Govt: Trans­ac­tions worth Rs17,000 cr un­der scan­ner

Pre­lim­i­nary in­ves­ti­ga­tions into 35,000 firms, 58,000 bank ac­counts point to pos­si­ble tax fraud by shell com­pa­nies


In­dian reg­u­la­tory agen­cies have tracked down about Rs17,000 crore of sus­pi­cious trans­ac­tions, in­di­cat­ing pos­si­ble tax fraud by shell com­pa­nies af­ter analysing data col­lected fol­low­ing last Novem­ber’s de­mon­e­ti­za­tion ex­er­cise, said the Union cor­po­rate af­fairs min­istry.

The sum, equiv­a­lent to the money set aside in the Union bud­get for im­part­ing skills, gen­er­at­ing em­ploy­ment and pro­vid­ing liveli­hood, has been iden­ti­fied fol­low­ing a pre­lim­i­nary probe into 35,000 com­pa­nies and 58,000 bank ac­counts, the min­istry said in a state­ment on Sun­day.

The in­ves­ti­ga­tion re­vealed that Rs17,000 crore was de­posited into these bank ac­counts and with­drawn af­ter high-value ban­knotes were in­val­i­dated.

“In one case, a com­pany with a neg­a­tive bal­ance as on 8 Novem­ber 2016 (the day de­mon­e­ti­za­tion was an­nounced), de­posited and with­drew Rs2,484 crore post de­mon­e­ti­za­tion,” said the state­ment.

The gov­ern­ment is try­ing to iden­tify in­stances of money laun­der­ing by shell com­pa­nies and is seek­ing help from state au­thor­i­ties to pre­vent trans­fer of prop­er­ties be­long­ing to these com­pa­nies, some of which have been dereg­is­tered for fail­ing to com­ply with reg­u­la­tory re­quire­ments.

Ex­perts say that shell com­pa­nies that have no eco­nomic ac­tiv­ity clog the reg­u­la­tory sys­tem and that mis­us­ing them for fi­nan­cial crimes ag­gra­vates the threat that they pose to the sys­tem.

“Weed­ing out such en­ti­ties will help in clean­ing up the sys­tem and ease the pres­sure on reg­u­la­tors,” said Pa­van Ku­mar Vi­jay, founder of ad­vi­sory firm Cor­po­rate Pro­fes­sion­als. “Statu­tory com­pli­ance by com­pa­nies such as fil­ing an­nual re­turns is es­sen­tial for trans­parency in the cor­po­rate sec­tor.”

The cor­po­rate af­fairs min­istry said that the num­ber of shell com­pa­nies struck off from of­fi­cial records for ei­ther be­ing a drag on the reg­u­la­tory sys­tem or for fi­nan­cial ir­reg­u­lar­i­ties af­ter de­mon­e­ti­za­tion has risen to 224,000 as on 5 Novem­ber from 209,000 re­ported in the first week of Oc­to­ber.

Al­though the shell com­pa­nies are struck off from the registry, li­a­bil­ity for any of­fence com­mit­ted will still rest with the of­fi­cers re­spon­si­ble for statu­tory com­pli­ance and with pro­mot­ers.

Ear­lier, the gov­ern­ment had blocked di­rec­tors of dis­solved com­pa­nies from ac­cess­ing the bank ac­counts of these com­pa­nies. More than 300,000 di­rec­tors have been dis­qual­i­fied be­cause the com­pa­nies they were part of did not com­ply with the statu­tory re­quire­ment of fil­ing an­nual re­turns.

The abuse of cor­po­rate struc­ture has been iden­ti­fied by var­i­ous pan­els that have looked into the men­ace of un­ac­counted wealth in the econ­omy as a “stan­dard op­er­at­ing pro­ce­dure” by tax evaders.

Shell com­pa­nies are also used for fic­ti­tious trans­ac­tions aimed at in­flat­ing ex­penses by larger com­pa­nies as well as by pro­mot­ers of com­pa­nies with large pub­lic in­ter­est to di­vert funds to pri­vately held en­ti­ties.

In the third week of Septem­ber, the min­istry cur­tailed the flex­i­bil­ity avail­able to businesses to form an un­lim­ited num­ber of op­er­at­ing sub­sidiaries, which had opened up the pos­si­bil­ity of con­ceal­ing ben­e­fi­cial own­er­ship in firms. The re­stric­tion on the lay­ers of sub­sidiaries that com­pa­nies can have to two ap­plies prospec­tively, while ex­ist­ing com­pa­nies have to dis­close de­tails of their en­tire list of sub­sidiaries to the Regis­trar of Com­pa­nies within 150 days.

To make the reg­u­la­tory over­sight over businesses more strin­gent, se­nior of­fi­cials of the Se­ri­ous Fraud In­ves­ti­ga­tion Of­fice, a multi-dis­ci­plinary body at­tached to the cor­po­rate af­fairs min­istry, have been au­tho­rized to make ar­rests for cer­tain com­pany law vi­o­la­tions.

The cor­po­rate af­fairs min­istry has also asked the fi­nance min­istry to cat­e­go­rize these as of­fences un­der the Pre­ven­tion of Money Laun­der­ing Act.

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