Shell companies deposited, withdrew ~17,000 crore after demonetisation

As the government nears completion of a year after demonetisation, the data shows suspected ‘shell’ companies deposited and withdrew ~17,000 crore in the days after the note ban.

The data, issued by the government, is from 56 banks for 35,000 companies, which had around 58,000 bank accounts. One company had a negative balance before demonetisation but deposited and withdrew ~2,484 crore after November 8, 2016, the government said.

These companies’ bank accounts have been frozen. And, state governments told to restrict sales and transfers of real estate assets owned by these entities.

The statement issued by the Centre gives a summary of recent decisions to check the suspected money laundering via such companies — such keeping a check on ‘dummy’ directors by connecting the director identification number with Aadhaar, the citizen identification number, and the permanent account number. Existing directors and new ones will have to comply.

Also, the plan for an ‘early warning system’ has to be overseen by the Serious Fraud Investigation Office (SFIO). The government had also recently rewritten the rules to limit the number of subsidiaries a company may have — no more than two layers. This will apply prospectively but existing companies have to disclose details of their entire list of subsidiaries to the registrar of companies within 150 days. Banks and insurance companies are excluded from this.

Also, the director, additional directors, or assistant directors of the SFIO were recently authorised to arrest any person believed to be guilty of any fraud punishable under the Companies Act. Section 447 of this law defines fraud and prescribes the punishment, including imprisonment-up to 10 years.

The statement adds that a reference had been made to the finance ministry to include these as schedule offences under the Prevention of Money Laundering Act.

Earlier, the government had stated it had identified 224,000 shell companies and begun action against these. Apart from freezing bank accounts and other assets with these entities, the government is also screening chartered accountants and company secretaries associated with these companies. And, 309,000 names of those who were directors on the boards of these companies have been disqualified from having such positions. About 3,000 of these were directors in more than 20 companies each, beyond the legal limit, the government recalled having said earlier.