It is not the first time that the group has come under the scanner of tax sleuths. The question is: what were the taxmen doing for all these years? How could an alleged mega-money laundering by a single group take place without being noticed by the authorities for this long?

The charges against the Ispat Industries, the flagship Ispat group company, and its promoters are that they have robbed Indian banks and Indian shareholders of thousands of crores of rupees to help build a massive business empire across the globe under the tutelage of Global Steel Holdings, registered in the Isle of Man, a well-known tax haven with the reputation of being home of many an Indian money launderers. Promod Kumar Mittal, the Ispat Industries head, turned an NRI in the 1990s and since re-located himself at London, which is also home of eldest brother Lakshmi Niwas Mittal, the UK’s richest businessman and boss of Arcelor-Mittal and Ispat International. The Ispat group may be an owner’s pride, but it is an investors’ nightmare. The ever expanding debt-equity route used by the ambitious steelmaker has served very well for the Ispat group but not for investors in its equity or in debt.

Promod Mittal built his steel empire through right connections at New Delhi’s Udyog Bhavan, Shastri Bhavan and North Block and Mumbai’s Mantralaya, very much in keeping with the industry tradition set by his peers in Indian business. He is a delightful company, always carrying several cellphones, chatting all the time with politicians and top bureaucrats and boasting his advance official level intelligence about cabinet reshuffle, portfolio allocation, transfers, postings and promotions of top bureaucrats, who’s going abroad on whose account and individual weaknesses and strength of powerful politicians and bureaucrats. Like most highly ambitious new generation businessmen, he is a great gossip and has uncanny ability to convert challenges into opportunities. It could be more than a coincidence that Promod was reportedly not in India or in London when tax raids were conducted simultaneously at some 50 of his establishments in the country on the last day of November, 2010.

Although nothing may ultimately come out of these raids, poor Vinod, the youngest of the Mittal brothers, has to temporarily bear the heat of the sudden taxmen’s swoop upon Ispat’s Indian empire. Interestingly, there was a media story, appeared to be a well organised plant, only a week before the I-T raids that the eldest brother, L N Mittal might take over debt-strapped Ispat Industries. In such an event, both Pramod and Vinod may get away lightly with the charges of indulging in accounting malpractices to allegedly stash away hundreds of millions of dollars abroad to fund overseas business and acquisitions. Lakshi Mittal’s global steel empire has long been longing for action in India. He had reportedly aspired to take over Tata Steel before Ratan Tata himself hatched an international coup to acquire Anglo-Dutch Corus making the flagship Tata company too big to be easily swallowed by a predator.

International banks, which are associated with highly lucrative Indian money laundering business to the tune of billions of dollars a year since the beginning of the country’s economic reform, are unlikely to co-operate with Indian revenue intelligence authorities in the alleged Ispat scam. These banks were unhelpful in the past with similar other investigations. They will go after a client only if their own banking laws are breached and not for violating national laws of other countries. Therefore, the administration of the Isle of Man, which is extremely popular with Non-Resident Indian (NRI) businessmen, may not blink at all. Many domestic companies inclufing India’s largest airline, Jet Airways, boast their origin in the Isle of Man. The registered office of Tailwinds, the promoters of Jet Airways, under the care of Naresh Goyal, an NRI, is in the Isle of Man. Ironically, India’s second largest air carrier, Kingfisher, too belongs to an NRI, the London-based NRI, liquor baron Vijay Mallya. Most NRI businessmen carry huge debt with Indian banks.

The three-million-tonne Ispat Industries’ dual-location steel plant at Dhabol and Kalmeswar in Maharashtra has been a good performer in terms of volume and value of production. But, the bottom-line of the Rs. 10,000-crore integrated steel company has been the worst in the industry. Its shares are least appreciated in Bombay and national stock exchanges. The heavily borrowed company is alarmingly low on profitability. The firm is accused of diverting the borrowed funds from Indian banks and financial institutions to foreign destination. In the eye of storm is a Rs. 8,000-crore-plus loan restructuring package the Ispat group obtained recently from government banks and financial institutions to tide over the fund crunch. The taxmen suspect collusion between Ispat group promoters and bankmen.

While tax raids on large industries and industry groups have rarely yielded desired results except for the rude fact that they generally open opportunities for raiders and their bosses to make ‘extra’ money. Tax sleuths get active, make large default estimates, travel all over the world and, more often, strike private deals with law offenders to create loopholes in investigations which ultimately fail the test of judicial scrutiny. Finally, moles are produced out of mountains of costly, time-consuming investigations and tall claims. Paradoxically, such tax raids often end in favour of the financial offenders as the offence is ‘regularised’ and old cases are buried on payment on small ‘settlement’ charges to the tax authorities.

The nexus between the big business and taxmen are too strong. Tax laws and financial offences are trouble only for small fries. Few bankers or businessmen were ever punished for creating a massive Rs 2,00,000-crore-plus hole in the banking system in the 1980s on account of non-performing assets and industrial sickness. The Reserve Bank of India (RBI) had to come to the rescue of those cash-strapped commercial banks to recapitalize them to maintain the minimum eight per cent capital adequacy ratio while promoters of defaulter companies and bank managers, allowing them loan repayment flexibilities, were allowed to freely walked away.

Unfortunately, the financial crime has been highly on the rise, especially since the country embraced the path of economic reform, which was once touted to be the best and the most effective way to improve business transparency and lessen financial corruption. The recent raids on the premises of certain real-estate giants and their financers, nationalized banks and the Life Insurance Corporation of India, suggest that the business-bank nexus has become far too stronger in the recent times. (IPA Service)