A number of apparently unconnected developments in recent months – the arrests in the Netherlands of three executives of a private company, the arrest in New Delhi of former Union Finance Minister Palaniappan Chidamabarm, together with an allegedly hushed-up tax notice served on Mukesh Ambani, his wife, and their three children under the recently promulgated Black Money Act, 2015 – have renewed attention to the subject of scrutiny by the government’s revenue authorities of the taxes paid by India’s richest man and the sprawling corporate conglomerate he heads.

In a letter written to Cabinet Secretary Rajiv Gauba on September 15, former Secretary, Economic Affairs, Ministry of Finance, and activist, E A S Sarma, has called for a widening of the scope of the investigation with more government agencies being brought into the fold.

As reported earlier by one of this article’s authors, an important background player in the recent saga related to the arrest of Chidambaram in the INX Media case was none other than the Reliance group. Chidambaram was arrested after allegations were levelled that in his capacity as Union Finance Minister, he had illegally approved foreign direct investment in the INX Media group by three Mauritius-based companies and that kickbacks were paid to companies associated with his son, Karti, who is currently Lok Sabha Member of Parliament from Sivaganga, Tamil Nadu, belonging to the Congress.

The Reliance connection is that at the time these transactions took place, through investments hidden behind a elaborate corporate veil, East West Pipeline Limited in its earlier avatar, Reliance Gas Transportation Infrastructure Limited (RGTIL), had financed the purchase of the INX Media-owned 24-hour English television news channel, News X, and facilitated the inflow of foreign investment. This had been claimed following an investigation by the Serious Fraud Investigation Office (SFIO) in the Ministry of Corporate Affairs in a draft report that one of these authors had made public in 2015.

The SFIO’s investigation stated that RGTIL was separated from its earlier ownership structure, where it was a subsidiary of a publicly-listed Reliance group company, to become a closely-held company owned by Mukesh Ambani directly in a “classic maneuvre”, ostensibly to cover up other transactions relating to the INX Media group.

The SFIO’s draft report alleged that behind an obfuscatory layer of holding firms, the Reliance group owned a significant portion of INX Media itself. In effect thereby, the group had arranged the ‘maneuvre’ to earn significantly via the inflow of foreign investment into its own subsidiary company without ever being identified as the beneficiary – or so it was claimed.

Biometrix Connection
In April 2019, three individuals were arrested in the Netherlands in connection with a case alegedly relating to the Reliance group. The three were former employees of the Dutch pipeline firm, A Hak NL. Investigators of the Dutch Fiscal Intelligence and Investigation Service, and Economic Investigation Service, alleged before a court that the three were involved in a scheme with RGITL to over-invoice costs in the pipeline project, thereby “creaming off” an estimated $1.1 billion (currently worth more than Rs 7,200 crore) in profits and parking them in a Singapore-based company named Biometrix Marketing Limited.

The Dutch investigators claimed that Biometrix was linked to Reliance. This development came as an unexpected corroboration of, and addition to, information about the same Singapore company that the Indian government had reportedly investigated over seven years earlier.

In February 2014, allegations relating to Biometrix, based on information available with the Indian government, had first been brought into the public domain by lawyer and founder-member of the Aam Aadmi Party (AAP), Prashant Bhushan, at a press conference in New Delhi.

Bhushan had quoted from a draft report prepared by the Comptroller and Auditor General (CAG) of India in 2011 that had alleged “gold-plating” or “over-invoicing” of capital costs of equipment imported by the Reliance group for use in the KG-D6 gas field, and connected it to a “commercial intelligence” report prepared by the Indian High Commission in Singapore on the unusually high amount of Rs 6,500 crore that had been obtained as a bank loan from the Singapore branch of the ICICI Bank by Biometrix and ploughed back into four Reliance group companies, including RGTIL.

Bhushan had suggested that the money obtained through over-invoicing had been “parked” in Biometrix and brought back into India through its “investment” in the four companies, an allegation that the group had rejected at that time.

The Income Tax Department has, at multiple junctures, made clear that an investigation into Biometrix is going on and that the government is seeking information on the firm – most recently in April 2018, when it was reported that the department had “widened” its probe into the Singapore company. The department had sought information from a number of foreign countries after it received a rap on its knuckles by CAG, which had argued that the department’s assessment of the Reliance group’s tax dues were inadequate.

It has earlier been reported by one of these authors that the Enforcement Directorate (ED), an agency of the Union Finance Ministry responsible for investigating violations of the Foreign Exchange Management Act and Prevention of Money Laundering Act, had recorded statements of Reliance group officials in relation to its dealings with Biometrix.

Despite such efforts though, the government’s actions on this probe have not tasted judicial success. One attempt by the Income Tax Department to declare a Rs 700 crore investment by Biometrix into Reliance Utilities Private Limited as income, and tax it accordingly, based on the report from the High Commission in Singapore and a subsequent enquiry by the department itself, was dismissed by the Income Tax Appellate Tribunal in February 2017.

While information gathered by the Indian government in the course of its investigation had established that Biometrix was part of the Reliance group itself, it had been separated from the group’s companies through a complex ownership pattern. Will the developments in the Netherlands represent the first concrete proof the Indian government might be able lay its hands on that would confirm if the Reliance group had parked funds obtained through over-invoicing in the Singapore company’s accounts?

The ED has reportedly sought the investigation report from Dutch authorities. A source familiar with the developments in the investigation told Newsclick on condition of anonymity that the ED should focus its efforts to collaborate with the Monetary Authority of Singapore and the Accounting and Corporate Regulatory Authority of Singapore that would have additional information on the company’s fund flows.

It is pertinent to note that Biometrix, which has invested more than a billion dollars into India, is no longer an active company in Singapore – having been struck off the company register with its bank loan having been repaid with money pumped into the company by the Reliance group itself. The source wondered if such conduct is typical of genuine institutional investors based abroad, that is, unless there is more to it than meets the eye.

Links with MoTech Software
The revelations in the Netherlands also have a link to another tax investigation relating to the Ambani family that is underway in the Income Tax Department. This investigation concerns foreign funds alleged to have been held by Reliance group companies through a firm named MoTech Software Limited, in Swiss banks. This allegation too was first made by Bhushan and Arvind Kejriwal (who is now Chief Minister of Delhi) in 2012 – at that time both the AAP founders were together under the banner of the India Against Corruption movement.

Thereafter, the allegations resurfaced in 2015 in the “Swiss Leaks” expose of documents leaked from the HSBC Bank by French-Italian whistleblower, Herve Falciani, and were confirmed last year by these authors to be the personal offshore assets of late Dhirubhai Ambani that were inherited by his sons, Mukesh and Anil, after his death in 2002.

On September 15, the Indian Express reported that a notice had been served on Mukesh Ambani, his wife and their three children under the Black Money Act on March 28 regarding their foreign assets amounting to around Rs 2,100 crore. A Reliance spokesperson denied the contents of an e-mail sent by the publication “including receipt of any such notice.”

The revelations in the Netherlands include the allegation that shell companies in tax havens that were used to re-route money siphoned off by over-invoicing to Biometrix, were founded by an individual named James Walfenzao, a financial management consultant and head of the Corpag group of companies that specialises in providing consultany services to high net worth individuals across the world seeking to park their funds in tax havens to avoid paying domestic taxes. This person had also been identified in the leaked HSBC documents as having played a facilitating role in managing Dhirubhai Ambani’s assets by means of a group of offshore companies.

Sarma Seeks Probe by Lokpal
Sarma’s letter to the Union Cabinet Secretary has sought his intervention to ensure the Biometrix case is made the subject of a coordinated investigation by the Central Bureau of Investigation (CBI) and the Directorate of Revenue Intelligence (DRI) along with the ED and the Income Tax Department, which are already seized of the different issues. He has urged that the probe be brought under the supervision of the newly-appointed Lokpal (or people’s ombudsman) to ensure it is completed in a time-bound manner. Sarma had made similar requests in the course of 2018 to the aforementioned agencies directly.

Similar efforts made by different activists in earlier years have seen little success. A public interest litigation (PIL) in this regard had been filed in the Delhi High Court in 2012 by journalist M Furquan. (This journalist appears to be a regular litigant seeking investigations into the working of large corporates, including Jet Airways and its former promoter Naresh Goyal – his PIL had led to the Bombay High Court ordering the preparation of a report by the Commissioner of Police, Mumbai, into Goyal’s alleged links with the underworld.)

In the Biometrix case, however, Furquan’s petition seeking a court-monitored investigation, was withdrawn by the petitioner himself in 2015 before hearings could conclude. A 2014 letter by Bhushan to the government’s Special Investigation Team on Black Money, formed in 2014 on the Biometrix and MoTech cases, saw little (and slow) action by government agencies. It remains to be seen whether the probe into these cases would be pursued.

Income Tax Investigations
The investigations that may expose the Reliance group’s companies to liabilities on untaxed earnings stem from two main lines of enquiry relating to Biometrix and MoTech.

The Biometrix investigation was started by the government in 2011. The relatively small company that was set up with an equity capital of 110,000 Singapore dollars, or roughly Rs 29 lakh, attracted the government’s attention when its investment of approximately Rs 6,500 crore into four companies in the Reliance group was ranked the single largest foreign investment into India from Singapore in 2007-08.

On a request by the Department of Industrial Policy and Promotion in the Ministry of Commerce and Industries, G T Venkateswara Rao, who was then First Secretary (Economic) at the Indian High Commission in Singapore, conducted an enquiry into Biometrix. His enquiry resulted in the preparation of a commercial intelligence report by the High Commission.

Rao’s enquiry found that Biometrix had been granted a loan of Rs 6,530.36 crore or $1.2 billion by the Singapore branch of the ICICI Bank in 2007 that was invested into the four Reliance group companies – RGTIL, Reliance Ports, Reliance Utilities and Relogistics Infrastructure – by subscribing to financial instruments called compulsorily convertible preferential (CCP) shares issued by them.

The enquiry unearthed the fact that Biometrix was, in fact, a company in the Reliance group. According to official records in Singapore, it was jointly owned by two companies – Strasbourg Holdings Private Limited and Reliance GeneMedix Plc. Strasbourg was owned by Atul Shantikumar Dayal – a Mumbai-based legal expert who was closely associated with the Reliance group – while Reliance GeneMedix was a subsidiary of Reliance Life Sciences Private Limited.

The loan to Biometrix by ICICI was secured by another Reliance group company named Ekansha Enterprises. Ekansha had entered into a “put and call option” agreement with Biometrix – guaranteeing that it agreed to buy the CCP shares held by Biometrix at a future date – and this agreement acted as security for the bank loan to Biometrix. As it turned out, subsequently, different Reliance group companies bought over the CCP shares from Biometrix and repaid the loan to the bank, after which the company was shut down and struck off the companies’ register in Singapore.

As far as the Reliance group is concerned, this was all there was to the matter. It produced an agreement before the Income Tax authorities that it had with the ICICI Bank’s Singapore branch, where the bank agreed to loan the amount for investment into the four Reliance group companies to a Special Purpose Vehicle company set up for the purpose in a “tax efficient jurisdiction.” It argued that Biometrix was set up according to this agreement, and its investment into India was bona fide.

In one instance, regarding the investment of Rs 700 crore into Reliance Utilities Limited by Biometrix, in 2013, the Indian tax authorities sought to tax this as income received by the company. The Reliance group appealed this argument and succeeded. In 2017, a panel of the Income Tax Appellate Tribunal accepted the Reliance group company’s argument and struck down the tax department’s attempt to assess the Rs 700 crore investment for levy of income tax.

The arrests in the Netherlands were allegedly for over-invoicing of materials and services supplied by the Dutch pipeline company, A Hak NL which, as a contractor for RGTIL for building a gas pipeline between 2006 and 2008, acted as an “invoice duplicator.” The prosecutor’s office that executed the arrests said in a statement that profits of about $1.2 billion were “creamed off” by A Hak International Contractors Asia through “four insurance companies” allegedly using false insurance contracts. Of this amount, the statement said, up to $1.1 billion were invested in two companies related to RGTIL.

The Indian Express reported that according to case details seen by it, the amount was later transferred to Biometrix through a web of transactions involving about 15 companies based in Dubai, the Caribbean and Switzerland among others. As already mentioned, the case details mentioned that some of these entities were owned by Walfenzao, who reportedly assisted the Reliance group in managing its offshore assets, according to leaked documents of the HSBC Bank.

While the Reliance group released a media statement denying any links to the Dutch case, Business Standard reported that the ED had sought a report on its investigation from the Dutch authorities.

If the government is serious about the probe – and many doubt that it is – it would be necessary for India’s investigative agencies to gather evidence of duplicate sets of invoices corresponding to the same transactions by RGTIL, documentation on transfer of funds to accounts held or controlled by Biometrix in Singapore or related parties, and evidence on how funds were deployed to repay the loan received from ICICI Bank, Singapore.

It remains to be seen whether ‘collusion’ among bankers, company executives and government officials can be established through a coordinated effort by agencies like the DRI, ED, CBI, SFIO, and Income Tax Department, as has been suggested by Sarma. That the quality of evidence will have to be very good, goes without saying. There are a number of recent examples of meticulously investigated cases by single agencies, such as the DRI and the Income Tax Department, being dismissed at the appellate stage by tribunal bodies.

The other investigation that has apparently made some progress concerns MoTech Software. Information about the firm had reportedly been made available to the government first in 2011. Eight years later, the government is said to have issued notices to members of the Ambani family.

In 2012, Kejriwal and Bhushan highlighted details of the MoTech case after the “Swiss Leaks” investigation by the International Consortium of Investigative Journalists. The consortium’s Indian partner, the Indian Express, revealed in February 2015 the names of several companies in offshore tax havens connected to the Reliance group and its promoter families.

In an exclusive report for Newsclick, these authors had revealed in May 2018 that the Income Tax investigation based on the HSBC information had uncovered that the offshore firms were part of an elaborate scheme to transfer ownership of Dhirubhai Ambani’s offshore assets to his sons, Mukesh and Anil, following his death. Involving one chain of multiple firms to mask ownership, and another chain of firms to mask the flow of funds, assets amounting to Rs 2,100 crore worth of shares in Reliance Utilities and Power Limited and Reliance Ports and Terminals Limited eventually ended up in an account held in a Swiss branch of the HSBC Bank by a subsidiary of MoTech Software.

Questionnaires sent by NewsClick to the Ambani siblings, Mukesh and Ambani, were not responded to at the time.

It was reported on September 15 by the Indian Express that a four-month amnesty period announced by the government for holders of black money, prior to its November 2016 announcement of demonetisation, went ignored by the Ambanis and stated that the tax notice had been served in a “closely guarded move.”

Little Media Attention
The Reliance group’s connection to the INX Media case following Chidambaram’s arrest as well as the tax investigations into group companies and its promoters, have received little media attention. It has been alleged that officials working on these investigations have been frequently transferred.

Following an unprecedented rap on the knuckles by the CAG on alleged mis-steps in assessing the Reliance groups’ companies tax liabilities in 2018, unnamed Income Tax Department officials had told journalists that “the Biometrix FDI (foreign direct investment) trail went cold for four years after a few officials were transferred.”

On the day of writing this report, the Indian Express published another report about a mysterious break-in at the Mumbai office complex of the Income Tax Department in September 2019 during the Ganesh Chaturthi holiday. The break-in took place in precisely the unit of the department that is handling the black money investigation in the MoTech case.

The newspaper stated that information about the break-in had not been revealed for over a month, no first information report had been filed with the police, and that a departmental enquiry was still on to determine what documents may be missing and who may have been responsible for the break-in into the heavily guarded premises of the Income Tax Department.

The writers are independent journalists.

Courtesy: News Click