On April 3, 2016, disclosure of 500-plus offshore companies
incorporated in Panama and other tax havens with peripheral links
to Indian tax residents and Indian postal addresses was made
public. Whilst that alone connotes no manner of wrongdoing, given
the information now resides in the public domain, this
Alert outlines the following potential risks that may
emerge for banks, account holders and fiduciaries engaged in
putting together the corporate structure.
The absence of distinction between proper and improper
corporate structures viewed against the extant regulatory regime in
India indicates it is not unlikely that several legitimate
corporate structures and their banks and fiduciaries will be the
subject matter of regulatory scrutiny by the regulatory agencies
and the Special Investigation Team (SIT) constituted by the Supreme
Court of India.
Where the account holding bank or fiduciary relied on the
source-of-wealth checks of a correspondent bank (whether in India
or overseas) or even otherwise, it is likely that information in
relation to pending tax and exchange control regulatory proceedings
in India was not sought or obtained.
The potential risk exists of being enjoined to regulatory
proceedings in India as a facilitator of tainted transactions, as
has already been the case with a few international banks and
If the SIT’s pronouncements were to be taken at face
value, swift enforcement actions are likely to commence on a
variety of account holders who are now in the public domain, both
in relation to corporate structures in Panama and to other overseas
holdings. Accordingly, the following mitigation measures should be
In light of the matters in the public domain concerning
investigation of overseas corporate structures and bank accounts,
the standards of continuing due diligence will involve looking
afresh at the profile of the clientele and establishing
conclusively for current and historic accounts that their books
were not tainted with the aforementioned types of proceeds.
Potentially, the only defence against being a wilful abettor to
the offences made out against the account holder may be
demonstrating continuing due diligence and adherence to strict
monitoring standards prescribed by law.
Cooperation with and reporting to jurisdictional regulators
under the Egmont Principles are likely to be necessary at the
earliest if any wrongdoing is discovered in the current or historic
accounts after the stage of continuing due diligence.
It is possible that one of the above risks identified may
resonate with those who may have interfaced with the tax/exchange
control authorities in India.
If you have any questions about the topics discussed in this
Alert, please contact Saionton Basu in Duane Morris' London
office, any of the attorneys in our India Practice Group or the
attorney in the firm with whom you are regularly in contact.
Disclaimer:This Alert has been
prepared and published for informational purposes only and is not
offered, nor should be construed, as legal advice. For more
information, please see the firm's
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