Flood of trouble for I-T dept's black money drive in Caribbean tax haven

British Virgin Islands says heavy rain has destroyed documents on Indian tax dodgers

The income-tax (I-T) department’s drive against black money stashed abroad has met with a hurdle in the British Virgin Islands (BVI), Britain’s overseas territory located in the Caribbean. According to the department, the BVI, one of the five largest tax haven countries, has expressed its inability to provide information on the several hundred Indians who have offshore investments on its land.

In a recent communication with the I-T department, the BVI counterpart said the floods of August 2017 destroyed the relevant files, while some others had lost. 

“A team from the tax department has visited BVI authorities in investigations of the BVI leaks of 2013 to discuss the way out, but no concrete solution has been drawn,” said an I-T source privy to the development. The BVI authorities claimed that they were not in a position to retrieve the data lost in the disaster, the source added. 

This non-participation has made it difficult for the I-T department to move ahead in the thousands of black money cases directly or indirectly linked with the BVI. Sources said this would not only impact the 612 Indian residents named in the list exposed by the International Consortium of Investigative Journalists (ICIJ) in the BVI leaks, but also the subsequent Panama and Paradise leaks. 

The I-T department had come across links to the BVI in several cases featured in the three lists where people have allegedly stashed away unaccounted wealth in tax havens such as the BVI, Singapore, London, and the Cayman and Guernsey Islands.

India had sought information earlier this year from the BVI and four other jurisdictions to establish tax evasion, money laundering and subsequent layering of funds to and from India. 

“We have sent exhaustive queries to all five tax havens based on our preliminary enquiry in the cases last year. The information sought was mostly about the actionable cases where there was a high chance of tax evasion by using various illegal methods,” said another tax official. 

Typically, foreign authorities take six to eight months to respond to queries under the protocol of the existing Tax Information Exchange Agreement (Tiea), depending on the nature of information. 

This obstacle seems to have impacted the entire investigation in the black money cases abroad.

Investigation reports say India has so far established undisclosed wealth of over Rs 10 billion in the cases featured in the Panama Leaks in 2016. The probe in the Paradise Papers, which had revealed another set of thousands of names in 2017, however, is at a very preliminary stage.  Meanwhile, the I-T department had established unaccounted wealth of Rs 110 billion in the BVI offshore leaks of 2013, which had 612 names, and prosecution has been initiated in 20-odd matters. 

In April 2016, millions of documents were leaked from the database of Panama-based law firm Mossack Fonseca, which revealed the hidden offshore wealth of top corporates and celebrities. The list included 500 Indians. In another such investigation – Paradise Papers released in November 2017 – at least 714 Indians were named in documents leaked from two financial companies that have helped individuals park their money abroad and invest it in 19 tax havens.

“Of the actionable cases of foreign offshore investments, the majority were with the BVI. Hundreds of individual Indians figuring on the list had direct and indirect links with the BVI entities,” said the official cited above. According to him, the tax department is now contemplating multiple strategies to establish the round-tripping and the layering of funds through BVI. However, closure of these cases would take time due to the complex nature of transactions.  

Undisclosed offshore investments 

2013 British Virgin Islands leak

• 612 Indians named as having incorporated companies in BVI 

• I-T establishes undisclosed wealth of Rs 110 billion 

• Prosecution initiated in 20 cases

2016 Panama Papers

• 500 Indians named

• Documents leaked from law firm Mossack Fonseca

• Top corporate chiefs/celebrities under scanner

• Undisclosed wealth of Rs 10 billion established 

2017  Paradise Papers 

• 714 Indians named 

• Documents leaked from two financial companies 

• Investigation at preliminary stage 

Note: Names are part of the International Consortium of Investigative Journalists' offshore leaks database in 2013, 2016, 2017