion to $30 trillion"

Accomplices in crime

The Pandora Papers reveal the name of one legal eagle, Alcogal (Alemán, Cordero, Galindo & Lee) who was involved in creating the infrastructure to hide the ill-gotten wealth. Alcogal created 14,000 offshore entities in tax havens like Belize, the British Virgin Islands and Panama and was also involved in helping the Jordanian King, Czech Prime Minister, Montenegro President and three former Presidents of Panama. The legal brains earn a huge fee from their clients but the fact remains that they become accomplices in the evil designs of their rich clients. Is it ethical? The global legal brains must give a thought to this question.

Some may say that I have earned and created this wealth and then what is wrong with the way I keep it? The simple answer to the question is that there is nothing wrong if the income is from rightful sources and if taxes have been paid on that. Such tax paid money earned will remain in broad daylight and need not be kept under shady names to hide the identity of the person who owns that money. Transferring this money to far away tax havens can only mean that the money is not obtained by legal means. The leaked papers indicate that the intention of the people associated with the offshore companies or trusts is to hide their wealth.

Fear of getting caught

Creating offshore entities is not illegal in itself. But the most common reason for the creation of offshore companies is tax evasion and that is illegal. Owners of tax evaded money feel fearful of getting caught and hence, some of them transfer that money to offshore tax havens to evade any action by the government. They feel secure that their money has gone offshore. The second common reason for taking the money to offshore destinations is the ill-gotten source of that money. Money earned by corruption, drug trafficking and such illegal means has to be separated to protect the very person who has earned it. It is something like a thief who does not like to keep the stolen goods at his own place. Such illegally earned money is also tax-not-paid-money.

The third reason found is to keep the wealth in such a manner that members of the family, business associates, and creditors remain unaware of the whereabouts of the wealth and this is done as a preventive measure to nullify any future legal action. One person who kept money offshore has admitted that he wanted to save his wealth from his wife who was to go for divorce proceedings.

Reasons aplenty

The fourth reason witnessed is for the purchase of luxurious properties the world over in a non-transparent manner. To explain this, take the example of the mansion where Vijay Mallya lives in London. His huge mansion ‘Ladywalk’ is in the outskirts of London and its ownership is buried under many layers of offshore companies and offshore trusts. Presumably, the mansion belongs to Vijay Mallya but the purchase is not in his name but in the name of an entity whose ownership is opaque.

Another reason is to plan the inheritance of the estate amongst legal heirs in such a way that there cannot be any legal battle as per the law of the land and also to escape estate duty in countries where it is applicable. Private offshore trusts are created for this purpose.

Tax avoidance planning is also one of the many reasons. People go offshore where the tax rate is less. It is not illegal as it is not tax evasion but only tax avoidance.

Spend to hide

Journalists have confronted some of the people in India whose names appear in the Pandora Papers. Most of them have stated their money in the offshore tax havens is white money and can be explained. But none of them has clarified as to why they took the arduous route of transferring their money and even spent money on advocates to create a sham infrastructure to hide their money. The money kept in fixed deposits with banks in India would have earned a respectable interest income while the money kept in tax haven companies involve maintenance cost. No wise person will forego income on his money and on the contrary choose to incur unnecessary expenditure in keeping his money in tax havens. A common-sense conclusion is that money going to tax havens is not the regular white money. Anyway, the burden is on the investors in tax havens to explain about their money after the paper leaks.

I, as a former taxman, got shock when my old department recently made a huge cash seizure of Rs.142 crores during the income tax search of a Hyderabad-based pharma company. The search is still in progress and the seizure amount may still increase. Cash seized was unexplained black money. The existence of such big tax evaded money is the real cause of the creation of offshore companies. Black money to the global economy is what pollution is to the environment. There is no scientific survey about the quantum of black money in tax havens but studies estimate that it is anywhere between $5 trillion to $30 trillion.