For Launderers, Kolkata Indeed the City of Joy
Metropolis tops list of most cos registered at one address, fuelling fears of shady deals
ET Intelligence Group: With the Prime Minister’s Office setting up a task force late last week to monitor action against deviant shell companies after the February 1 Budget tightened rules against such entities, Kolkata may well bear the brunt of the clampdown. The city tops the search for most companies registered at the same address.
This is the location that heads the list — 9/12, Lal Bazar Street, with 315 companies. It just happens to be the address of the city’s police headquarters as well. Registered Companies, an analytics firm specialising in corporate due diligence, crunched through data from the Ministry of Corporate Affairs and found that 1,410 companies are registered in different blocks of the 9/12 Lal Bazar Street area with 84 of them based in Room No. 10 in one block. The area is a warren of chartered accountants’ offices with most of the companies being private limi- ted ones engaged in wholesale trading and real estate.
A little over 11,281 firms are registered at 148 addresses, an average of 76 each. Seven of the top 10 most common addresses are in Kolkata. Apart from the one above, these are 52, Weston Street; 5, Gorky Terrace; 266, Dakshindari Road; 91, Shakespeare Sarani, and 4/A, Palit Street.
To be sure, there is no limit on companies that can be registered at the same address. Consultants typically house the registered offices of companies for which they handle compliances, a practice common in Singapore and Mauritius as well, said Vinod Kothari, a company law practitioner based in Kolkata. A company secretary firm in Singapore will be home to the registered offices of hundreds of companies, typically called ‘letter box companies’.
But a corporate affairs ministry official said many of them exist only to turn black into white.
“Some of these are surely shell companies — created for laundering of unaccounted cash,” the person said. “Some may also be incorporated for the purpose of selling off at a later stage to parties who want to acquire up-andrunning firms rather than incorporate new ones. The ministry, Serious Fraud Investigation Office and income-tax department are aware of these practices and action is being taken.”
The Institute of Chartered Accountants of India said it’s determined to discipline erring members.
Any misconduct that abets corruption and money laundering will be investigated and punished if proven, the institute told ET.
“Most of these companies typically have small paid-up capital and high general reserves,” said a Kolkata-based independent financial adviser.
According to people with knowledge of the matter, the system involves seasoned accountants and money market brokers bringing together two sets of people — those with unaccounted cash and those needing it.
The shell companies belong to the latter group and have big amounts as ‘cash on hand’ but actually hold little of it as it’s been used in ways that can’t be accounted for. They have mostly spent their earnings and fund withdrawals from banks for personal use, bribes and commissions.
‘KOLKATA HAS BEEN NOTORIOUS’
“Kolkata has been very notorious for shell companies being used for money laundering, especially penny stocks being used to create longterm capital gains that are exempt from tax, a loophole that was plugged in this year’s Budget,” said Amit Maheshwari, partner, Ashok Maheshwary & Associates LLP. “Given the complexity of the transactions and the accounting involved, it won’t be easy for individuals to swiftly cover up the trail of black money.”
As a natural corollary, email IDs are also common for many companies. For instance, “firstname.lastname@example.org” is the corporate email ID for 213 companies. This address, “email@example.com”, is the director’s email ID at 206 companies.
Of about 1.5 million registered companies, only 600,000 file annual returns, the PMO said. Shell companies are characterised by nominal paidup capital, high reserves and surpluses on account of receipts of high share premiums, investment in unlisted companies, no dividend income, high cash in hand, private companies as majority shareholders, low turnover and operating income, nominal expenses, nominal statutory payments and stock in trade, besides minimum fix- ed assets. Among the non-Kolkata addresses, a Connaught Place address is the third most common with 311 companies. A Jubilee Hills Road address in Hyderabad is the sixth most common address with 244 (largely agro) companies registered.
HARD TO TRACE OWNERSHIP
Such proliferation makes hard to trace ownership.
“This could all be easily tackled through a mandatory requirement of declaration of natural persons. And, of course, if a company wrongly declares a natural person, the benami law is there to tackle such wrong declarations,” said Kothari.
“There is a global trend to find the natural persons behind a corporate. This is the concept of ‘ultimate beneficial owner’ which is behind Prevention of Money Laundering Act (PMLA) regulations, as well as US Foreign Account Tax Compliance Act (FATCA) regulations... It is important, no matter what regulation ensures this, to ensure that the identity of natural persons behind a company be established.” The PMO said harsh penalties will meted out to deviant shell companies including freezing of bank accounts, striking off the names of dormant companies and invocation of Benami Transactions (Prohibition) Amendment Act, 2016.
Among the non-Kolkata addresses, a Connaught Place address is the third most common with 311 companies