In today's Finshots we talk about the Pandora papers and what they actually mean


The Story

Leaks are commonplace these days. If this new revelation doesn’t excite you as much, we understand that sentiment. We’ve heard of such stories before — The Panama papers, Paradise papers, and now the Pandora papers — the list seems endless. However, the new leak is different. In fact, it’s being touted as perhaps being the most significant leak yet, partly due to the scope of the exposé. As the International Consortium of Investigative Journalists note in their article

The Pandora Papers investigation is the world’s largest-ever journalistic collaboration, involving more than 600 journalists from 150 media outlets in 117 countries.

The investigation is based on a leak of confidential records of 14 offshore service providers that give professional services to wealthy individuals and corporations seeking to incorporate shell companies, trusts, foundations and other entities in low- or no-tax jurisdictions. The entities enable owners to conceal their identities from the public and sometimes from regulators.

And that’s a lot to unpack. So let’s take it from the top — What makes the Pandora papers so different from all the other leaks in the past?

Well, for starters, all past leaks have largely been associated with a single entity. The Panama papers came from the infamous law firm  Mossack Fonseca. The Paradise papers largely came from another offshore law firm, Appleby. The Pandora papers in the meantime come from 14 different sources — making it a substantially more comprehensive exposé compared to the others. Also, the papers implicate 35 world leaders, 300 public officials, 100 billionaires, rockstars, sportspeople and other business leaders from 90 countries, including India.

With that introduction out of the way, we can move on to more important things — What are offshore financial centres? And why do they get such a bad rep?

Well, there’s no universal definition here. But usually, these are companies set up in jurisdictions shrouded in secrecy with lax regulations and a low tax base. Think — the Cayman Islands, or the British Virgin Islands. And while using an offshore account isn’t illegal per se, most people don’t declare this information to local tax authorities in a bid to save money. And that, believe it or not, is illegal. By some estimates, “the global rich held in 2007 approximately $12 trillion of their wealth in tax havens.”

So you can see why any mention of offshore financial centres elicits such a revolting response. Having said that, however, not every individual associated with an offshore financial centre is automatically guilty.

Take for instance the case of Sachin Tendulkar. As most of you’ve probably learnt already, Sachin and members of his family feature in the investigation after records indicated that they were beneficial owners of an offshore entity in the British Virgin Island. The firm was wound down in 2016 and the family received close to $2.68 million. What’s noteworthy here, is the timing of the shutdown — at least according to the Indian Express, who broke the story. The firm was liquidated just 3 months after the Panama Paper expose and you could argue that there was ill intent involved in setting up and eventually winding down the company.

Sachin’s representatives meanwhile vehemently deny any wrongdoing. They argue that the family invested the money in full compliance with Indian laws — They argued that the funds have “been duly accounted for and declared in his tax returns.” So it’s kind of hard to implicate someone, in the absence of a thorough independent investigation.

On the flipside however you have Nirav Modi’s sister who founded an offshore firm just a month before he fled India. Nirav Modi, for the uninitiated, has been implicated in multiple fraud and money laundering cases. So it’s safe to say that the offshore trust wasn’t exactly created for legitimate purposes.

Bottom line — The Pandora papers once again cast light on the secretive world of tax havens and it’s ultimately up to the Indian authorities to find a way to limit their influence.

Until then…

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