A Game Changer's Memoir by GN Bajpai

Author:GN Bajpai
Language: eng
Format: epub
ISBN: 9789353052089
Publisher: Penguin Random House India Private Limited
Published: 2018-09-26T16:00:00+00:00

SEBI’s Own Surgical Strike against P-notes

When we studied the data on FIIs and P-notes in detail, we found that investment in India through FIIs and P-notes was the highest via Mauritius, as it has a double tax avoidance treaty with India. Also, Mauritius being an offshore centre, it levied only 10 per cent tax on gains. At SEBI, we now wanted to know who were behind these P-notes, whether the rules of issuance, transfer and disclosure of P-notes made by us were being followed strictly, and whether the media accusations were true.

I have mentioned earlier that I was actively involved in building SEBI’s relationships with global regulators. We had, in December 2002, signed a bilateral agreement with FSC Mauritius for sharing of information between the two countries. We decided to make use of this agreement to get transaction data on the P-notes being issued by FIIs in Mauritius. This was the first time something like this was being sought by an Indian regulator from a foreign country, so we wanted to maintain utmost confidentiality about the whole matter, lest it should lead to any unnecessary speculations in the Indian markets.

So, in secret, a team of two officers from SEBI was sent to Mauritius to investigate the FIIs and the P-notes they issued. Confidentiality was maintained to such an extent that nobody besides a very small select group of officers in SEBI and the finance ministry knew about this. Even the officers’ flight tickets to Mauritius were not booked by the admin department of SEBI to avoid any possibility of information leakage. They were given my direct (unlisted) number, and were to call only me directly in case of any problems.

The two officers stayed in Mauritius for three days and studied the data. A preliminary perusal of the books of the Mauritius Offshore Business Activities Authority (MOBAA) indicated that Citibank (registered as an FII in India and investing in the Indian markets) had a Mauritius unit through which it was issuing P-notes. The crux of the issue was that these P-note issuances had not been disclosed to SEBI by Citibank. As per SEBI requirements, every FII was required to disclose this. Then there were other FIIs too holding P-notes which had not been disclosed to SEBI. However, Citibank was the more prominent one.

The SEBI team wanted further details on all FIIs and P-notes from Mauritius, and wanted to bring back the data with them as proof to establish a concrete case against the defaulting FIIs. That was when the Mauritius authorities showed reluctance to part with any further information or to give us any data copies. After all, confidentiality was an integral part of MOBAA’s operations. So the matter had to be escalated, and finally, after many back and forth calls at the highest levels, MOBAA agreed to provide the details of any one entity that we chose. We chose Citibank, they being the largest seller of P-notes.

When the data on Citibank Mauritius operations came in, it got further established, with proof, that Citibank had not disclosed information about their P-notes as per SEBI requirements.

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