Noose tightens for shell cos

As multiple agencies and regulators probe suspected use of 'only-on-paper' firms for financial irregularities, the government is looking to put in place a proper definition for 'shell companies' so that investigations are not hampered and prosecution can withstand scrutiny in courts of law.

A number of entities accused of using 'shell companies' for money laundering and other financial wrongdoings have challenged the regulatory action against them in recent months and there is a feeling that all regulatory gaps must be filled to avoid delay in bringing the guilty to book, officials said.

One key issue hampering the investigations and prosecution has been lack of a proper and uniform definition for 'shell companies' -- a term generally used for companies that are set up for financial manoeuvrers only or are kept dormant for some future use. These companies generally exist only on paper and are often used by scamsters for their nefarious activities, officials said.

There have also been allegations about various political leaders using 'shell companies' to keep their business interests under the wraps.

The Ministry of Corporate Affairs (MCA) has received preliminary suggestions from a multi-agency task force comprising officials from the Enforcement Directorate (ED), Financial Intelligence Unit (FIU), Directorate of Revenue Intelligence (DRI), capital markets regulator Sebi (Securities and Exchange Board of India) and the Income Tax Department, among others, officials said.

The suggestions, which include a list of possible parameters for defining shell companies, will now be further discussed by the Corporate Affairs Ministry, the Finance Ministry, Sebi and the RBI. Besides, it may also be discussed at the level of the Financial Stability and Development Council (FSDC), the officials said. The definitions under consideration include those from the Organisation for Economic Co-operation and Development (OECD), an inter-governmental organisation tasked with suggesting policy and regulatory framework globally.