White Collar Journal
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JULY 2018 Special points of interest: Indian Income Tax De- partment frames scheme to reward per- sons providing infor- mation on undisclosed money WHITE COLLAR JOURNAL Indian Income Tax Department frames scheme to reward per- Enforcement Director- sons providing information on undisclosed money ate attaches property of Sterling Biotech The Income Tax Department of India the benami property, subject to a has launched the Benami Transac- maximum of INR 10 million tions Informants Reward Scheme, (approximately USD 0.15 million). Government probes 2018 (“Scheme”) to encourage peo- Any government employee, who in into second Panama ple to provide information about his/her usual course of employment Papers Leak ‘benami transactions’ which are usu- may have access to any information ally undertaken with the objective of relating to benami transactions, is not First application under laundering undisclosed funds, com- entitled to claim any reward under the the Fugitive Economic monly known in India as “black Scheme. Offenders, 2018 filed money”. Benami transactions are financial transactions where black As per the Scheme the reward shall be made to the provider of information Update on PNB Case- money is invested in properties in the India’s biggest bank names of others, although benefits subject to fulfillment of certain condi- fraud are enjoyed by the investor conceal- tions prescribed under therein. The reward will be paid in two tranches, ing his beneficial ownership. Pres- ently, benami transactions are prohib- and the final reward will be disbursed ited under the Benami Property only after the order passed by Income Transactions Act, 1988. Tax Department for confiscation of such benami property becomes final. According to the Scheme, any person The Scheme further provides that the (including foreign nationals) who identity of persons providing the infor- provides specific information to the mation will not be disclosed and strict Income Tax Department regarding confidentiality shall be maintained. A specific prohibited benami transac- person found to be providing false in- tions involving property worth more formation under the Scheme to the In- than INR 10 million (approximately come Tax Department will be liable USD 0.15 million) shall be entitled to for prosecution. a rewards of up to 5% of the value of Enforcement Directorate attaches property of Sterling Biotech The Enforcement Directorate of In- rectly controlled by SBG’s promoters dia (“ED”) has provisionally at- through the employees of various SBG tached movable and immovable companies acting as dummy directors property worth approximately USD in the shell companies. Allegedly, as 723 million belonging to The Ster- per the investigating agencies, a part of ling Biotech group (“SBG”) in a the disbursed funds were also paid to money laundering case. It is alleged various public servants who had facili- that SBG’s promoters had fraudu- tated the loan transaction. lently obtained credit facilities from various banks worth approximately The ED commenced a money launder- Address: USD 723 million based on false and ing investigation into this case after the fabricated documents and manipu- Central Bureau of Investigation regis- Unit No 5B, Fifth Floor, lated financial statements. The alleg- tered a case based on complaints filed Hotel JW Marriott, edly loan amount was subsequently by the banks against SBG and its pro- Aerocity, illegally laundered by promoters of moters when they defaulted on loan re- New Delhi —110037, SBG using approximately 300 shell payments. While investigation is ongo- India. companies. The ED states that its ing, it is believed that SBG’s promoters Tel: 91-11-41954195 investigation has revealed that many have already fled from India, although Fax: 91-11-41954196 of these shell companies were indi- this remains unconfirmed. CONTACT: Government promises timely probe into second Panama For additional informa- Papers Leak tion, please contact: The Indian Express, as part of the enforcement agencies under the aegis Anup Kumar, Principal International Consortium of Investi- of the Multi Agency Group (MAG) Associate at gative Journalists, has published a already constituted for facilitating co- ordinated and speedy investigation. [email protected] second set of Panama Papers on June The Government also provided a Or 21, 2018 revealing additional names of entities or persons with off-shore status of the investigations undertaken Harsahib Chadha, Associ- accounts who are accused of conceal- pursuant to the previously published ate at ing undisclosed funds overseas. Panama Papers in April 2016. The [email protected] Government stated that action has In response to the new Panama Pa- m been initiated against 74 out of the 426 pers being published, the Indian Gov- ernment stated that the information is being promptly looked into by law (Continued on page 2) JULY 2018 Copyright © ARCHER & ANGEL, 2018 people whose names had surfaced during the first foreign jurisdictions. Of the 74 cases which were Panama Papers, revealing undisclosed income of found actionable, action has been taken in 62 cases, USD 171.3 million. Of the 426 people investigated, which are currently in various stages of hearing. 352 cases were found to be un-actionable after ex- Criminal cases have been filed in 16 of the action- amination of tax records, responses received from able cases. persons involved and information received from Enforcement Directorate files first application under the Fugitive Economic Offenders, 2018 The Enforcement Directorate (“ED”) has filed the person against whom an arrest warrant has been first application under the newly framed the Fugi- issued by a court in relation to any offence listed tive Economic Offenders, 2018 (“Ordinance”). In out in the Ordinance (known as ‘scheduled of- its application to the Special Court, the ED has fence’) involving USD 15.38 millions or more, and sought to declare the liquor baron, Vijay Mallya as the said person has either has left India or is about a fugitive economic offender and confiscate his to leave India to avoid criminal prosecution. The property worth approximately USD 1880 million. offences include criminal conspiracy, cheating, forgery, fraud, corruption and bribery, insider trad- Vijay Mallya is accused of committing fraud and ing, evasion of customs duty and more. Prior to hatching a criminal conspiracy to secure a loan of declaring a person a fugitive economic offender, around USD 138 millions for Kingfisher Airlines, the court will issue a notice to the accused direct- despite the business having a negative credit rating ing him/her to appear before the court. If the ac- and being severely cash strapped. The former liq- cused fails to appear before the court within six uor baron is also being probed for default in the weeks from the date of the notice, the court may repayment of various loans amounting to USD declare the accused a fugitive economic offender. 1.38 billions from a consortium of banks which The Ordinance alse provides that once a person is allegedly was not used for the purpose it was declared fugitive economic offender’, all his/her granted. The authorities allege that loan funds property that was acquired from proceeds of crime were diverted to various sister companies. The can be confiscated by the Government. The Ordi- liquor baron, who has been living in the United nance has been proposed in the wake of large num- Kingdom has failed to cooperate with investigative ber of bank fraud cases that have been recently agencies such as the Enforcement Directorate and reported to the investigating agencies. A large the Central Bureau of Investigation. number of individuals accused of white collar The Ordinance was recently framed to help Indian offences leave India to escape prosecution, which banks and other financial institutions speedily severely jeopardizes the rights of financial institu- recover their dues resulting from defaults commit- tions to recover dues. ted by ‘fugitive economic offenders’. The Ordi- nance defines ‘fugitive economic offender’ as a Update on PNB Case- India’s biggest bank fraud In February, 2018, Punjab National Bank (“PNB”), try of External Affairs have been keeping a close had detected certain fraudulent transactions worth eye in this matter and are providing all possible more than USD 1.95 billions in few select accounts assistance to the investigating agencies. Some of in one of its branches in Mumbai. The accused pri- the recent actions that have been taken so far by the marily included several firms and companies pro- investigating agencies and Indian courts in this moted by the reputed Nirav Modi Group and Gitan- matter include: jali Gems Limited and its related companies Filing of charge sheet by ED for offences (“Gitanjali Group”). Enforcement agencies claim relating to money laundering : The ED has that investigations reveal that several officials filed a 12,000 page charge sheet against (including some ex-officials) of PNB have been Mr. Nirav Modi and several other persons issuing fake LOUs, foreign letter of credits and connected with India’s biggest bank fraud inland letter of guarantees to firms belonging to case involving fake letters of undertaking and Nirav Modi Group and Gitanjali Group. LOUs are foreign letters of credit issued by PNB. generally secured against margin money or other Non Bailable Warrant issued for offences collaterals offered by the client. relating to money laundering: A special court hearing the money laundering probe in These fake LOUs and letter of credits were issued this matter has taken the cognizance of the by PNB officials in connivance with Nirav Modi change sheet filed by ED and issued a Group and Gitanjali Group using Worldwide Inter- non- bailable warrant against Mr. Modi and a bank Financial Telecommunication (commonly number of other persons for offences relating known as ‘SWIFT’). These LOUs were issued to money laundering. without obtaining approval of the competent au- Securities Exchange Board of India thority and without proper documentation.