Panama Papers leak: Journalists and experts beg to differ

In the wake of the Panama Paper leaks, which mention a number of individuals and organisations as having stashed money in tax havens, the limelight has fallen on over 500 Indians as well. In an interview to CNBC-TV18's Shereen Bhan, P Vaidyanathan and Ritu Sarin, journalists from The Indian Express which published the report say, it is an ongoing investigation. Vaidyanathan says there are many resident Indians who made remittances abroad before 2004, when the liberalised remittance scheme was announced by the RBI, implying they were illegal remittances.However, Dinesh Kanabar, CEO, Dhruva Advisors, says the media will soon be painting everybody with the same brush and it is not fair.Elaborating further, Vaidyanathan says resident Indians, while making remittances abroad, could have adhered to the letter of the law, but not the spirit.

In response, Rohan Shah, Managing Partner, ELP, says the spirit is individualistic and if someone has followed the law, one can't bring the ghost of the spirit.

Broadly agreeing wtih Shah, Kanabar says acquisitions of companies abroad, if they did happen, would have been reported to the RBI. If law hadn't been followed, the RBI would have raised the issue.Rounding out the discussion, Shah says this expose won't be a basis for the government to rewrite the law. The law is clear, adds Shah. He is sure government won't have a knee-jerk reaction to it.Below is the transcript of the panel discussion with CNBC-TV18's Shereen Bhan.Q: The database comprising 11 million files, finally threw up about 36957 India related entities. How hard was it for you at the Indian Express to track them down. I believe you have only been able to verify about 300 of those 36957. Take us through the process of this investigation?Sarin: As time progressed on the investigation the task became more and more daunting. That was also because ICIJ on their search engine kept loading more and more data. So, if we logged any data that would become redundant by the time new data was loaded.As far as verification is concerned we logged all the addresses that we could possibly get in small towns, big towns, metropolitan towns etc. We made an attempt to visit each one of those locations. In several places we found houses had been sold or the building had been sold, people were not there, they had moved abroad, variety of reasons.So, we tracked and covered and profiled only those people who we could catch physically and get a reaction from. It is very important in the interest of journalism to give them an occasion and opportunity to say what they want to.Q: Since you are talking about getting responses, for instance companies like DLF and you have carried their response in full in the Indian Express this morning, seems to suggest that they have complied with all the relevant regulations of the Reserve Bank of India (RBI), of the Income Tax authorities, they have made full disclosures. So, why then was their name and the name of the promoter KP Singh carried as if there is enough evidence of money laundering or tax evasion?Sarin: It is not so simple. I think the department, that is the CBDT may open up if they want to and if they send notices, income tax returns that is ITRs for a period of 10 years, they will have to see when these people say, someone is saying I was an NRI, when did he become an NRI and how much was the LRS limit at that point of time? When did it increase? So, it is the department that has to really examine and see if there were any loopholes.We have got many simplistic responses saying I am an NRI or this was all the LRS route. It will all have to be part of scrutiny now. Q: There is the pre 2004 period, that is the liberalised remittance scheme and that is when the RBI came out with the LRS. How many of these 300 are verified entities that have been verified for the Indian Express fall under the pre 2004 period. Have you been able to establish that?Sarin: This is an ongoing investigation and we are tracking lots of data. We have lists of Indians who are only directors. We have lists of Indian who are only BOs. We have lists of Indians who have passports on the data. So, it is work in progress.Iyer: We can say with lot of confidence that there are lot of people who are pre 2004 as well which clearly shows that this mode of transfer or remittance happened much before even RBI allowed it.Even during the period 2004 till date when remittances have been allowed there are lots of issues which need to be looked at. If you look at the Finance Ministry statement today on British Virgin Islands (BVI) which Ritu Sarin had led that investigation, she did the stories on BVI - the offshore leaks which the Indian Express did, in that also the same questions were asked, whether everything is legal because remittances were allowed way back in 2004 and it does not require more than a few USD 100 to start a company because shares can be no par value and it requires just USD 200-300 to register a company.Finance Minister today comes and discloses that they have found undisclosed income of Rs 2000 crore. So, of course the Finance Ministry did look at it much more deeply than we could ever imagine, right?Sarin: That was the BVI investigation done by us, that is ICIJ and Indian Express. It was much smaller in scope. However the important thing is that the breakthrough there was that it was the first time that the CBDT could track the second layer and the third layer of secrecy. Once they sent a complaint to the BVI, the BVI got back to them with information on what assets had been created by that offshore entity. Then the government went to that asset, property bank accounts etc and that is where the money has come from.Q: What do you see as the immediate implications of this investigation?Kanabar: The questions which you asked which are very relevant is there are documents and those documents seem to suggest people having accounts overseas. Merely having an account overseas is not something which is illegal. How do we basket the three types of people out here. People who are non-residents, one heard about people who are NRIs being part of larger families here and who have been overseas for several years, people who have legitimately sent money under LRS and others who have genuinely sort of sent money out. In the last category it is not merely tax avoidance and tax evasion, if the last category is indeed there then there is issue of violation of foreign exchange management act, there are issues with regards to prevention of money laundering act. So, huge set of issues which come in there.However are we really painting all the people in the same brush. I do agree with what has been mentioned by Indian Express that there is a need for an investigation but as it always happens before the investigation results in any results you are going to see media really painting everybody in the very same brush and that is a cause for concern because you are going to tarnish peoples name out there.Q: Let us look at the pre 2004 period because that is when the LRS did not exist. This list does seem to suggest that there is several what they call outliers pre 2004. What will now be the implications for those entities, for those individuals. I will come to what happens post the RBI FAQ of 2010 and post the RBI notification of August 5 2013, that is an entirely different category. However what happens to the so called outliers before the LRS came into existence in 2004?Shah: What you are going to have to look at in this entirety of proceedings is the factor that a) is the source of that income legitimate? Has tax been appropriately borne? If a remittance has been made outside of the country, was that compatible with the foreign exchange provisions operating at the relevant point in time.You are probably also going to have to see whether incomes which legitimately ought to have come to India were somehow diverted? All of these issues will get looked at both pre 2004 and post. It is just that post once you have the LRS there is then clearly a mechanism to justify at least from a foreign exchange perspective as to the legality of the outward remittance.So, to my mind all of these are going to be fact based. You will have to sift through the facts. One of the dangers as what you call collateral but to me it is very important, the fact that somebody who does not deserve to be painted in this manner has to go through this even if everything is legal, I just don\\'t think stands the standard of fairness that we expect in our judicial system.