The Pandora Papers are 11.9 million leaked documents with 2.9 terabytes of data that the ICIJ ( International Consortium of Investigative Journalists ) published beginning on 3rd October 2021. The leak of this data exposed the secret offshore accounts of 35 world faces, including current and former presidents, prime ministers, and heads of state as well as more than a hundred billionaires, celebrities and business persons. This document leak was stated as the most expansive expose of financial secrecy by the International Consortium of Investigative Journalists. This exposé contained documents, images, emails, and fourteen spreadsheets from financial service companies in countries including Panama, Switzerland, and the United Arab Emirates ( UAE ).
The name Pandora comes from Greek Mythology about a sealed jar containing the world’s evils. This report was based on record leaks from fourteen firms in the abroad financial services industry that depicted how the wealthy hide their assets. This report was being prepared by 600 journalists in 117 countries.
How Do The Pandora Papers Of 2021 Differ From The 2016 Panama Papers?
This time, the pandora papers established links of abroad activities to more than twice as many politicians and public officials compared to Panama Papers that were exposed about five years ago. The Pandora Papers include information on more than 330 politicians and public officials from over 90 nations and territories including 35 former and current national leaders.
An International Consortium of Investigative Journalists report that focused on the Panamanian law firm of Aleman, Cordero, Galindo and Lee, or Alcogal telling that it was the “Law firm of the Latin American Elite” created 14,000 shell companies and trusts in tax havens and that is why Alcogal was mentioned more than any other offshore provider in the leaked documents.
How Do Wealthy People Hide Their Money?
There is an actual sector of the financial services industry that specializes in helping wealthy clients to hide their assets and also minimizes the taxes they have to pay otherwise. These types of services benefit the clients and the advantages are made through a procedure including some basic steps that are built around the principle of disguised ownership and low regulation. Hiding this extra money or assets or wealth, whatever you may like to call it, is a specialty that is offered by tax havens such as Panama, Dubai, Monaco, Switzerland, and the Cayman Islands including some American States like South Dakota and Delaware.
Here, secret ownership of houses and other assets are cloaked anonymously by different companies that are not required to prove the identification of the owner of the company. In several countries, there are no regulations that are made and thus no requirement of identifying or even registering the main wealthy owner is needed and these people enjoy all the benefits even after the property is named by someone else. These methods are particularly used for benefiting the owners, the loophole paves the way for true owners for hiding behind the layers of legal records that are usually very difficult to highly impossible to detangle.
The false ownership sometimes looks like this: The owner of company Z can be identified as company Y and the owner of company Y can be stated as the owner of company X and the chain goes on.
Why Is This Process Legal?
Taking into consideration, many individuals have valid reasons for legally protecting their assets, to guard them against extortion attempts and other unnecessarily harmful events. But the system is not used for just this thing, it has been abused badly and is vulnerable to corruption, and is now simply used by wealthy people to hide as much as they can.
This offshore financial service industry is very much unregulated or largely self-regulated which means there are no legal regulations that are followed in these gaps. Most of the people working in these gaps are either former bankers, auditors, or accountants who are self-aware about what the system lacks.
The Indian Trust Act of 1882 provides the legal basis of the concept of trusts. Indian Laws do not accept trusts as a legal entity or individual but they do accept trusts as an obligation of the trustees to manage. The assets settled in the trust should be used for the benefit of individuals who are ‘beneficiaries’. Indian Laws also accept offshore trusts as trusts set up in other tax jurisdictions.
The process is legal in many counties, raising the question of why in the first place the investigation was done? There are many authentic reasons for setting up trusts and many people set them up for genuine estate plannings. A businessperson can set conditions for ‘beneficiaries’ like how the collected asset or income will be distributed by the trustees or inherit assets after their demise. But these same trusts are also used by some people as a mode to settle the money that is hard to explain. These methods are also used for hiding the real income to evade taxes, for guarding the wealth against law enforcement and at times these methods are also used for criminal deeds.
Why Are These Kinds Of Trusts Set Up?
Overseas trusts provide high-level secrecy because of the privacy laws in the jurisdiction they are being operated. There are many reasons why people set up the trust, some of them are mentioned below:
- To maintain a degree of separation business persons set up private trusts. These trusts are made offshore that project a degree of separation from their assets. The one who set up the trust no longer owns the assets placed in the trust and that is why these assets are insulated by the creditors.
- For enhanced secrecy, offshore trusts are chosen. Though the income tax department in India can get to the real owners only by requesting information from the financial investigating agency or an international tax authority, this exchange of information takes a lot of time and things can be misguided in between the process as well.
- To Avoid tax, this method is highly used. Businesspeople avoid their NRI children being taxed by the government by putting the assets in a trust. The true ownership of these assets is now with the trust and the children no longer have to pay the taxes as they are mere “beneficiaries”.
Why Is This Important?
This report was published against the backdrop of the sharpening rich-poor divide in the world that was worsened by the pandemic that highlighted emotional resentments about wealthy individuals in many nations. The revelations are also stated to carry a political angle, especially in countries where leaders have limited right to inform or accountability to the public like Russia because reports like this help the public to know about the information about their leaders that usually denies all the claims made against them. President of Russia, Vladimir V. Putin is not linked with the Pandora report directly but was linked by associates to assets in Monaco including a home acquired by a Russian woman but his spokesman denied all the sayings.
King Abdullah of Jordan was accused of using shell companies that were registered in the year 2015 in the Caribbean to acquire 15 properties in the United States, Britain, and more. But his officials claimed that the king had used his wealth to buy them.
How Can These Activities Come To An End?
Many hoped that the release of Pandora Papers will accelerate the actions that should be taken for strengthening international financial regulations, end tax avoidance and severely restrict every possible way through which highly wealthy people hide their assets. These wealthy people get all the professional help they want to hide their assets behind the layers of a complicated system formed. These professionals are often the people who are meant to safeguard the financial system but choose otherwise to gain money. The ways to do such acts have to be blocked by a system that can not be cracked this easily.
11.9 million leaked documents were found so there is no doubt that there is not “a ”crack or gap but many. Strict measures have to be taken by the financial securities to safeguard the system. Laws can be made to handle such trusts where assets are loaded down to hide and pay less tax than obligated by the ownership of the wealth.
Offshore Trusts And India
In India, the I-T Department is an offshore trust to be a resident of India for taxation purposes only if the trustee is an Indian resident. When the trustee is not an Indian resident or an NRI, in such cases if the tax department establishes the trustee is taking instructions from a resident Indian then also the trust will be considered as an Indian Resident for taxation purposes. An Indian Wealth manager has been appointed a protector by the offshore trust, leaving a way for the taxman.
11.9 million leaked files from 14 global corporate services firms which set up about twenty-nine off-the-shelf companies. These documents related to the ownership of assets “settled” or placed in private offshore trusts secures wealthy people from wholly showing their assets. Wealthy people do such things for securing from frauds but many of them are using the system for saving the tax they would have paid and this system is also widely used by some criminals and can harm everyone in the process and even the individuals outside the process. This is unfair to taxpayers of the world who without hiding anything pay the tax that is implemented by the government. This practice should stop the culture of wealthy people that helps in hiding their assets in every way possible.