A civil law is preventing ED from probing individuals named in global leaks

This peculiar situation has prevented the agency from going after certain entities named in these global leaks

The Enforcement Directorate (ED) has been unable to act against a large number of high-profile individuals named in global leaks such as the HSBC Swiss case, Panama Papers and others under the Prevention of Money Laundering Act (PMLA). This is because no prosecution complaint has been filed in any of these cases under the Black Money Act.

This peculiar situation has prevented the agency from going after entities named in the global leaks.  The ED had raised the matter in an internal communication with the Central Board of Direct Taxes (CBDT) a fortnight ago, seeking a  response on the investigation, according to a source in the know. 

There are a few cases which the ED is probing in the HSBC Swiss leak case under the Foreign Exchange Management Act (FEMA), which restrained the enforcement agency from  initiating criminal proceedings against the entities concerned. FEMA deals with forex contravention and that’s treated as civil in nature. 

The Black Money Act mandated the tax department to probe undisclosed foreign assets and stashed funds located in foreign countries and accordingly initiate prosecution proceedings. Until this law was introduced in 2015, cases of overseas illegal assets were probed under the regular and civil Income Tax Act of 1961. 

“Certain number of prosecution complaints have been filed in the HSBC leak cases by the tax authorities under the regular I-T Act which do not qualify to be a predicate offence for money laundering investigations,’’ said an official privy to the development. According to the Income Tax Act, any Indian citizen who holds money abroad on which tax was owed but not paid becomes liable to pay tax, interest and penalty. 

Drive against black money hits the wall 

• Undisclosed assets of Rs 6,000 cr detected under the Black Money Act this year
• Act came into effect in July 2015 to curb undisclosed foreign assets
• As of October 31, 2018, 34 prosecution complaints have been filed 
• 648 declarations involving undisclosed foreign assets worth over Rs 4,100 cr were made
• Prosecution launched in certain cases of global leaks under regular I-T Act
• Enforcement Directorate probing a few cases of global leaks under forex laws  

The Black Money Act, on the other hand, attracts a steep 120 per cent tax and penalty on undisclosed foreign assets and income besides carrying a jail term of up to 10 years, if proven guilty.

Since this law came into being, a few dozen chargesheets have been filed, but that’s not the case in relation to global leaks, a source said.

Besides, under the FEMA powers, the federal agency is unable to make a breakthrough due to lack of information from HSBC and Panama's competent authority. Officials said the information provided by foreign authorities were typically basic in nature and were insufficient to trace and prove a case. For instance, foreign authorities have pointed to their Indian counterparts that the offshore entities have been struck off and the legal period of retention of documents has expired.

Sources also claimed the tax department has ordered fresh assessment and also re-assessment of the income of these entities and will soon launch criminal prosecution against all of them. These entities had allegedly not disclosed their offshore properties to Indian tax and banking authorities in the past.

Another argument is that the anti-black money laws can be initiated only against undisclosed foreign assets coming to the notice of the assessing officer after July 1, 2015. HSBC Swiss leaks were made public by a group of international journalists in early 2015. Many of these accounts, post the leaks, were either found closed or had zero balance. In 2017, CBDT had said the investigations in the Panama Papers leak cases had resulted in the I-T Department detecting undisclosed wealth of Rs 792 crore till then, and that the probe in the cases was on in full swing.