By V. Nityanand
Published On: October 10, 2021 at 10:52 IST
Expose that shocked the World
‘Pandora Papers’ are documents of 2.9 Terabytes and almost 11 million in count published by the International Consortium of Investigative Journalists (ICIJ), which led to the exposure of several offshore holding’s ownership. The Papers first came to notice when the ICIJ first published it on the 3rd of October 2021.
The term ‘Pandora’ is seemingly a reference to Pandora’s Box, an artifact in Greek mythology, which, when opened ‘, exposed negative forces into the world similar to the manner in which these papers exposed concealed information. These documents may facilitate the initiation of Pandora’s box of investigation and lawsuits in the near future. ICIJ has described the leak as being the most expansive so far.
The estimated value of the exposed offshore holdings is somewhere between USD 5.6 Million and USD 32 Million. The reception to the documents has been that of shock, while the people who have been mentioned in the documents expressed their discomfort. The Prime Minister of Ivory Coast, Patrick Achi, chastised the ‘malicious use’ of information. At the same time, the former Prime Minister of the United Kingdom and his wife denied allegations of tax evasion or any other form of financial fraud.
The leak comes after the controversy surrounding ‘Panama Papers’, which are documents of the size 2.6 Terabytes and 11.5 million in count.
The documents led to the exposure of several attorney-client information related to over 200,000 offshore entities. They also contain financial information on affluent individuals and groups who managed to keep it hidden.
Some of the people who find mention in the Panama Papers include the King of Saudi Arabia, Salman Bin Abulaziz Al Saud, Argentinian President, Mauricio Macri and Icelandic Prime Minister Sigmunder Gunnlaugsson. In the aftermath, countries took up several initiatives to make techniques mentioned in the Panama Papers futile. In fact, the Swiss Bank, which is infamous for offering secrecy to its users, was forced to make disclosure of otherwise confidential information.
Modus Operandi and Means of Discovery
The ICIJ collaborated with close to 140 media outlets in over 117 nations, including prominent media corporations such as the BBC, The Washington Post, The Guardian, etc. The investigation surrounds confidential records of 14 offshore service providers, which wealthy individuals and groups avail in an attempt to create shell companies, trusts and so on tax havens. The papers contain over 11 million files from companies availed by the ultra-rich to institute offshore companies and trusts in places such as Monaco, Dubai and Panama.
Upon examination, the ICIJ concluded that a considerable proportion of the files were created between the late 1990s and 2010s. Unsurprisingly, the files also disclose instances of money laundering, tax evasion and other crimes. It has been contended that offshore holdings and purchases made by those mentioned in the papers are devoid of any transparency or accountability.
The investigation also came from 14 different legal and finance-based firms, including Aleman, Codero, Galindo and Lee (‘Alcogal’), which is associated with more than half of those exposed. Shell companies, trusts and other offshore holdings were reportedly created with support from ‘Alcogal’. ‘Alcogal’ has reached out to the ICIJ stating that it undertakes ‘due dilligence’ operations mandated by the concerned jurisdiction.
Offshore Assets
Offshore assets include those owned outside one’s home jurisdictions, and the offshore systems mentioned in the papers are that of low-tax territories such as the Panama Islands, British Virgin Islands, Cayman Islands, and so on.
These low-tax regimes offer a certain degree of anonymity to those engaged in various transactions. Very often, offshore trusts are created to evade legal responsibilities. While they can avoid legal obligations, they are also used for genuine purposes such as estate planning and setting conditions to avail income distributed by the trustee or inherit assets after their death.
To reduce the burdens imposed by taxes, offshore trusts are usually set up in countries that levy tax at a comparatively lower rate. Laws in offshore companies make it difficult for authorities to identify ownership identities and mandate little to no corporation tax.
Shell Companies
Shell companies only exist on paper are do not undertake business operations actively. Shell companies do not employ officials and find mention in government certificates. Such companies are usually utilized for engaging in money laundering as they conceal the ownership of an individual or a group and are easier to set up. Specialist firms are hired to operate shell companies that provide paid directors’ address and names, which maximizes secrecy of ownership.
Tax Havens
There are genuine reasons to have offshore dealings, including merging assets in tax havens to reduce financial and administrative costs. Tax havens also provide protection to users from unstable political regimes that have the tendency to negatively impact the economy and the market structure. However, excess of secrecy and absence of transparency can also be used to engage in fraudulent activities. South Dakota is one of the most prominent tax havens in the United States of America.
In fact, close to 80 US-based trusts with a combined value of up to USD 1 Billion are based in South Dakota, which lays down trust-friendly legislations. Laws in offshore companies make it difficult for authorities to disclose owners’ identities and mandate little to no corporation tax. In Trusts, the trustee controls the assets of the trustor for the third party’s benefits. Businesses usually opt for trusts as it allows them to consolidate their Assets.
Trusts
Very often, offshore trusts are created to evade legal responsibilities. While they can avoid legal obligations, they are also used for genuine purposes such as estate planning and setting conditions to avail income distributed by the trustee or inherit assets after their death.
To reduce the burdens imposed by taxes, offshore trusts are usually set up in countries that levy tax at a comparatively lower rate. In Trusts, the trustee controls the assets of the trustor for the third party’s benefits. Businesses usually opt for trusts as it allows them to consolidate their Assets.
The Indian Trusts Act of 1882 will enable trusts to be set up outside the country or another jurisdiction. Such Trusts are referred to as Offshore Trusts. As per the law in India, resident Indians who are settlors, trustees or beneficiaries are obligated to report their foreign assets. At the same time, non – Resident Indians are not subject to such obligations. Offshore trusts provide corporations with secrecy and insulation to assets from creditors.
International Figures Exposed
The Guardian has contended that the King of Jordan, Abdullah II, amassed $100 million worth of property in the US and UK, including luxurious mansions in Malibu in secrecy. The Dawn stated members of the incumbent Pakistan Prime Minister Imran Khan’s affiliates, including Shaukat Tarin, Wagar Masood Khan, cabinet ministers and their families.
Pakistan Muslim League (Q) leader Chaudhry Moonis Elahi contemplated pooling proceeds from allegedly corrupt business deals into secret trusts. Former Prime Minister of UK Tony Blair’s and his wife’s purchase of a London office in which they could save up to £312,000 in stamp duty highlights loopholes in legislation that enables wealthy property owners to evade taxes.
The documents also imply the association between Russian President Vladimir Putin and hidden assets in Monaco. It has been alleged that the Czech Republic’s Prime Minister, Babis purchased a USD 22 Million estate in Cannes, France. At the same time, Kenya’s President Uhuru Kenyatta and his mother are deemed to be the beneficiaries of a secretive foundation in Panama.
National Figures Exposed
The Indian Express has alleged that Anil Ambani, who declared bankruptcy in the court of the United Kingdom (UK), has over 18 asset holding offshore companies. The spouse of Kiran Mazumdar- Shaw, John Shaw, had reportedly. Set up a trust with keys to a person banned by the Securities and Exchange Board of India (SEBI) for Inside-Dealing. Purvi Mehta, sister of fugitive Indian businessman Nirav Deepak Modi, had allegedly set up a trust before the latter fled the country.
The report further stated that those involved in offshore dealings wished to reorganize their assets following the Panama leak in the year 2016. For instance, of the many individuals who had asked for liquidation of their offshore holdings after the Panama incident, one was Indian cricketer Sachin Tendulkar. Jackie Shroff has been named one of the beneficiaries of a trust-based in New Zealand and made payments in vast amounts. Satish Sharma had established a trust while holding the position of Minister of Petroleum and Natural Gas in 1995 and another one in 2015.
Edited by: Aashima Kakkar, Associate Editor, Law Insider