Govt iden­ti­fies over 100,000 sus­pected shell firm di­rec­tors

Char­tered ac­coun­tants, com­pany sec­re­taries and ac­coun­tants also on gov­ern­ment radar in crack­down on money laun­der­ing


Walk­ing the talk on im­prov­ing statu­tory com­pli­ance by un­listed com­pa­nies and to check abuse of the cor­po­rate struc­ture for money laun­der­ing, the gov­ern­ment on Tues­day, 12 Septem­ber, iden­ti­fied over 100,000 di­rec­tors of sus­pected shell firms to bar them from the boards of other firms.

A min­istry of cor­po­rate af­fairs state­ment said it had ze­roed in on 106,578 di­rec­tors for dis­qual­i­fi­ca­tion as of 12 Septem­ber for as­so­ci­at­ing with com­pa­nies that had not filed fi­nan­cial state­ments or an­nual re­turns for three straight years.

De­tailed in­ves­ti­ga­tions will fol­low to de­ter­mine whether these di­rec­tors are prox­ies rep­re­sent­ing the ben­e­fi­cial in­ter­ests of peo­ple who use shell com­pa­nies to evade taxes or to laun- der money. Busi­nesses evad­ing taxes and pro­mot­ers di­vert­ing funds from listed or un­listed com­pa­nies with pub­lic in­ter­est sys­tem­at­i­cally use shell com­pa­nies for fudg­ing books.

The min­istry said pro­fes­sion­als such as char­tered ac­coun­tants, com­pany sec­re­taries and cost and works ac­coun­tants who have col­luded with shell com­pa­nies in wrong­do­ing are also un­der the radar.

“The fight against black money shall be in­com­plete with­out break­ing the net­work of shell com­pa­nies. Pos­si­bil­ity of us­ing the shell com­pa­nies for laun­der­ing the black money can­not be un­der­mined,” said the min­istry state­ment, cit­ing min­is­ter of state for cor­po­rate af­fairs P.P. Chaud­hary.

A fi­nance min­istry of­fi­cial, who asked not to be named, said the min­istry and in­ves­tiga­tive agen­cies like the En­force­ment Direc­torate and the Cen­tral Bureau of In­ves­ti­ga­tion had sub­mit­ted to the cor­po­rate af­fairs min­istry their find­ings on how shell com­pa­nies are used for fi­nan­cial crimes.

The cor­po­rate af­fairs min­istry said data is be­ing an­a­lysed to iden­tify the sig­nif­i­cant ben­e­fi­cial in­ter­ests be­hind these com­pa­nies. “Pro­files of di­rec­tors such as their back­ground, an­tecedents and their role in the op­er­a­tions and func­tion­ing of these com­pa­nies are also be­ing com­piled in col­lab­o­ra­tion with the en­force­ment agen­cies. The money laun­der­ing ac­tiv­i­ties per­formed un­der the aegis of these com­pa­nies are also un­der the scan­ner,” said the min­istry.

There have been in­stances of shell com­pa­nies hav­ing di­rec­tors who are driv­ers, cooks and other em­ploy­ees of tax evaders, said an of­fi­cial with one of the in­ves­ti­gat­ing agen­cies who did not want to be named.

To pre­vent the abuse of the cor­po­rate struc­ture for fi­nan­cial crimes and to im­prove trans­parency, the cor­po­rate af­fairs min­istry had a few years ago con­sid­ered lim­it­ing the num­ber of sub­sidiaries a com­pany could open, but the move did not go through as busi­nesses in­sisted that they needed the flex­i­bil­ity to or­ga­nize them­selves.

Last Wed­nes­day, the gov­ern­ment de­cided to bar as many as 300,000 di­rec­tors of such shell com­pa­nies from sit­ting on the boards of other com­pa­nies. Prior to that, the fi­nance min­istry had de­cided to freeze the bank ac­counts of more than 200,000 com­pa­nies struck off the records of the reg­is­trar of com­pa­nies to pre­vent their di­rec­tors from ac­cess­ing the com­pa­nies’ bank ac­counts.

“The gov­ern­ment has also given op­por­tu­nity to com­pa­nies that are struck off from the records to ap­proach the Na­tional Com­pany Law Tri­bunal and get re­vived as per law,” said Pa­van Ku­mar Vi­jay, founder of ad­vi­sory firm Cor­po­rate Pro­fes­sion­als.

There are around 1.1 mil­lion com­pa­nies hav­ing ac­tive sta­tus in the Com­pa­nies Reg­istry af­ter clos­ing of around 200,000 com­pa­nies as a part of the ac­tion against de­fault­ing and shell en­ti­ties. The li­a­bil­ity of di­rec­tors and other of­fi­cers of the com­pany struck off from the records will, how­ever, con­tinue and could be en­forced.

“De­bar­ring di­rec­tors is a strong mea­sure of deter­rence. It is also pos­si­ble that some in­no­cent di­rec­tors hav­ing as­so­ci­ated with non-com­pli­ant com­pa­nies in the past may be caught on the wrong foot and their ser­vices may be de­nied to gen­uine com­pa­nies,” said Ved Jain, for­mer pres­i­dent of ac­count­ing rule maker In­sti­tute of Char­tered Ac­coun­tants of India.

Crack­ing down: Min­is­ter of state in the min­istry of cor­po­rate af­fairs P.P. Chaud­hary.

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