Mossack Fonseca tsunami may reach Seychelles, drench Indians and NRIs

MUMBAI: After Panama, Seychelles could turn out to be the next source of embarrassment and annoyance for some of the wealthy Indians and NRIs.

Many of them have come to know that information about their investments and bank accounts in the East African island country have been compromised. They are either directors or shareholders of shell firms — better known as international business companies — which hold funds in accounts in Seychelles or other tax havens.

“We have been alerted about a possible leak, similar to that in case of Mossack Fonseca. Most likely, activist hackers or disgruntled employees have fished out information from Fonseca’s database on Seychelles.

We believe the information, which may have been collected earlier, could soon find its way into the public domain,” a senior tax professional told ET on condition of anonymity.

Mossack Fonseca, the Panamanian law firm, came under media glare after a group of journalists across countries revealed investment details about Fonseca’s clients. According to a senior lawyer, a few non-resident Indians, with legitimate investments, are planning to sue Fonseca for failing to protect client confidentiality.

Two tax practitioners ET spoke to confirmed that their clients, fearing they could be questioned by the income-tax department about their investments or directorships in Seychelles, have instructed them to prepare a line of defence.

Besides the convenience it offers in setting up trusts and foundations, Seychelles’ attraction also lies in the prevalence of bearer shares, which provide anonymity because such securities are not registered in the name of an owner.

But Seychelles is a comparatively less significant tax haven as it is perceived to be less stable. The Chinese have often used Seychelles for investing in Indonesia on the back of a tax avoidance treaty similar to the one that exists between India and Mauritius.

While India shares diplomatic relations with Seychelles and has even extended credit lines to the country, there are no tax and information sharing arrangements.


“It’s unclear whether India can leverage its existing ties with Seychelles to extract information. Also, it’s unlikely that too many big names and celebrities will be linked to Seychelles which, like Cyprus, has been also used by Russians. My guess is whatever information that emerges would be dated as money has already moved to places like Dubai,” said another lawyer.

Apart from the lack of information, possible non-cooperation by jurisdictions like Panama could hold back Indian tax and government agencies such as the Enforcement Directorate from prosecuting individuals whose names appear in connection with tax havens. “Also, in some cases, the investments are legitimate even though the persons may not have declared them in 2012 (the year since when residents have to declare their overseas assets).

But many investments would always evoke suspicion. Investments in Singapore or British Virgin Islands are understandable as these can be used to acquire properties and securities. But bank accounts, trusts and shareholdings in places like Panama, Liechtenstein and Seychelles, which figure in the OECD grey list, are often seen in a different light,” said a person familiar with the subject.