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The TLDR: In 2016, the great and the mighty were shaken by the Panama Papers—a massive leak of 2.6 terabytes of information revealing their offshore entities and accounts. The same international group of journalists have now unveiled a far bigger leak of financial documents dubbed the Pandora Papers. Those embarrassed range from the King of Jordan to Pakistan Prime Minister Imran Khan, Sachin Tendulkar, and Kiran Mazumdar Shaw.
Editor’s note: This is less in-depth than our usual explainer primarily because we want you to read the details over at Indian Express—whose journalists have spent 12 months working on the Indian angle. We only offer context and an overview.
The basic deets
- The investigation was led by the International Consortium of Investigative Journalists (ICIJ)—with more than 650 reporters and a number of partner publications, including the Indian Express in India.
- They had access to nearly 12 million documents and files from 14 financial services companies—which set up about 29,000 off-the-shelf companies and private trusts.
- Unlike the Panama Papers—where the papers were leaked from one law firm—these companies are located around the world, including Belize, Singapore, New Zealand, United States and the UAE. The offshore system is global—not limited to exotic islands.
- Around 35 current and former world leaders and 300-plus public officials are featured in the documents—and more than 130 people listed as billionaires by Forbes magazine.
- The documents include “emails, memos, incorporation records, share certificates, compliance reports and complex diagrams showing labyrinthine corporate structures. Often, they allow the true owners of opaque shell companies to be identified for the first time.”
- The leaked records span two decades (1996-2020)—while the offshore entities were set up between 1971 to 2018.
Quote to note: Gerard Ryle, the director of the ICIJ, said of the investigation: “This is the Panama papers on steroids. It’s broader, richer and has more detail.”
Why this matters: Not all of the activity uncovered here is illegal. But they show how the very wealthy have found new loopholes and business entities to protect their money—after the Panama Papers resulted in a regulatory crackdown. In India, for example, tax authorities found Rs 200 billion (20,000 crore-plus) in undeclared foreign and domestic assets thanks to the Panama leak.
First, tell me about India
There were 300-plus Indian names in the leaked documents—and the Indian Express investigated 60 prominent individuals and companies. It rolled out the first tranche of stories today.
Trusting in trusts: The biggest reveal is the use of offshore trusts to move money. In a trust, there is typically a ‘settlor’ who sets up the trust. And there’s a ‘trustee ‘who holds the wealth on the behalf of ‘beneficiaries’—named by the ‘settlor’. Here’s what a trust offers:
- It creates a separation between the settlor—i.e. the very rich person—and his money. He no longer “owns” this money—and therefore his creditors cannot come after it if he, say, defaults on massive loans.
- Offshore trusts are governed by strict privacy laws. So it is hard for tax officials to find the money stashed in them. Although the Indian government has treaties that enable exchange of information—they rarely work well in practice.
- Also this: “High-profile people can set up trusts to own shell companies in tax havens, obscuring the true extent of their property from tax authorities, criminal investigators and the public.”
- Trusts also offer a tax-free way to transfer assets to children—who are named as beneficiaries. And as non-resident beneficiaries, they don’t owe any taxes on their income from the trust.
Big point to note: As the Washington Post underlines:
“One key feature is that assets held in a trust exist in a kind of limbo. The settlor has given them away. The trustee may own them under the law but has no right to use them. And the beneficiary has yet to receive them. If someone owes a debt, each of the three parties can argue that they do not control the assets.”
The NRI card: These trusts are most useful when accompanied by a foreign passport. This works in two ways:
- If the ‘settlor’ is a non-resident, he can transfer a great amount of his wealth abroad: $1 million/year—over and above his income—compared to the $250,000-limit for Indians.
- According to the law, the trustee is the actual owner of the assets of the trust. If that person is an NRI then they don’t owe any taxes on these assets held abroad.
Ok, any big names or companies?
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