• Government of India Discloses Names of Overseas Bank Account Holders: Risk and Ramifications Analysis
  • November 17, 2014 | Author: Saionton Basu
  • Law Firm: Duane Morris - London Office
  • The Government of India (GOI) on 27 October 2014 made a disclosure to the Supreme Court of India containing the names of three prominent individuals who had opened overseas bank accounts allegedly with proceeds tainted with:

    • income and other tax evasion in India and/or
    • foreign currency remittance irregularities.

    The GOI is obligated to disclose to the Supreme Court all such names of account holders it has received from cooperating territories and investigating agencies under the Egmont Principles, in line with past Supreme Court directives.

    It is important to note that from a regulatory standpoint in India, it does not matter if such account holders were not resident in India at the time the accounts were opened, but it is vital to establish whether these individuals or entities are subject to tax and/or exchange control proceedings in India.

    Risk Identification

    The prime risks that the above situation has created for international banks and other intermediaries (with or without a presence in India) are as follows:

    • The risk 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 intermediaries.
    • Where reliance was placed by the account holding bank or fiduciary 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 absence of distinction between proper and improper accounts. In other words, it is not unlikely that several legitimate account holders and their banks and fiduciaries in turn may be the subject matter of regulatory proceedings consequent to the orders of the Supreme Court.

    Ramification Analysis

    • Account and ancillary holding banks and intermediaries (which at any point in the past had an interface with the transactions under scrutiny) will likely be brought into the investigation net under the orders of the Supreme Court.
    • The only defence against being a wilful abettor to the offences made out against the account holder will be demonstrating continuing due diligence and adherence to strict monitoring standards prescribed by law.
    • In light of the matters in the public domain concerning investigation of overseas bank accounts, the standards of continuing due diligence will likely 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.
    • Cooperation with and reporting to jurisdictional regulators under the Egmont Principles may be necessary at the earliest if any wrongdoing is discovered in the current or historic accounts post the stage of continuing due diligence.

    Bank account holders who find that any of the risks identified resonate or who may have interfaced with the tax/exchange control authorities in India may wish to seek legal counsel regarding the topics addressed in this Alert.