Story Of The Week

Paradise Papers: Nabbing Tax Evaders

Ripples have been running through the world media as International Consortium of Investigative Journalists(ICIJ) released one portion of a huge database on 5th November 2017. The database has disclosed numerous offshore Business Investments.

This database, called the “Paradise Papers” compiles the information of more than 120,000 individuals and companies. It has 13.4 million electronic documents containing names ranging from Cabinet Ministers of Trump’s office to Indian Politicians and Film Stars. With 1.4 TeraBytes of information on offshore finance, it has become the second biggest document leak in history.



To dig down deep into the papers, let’s begin with a brief mechanism of tax evasion.


As we look around, we notice a diverse world. There are a large number of people, each having a unique social status and identity. The rich and the poor, the weak and the strong, those who do everything legally and those who indulge in illegal activities. The list continues…

In a Democratic System, Taxes constitute the prime source of Government Income. This compulsory contribution becomes a “personal obligation” of a person. Some people honestly pay taxes. These are called taxpayers. The others who try to avoid the payment through illegal means are called tax evaders.

Tax Evasion vs Tax Avoidance: Note that the two terms are different. Tax avoidance stands for legal minimization of taxes using methods within the ambit of law. Tax Evasion, on the other hand, is illegal. It is done either by not reporting income, by reporting improper expenditure or by not paying taxes.

Despite subject to legal punishments, the tax evaders perceive economic benefits of evasion to be more than the cost of punishment for noncompliance. Further, many evaders don’t ‘trust’ the fair process of revenue collection and value distribution by the government. Thus, they don’t give taxes.

To minimize taxes, people plant money outside their country’s legal system. These investments are called offshore investments. Many of these offshore entities are poorly managed. The poorly managed domiciles have been used as tax havens for a long time.

Tax Haven: This is a term coined by media. The official term is Offshore Financial Centre(OFC), It is a jurisdiction( which means a system of law) that offers better tax conditions as compared to other systems of law.

The term commonly refers to the countries that have no-tax or very low tax regime. There are more than 60 tax havens around the world including Switzerland, Guernsey and many small islands in the Caribbean.  One estimate is: around $10 trillion is stored in tax havens.

People hide their money in these havens through shell companies’. A shell company is a company in ‘name ONLY’.i.e. these companies do not have active business operations or significant assets. These companies are based in tax havens with high levels of security.

Nominees are selected and paid by evaders to run the business. The nominee selection process avoids their actual name on documents. Further, a bank account is made in another offshore location for more anonymity. The shell company makes payments to the offshore account. The money of this account can be invested in assets or loans…  never to be repaid.                                 


Paradise Papers: How it happened?

The story starts with Panama Papers when German newspaper-  Süddeutsche Zeitung received a 2.6 TB database from an anonymous source. This database was scrutinized for a year with ICIJ before being released as Panama Papers in 2016. Panama Papers lead to a massive upheaval around the world, revealing various Public figures and Companies with offshore investments.

On October 20th, 2017, an unknown Reddit user hinted the existence of a new database! Finally, the same newspaper, Süddeutsche Zeitung came back this month with ICIJ and numerous other media partners. They had another huge database to show, this time with 1.4TB data. This database was called ‘Paradise Papers’.

Paradise Papers consisted of electronic documents leaked primarily from two offshore provider companies: Bermuda’s Appleby and Singapore’s Asiaciti. According to the papers, these two companies helped wealthy people across the globe in setting up offshore firms and moving money to tax havens.

The papers have covered many global companies including Apple, Nike, and PokerStars. The major names include political leaders like the Liberian President Ellen Johnson Sirleaf, former Japanese Prime Minister Yukio Hatoyama, former Pakistan PM Shaukat Aziz and  Queen Elizabeth II among others.

India’s Slice in the Paradise:

The Indian Express was one of the media partners in this project. It reported 714 Indian names in the data leak. In terms of the number of names, India ranked 19th of 180 countries represented in the data.

This investigation revealed how some Politicians, Celebrities, Industrialists and Multinational companies have been making use of shell companies to hide cash.

Some of the Politicians(or their family) on the list are:

  • Jayant Sinha, Minister of State for Civil Aviation
  • Ashok Gehlot, Former Chief Minister of Rajasthan
  • Sachin Pilot, Former Minister of Corporate Affairs
  • Karthi Chidambaram, son of Former Minister of Finance and Minister of Home Affairs P Chidambaram
  • Harsha Moily, son of Former Minister of Environment, Forest and Climate Change Veerappa Moily
  • Ravi Krishna, son of Former Minister of Science and Technology Vayalar Ravi
  • Ravindra Kishore Sinha, Rajya Sabha MP
  • YS Jagan Mohan Reddy, Opposition leader in Andhra Pradesh

The other biggies on the list include Amitabh Bachchan, Vijay Mallya, Niira Radia and Sanjay Dutt’s wife Manyata Dutt (Dilnashin).

Further, there are various Indian companies that have been setting up offshore entities with the help of Appleby to avoid legitimate taxes in our country. According to the list, Indian-founded company Sun Group is Appleby’s second-largest client internationally with 118 different offshore entities. Apollo Tyres, Emaar MGF, Havells, Hindujas, Jindal Steel, Videocon and the Hiranandani Group are among the major Indian firms on the list.

If we see Sun-TV-Aircel-Maxis case, Essar-Loop 2G case and SNC-Lavalin scandal, all these cases are related to the organizations allegedly setting up offshore entities to funnel money through shell companies.

When Panama Papers transpired nearly 18 months back, the Indian government made a Multi-Agency Group(MAG) for facilitating coordination and speedy investigation to tackle the cases of Indians whose names appeared in Panama Papers. Now that Paradise Papers are out in public, the Regulatory and Enforcement agencies have promised another multi-regulatory probe soon.

Appleby’s Reaction:

After Paradise Papers were out in public, Appleby was criticized for terror financing and was subjected to frequent regulatory checks. The firm said that it operated in highly regulated jurisdictions and took allegations of wrongdoings very seriously.



APPLEBY’s office in Bermuda


Still, there remained one question. How did firms like Appleby help MNCs exploit loopholes in the law to avoid legitimate taxes in their country?

This is where we leave the topic. As Paradise Papers come in following Panama, the door is open for regulatory bodies to investigate and ascertain the legitimacy of these offshore transactions. Let’s see where the investigations reach…



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