On Monday, news outlets across the world began publishing details from a stash of more than 11.5 million files belonging to a Panama-based law firm, Mossack Fonseca, which helps wealthy clients set up what are called ”offshore companies” in tax havens. Being dubbed the biggest global information leak in history, these documents were handed over by an anonymous source to the German newspaper Suddeutsche Zeitung, which in turn shared them with the International Consortium of Investigative Journalists (ICIJ). The ICIJ shared these with news outlets across the world, including The Indian Express.

Who are the rich and famous named in the Panama Papers?

At least a dozen top world political leaders — including Russia’s President Vladimir Putin to Pakistani Prime Minister Nawaz Sharif — appear to have benefited directly or directly from such companies. As many as 500 Indians, including Bollywood superstar Amitabh Bachchan, his daughter-in-law  Aishwarya Rai Bachchan, Gautam Adani’s elder brother Vinod Adani, DLF promoter K P Singh and his family, Indiabulls’ Sameer Gehlaut and late underworld don Iqbal Mirchi are reported to be beneficiaries, according to The Indian Express.

So, what are offshore companies?

Typically, an offshore company is one that is set up in a country other than that in which its directors, promoters and shareholders reside. This is often done in tax havens — countries that have extremely low or zero rates of taxation. Besides Panama, some of the most popular tax havens include Mauritius, Switzerland, the British Virgin Islands, Seychelles, Barbados, St. Vincent and the Grenadines, Anguilla, Dubai and Liechtenstein, to name just a few.

What is Mossack Fonseca?

It is a Panama-based law firm, which is one of the world’s top creators of shell companies that are typically used to hide trails of ownership of assets. For a fee, it reportedly also administers offshore companies it helps create.

Is it legal to own and operate such offshore companies?

Yes, and there may be good reasons for some people to use such companies to park their money either because of restrictive policies in their home countries or because of law and order issues. Having said that, in several instances such companies are used as channels to evade taxes and scrutiny in the promoter’s country of residence. This is where ethical issues crop up.

But is it legal for Indian citizens to set up and operate offshore companies?

This is complicated. Till 2003-04, all investments abroad by Indians required an approval by the Reserve Bank of India (RBI), the country’s central bank. In 2004, RBI allowed resident Indians to remit money abroad to the tune of $25,000 under the so called Liberalised Remittance Scheme (LRS). The upper limit now stands at $250,000. This effectively means that Indian residents can freely remit up to $250,000 a year without restrictions, for certain capital or current account transactions that are permitted under the LRS. To put it simply, the LRS does allow remittances for a whole host of reasons, including buying shares of companies and property abroad.

Having said that, in a clarification issued in September 2010, the RBI had stated that the LRS did not allow Indians to set up companies abroad. In a subsequent notification published in August 2013, it did allow such entities to be set up abroad. So, while it was illegal for Indians to set up or invest in such companies till 2004, between 2010 and 2013, there was a grey area on the legality of such entities. The Indian Express states that most such companies that find mention in the Panama Papers were set up before 2004 and therefore might be illegal.

Will India investigate the revelations from the Panama Papers?

The Indian Express on Tuesday cited finance minister Arun Jaitley as saying that prime minister Narendra Modi had “himself requested” that the matter related to the Panama Papers be investigated. The government said that it is setting up a multi-agency probe to investigate all cases of Indians setting up offshore entities. Besides RBI officials, those from the Central Board of Direct Taxes, Financial Intelligence Unit and the finance ministry’s Foreign Tax and Tax Research division would be involved in the probe. “The Government is committed to detecting and preventing generation of black money. In this context, the expose of Panama Papers will further help the Government in meeting this objective,” the finance ministry statement said. “India is also concerned that there are countries in the world which are being used as tax havens because of which all other countries of the world suffer loss of tax,” it added. Separately, the Special Investigation Team, looking into the issue of black money also said that it will probe these leaks.