Tip from Haven: ‘Panama’ Indians Must Map Their Trail



On April 3, 2016, disclosure of 500-plus offshore companies incorporated in Panama and other tax havens with peripheral links to Indian tax residents, non-residents and Indian postal addresses was made public. While that by itself connotes no manner of wrongdoing, given the information now resides in the public domain, several potential risks may emerge for banks, account holders and fiduciaries engaged in putting together these structures.

The nature of the disclosures do not make a distinction between proper or improper corporate structures viewed against the extant regulatory regime in India. In other words, several legitimate corporate structures and their banks and fiduciaries, in turn, are likely to be subject to regulatory scrutiny by the regulatory agencies and the Special Investigation Team (SIT) constituted by the Supreme Court of India. Where the account holding bank or fiduciary relied upon the source-of-wealth checks of a correspondent bank (whether in India or overseas) or even otherwise, it is likely that information related to pending tax and exchange control regulatory proceedings or existing rules regarding permissible remittances or permissible capital and current account transactions in India was not sought or obtained. Accordingly, the risk of being enjoined to regulatory proceedings in India as a facilitator of tainted transactions, as has already been the case with a few international banks and intermediaries, may loom like the sword of Damocles on fiduciaries, account holders and the banks facilitating these transactions.

If the SIT’s pronouncements are to be taken at face value, swift enforcement actions are likely to commence on a variety of account holders who are now in the public domain, in relation to corporate structures in Panama, other tax havens and other overseas holdings. In light of the matters in the public domain concerning the investigation of overseas corporate structures and bank accounts, the standards of continuing due diligence by banks and fiduciaries will involve looking afresh at the profile of the clientele and establishing conclusively for current and historic accounts that their books were not tainted with the aforementioned types of proceeds. Organizations need to realize that in future business practices with a link to India—however indirect the link may be—the only defense against being a wilful abettor to the offences made out against the account holder may be demonstrating continuing due diligence and adherence to the strict monitoring standards prescribed by law. Thereafter, cooperation with jurisdictional regulators under the Egmont Principles, and reporting at the earliest sign of any wrongdoing in current or historic accounts, may be necessary.

Account holders who are caught in the crossfire of investigative and regulatory agencies and banks may want to marshal their document trail and transactional history. Prudent mapping of the historic period of remittances from India or establishment of overseas corporate structures against the extant regulations at that precise point needs to be carried out. While it can be hoped that the regulators will know which law to apply, given the large influx of time and the numerous changes in the domestic law governing these matters, it may be appropriate for account holders to initiate these matters early. It is believed that notices have been dispatched, or will be shortly, to all those named in the latest exposé; therefore, the aforementioned preparatory work may be paramount in mounting a spirited defense. Lastly, the remedial mechanism, whether compounding under the exchange control laws or settlement under the taxation laws, should be assessed against any technical or minor breaches that emerge from this analysis.

First published in the Financial Chronicle on 18 April 2016.


Author: Saionton Basu, Partner at Duane Morris LLP, London, United Kingdom

Previously with Penningtons Manches LLP, White & Case LLP, Amarchand & Mangaldas & Suresh A Shroff & Co

Educated at National Law School of India University