Modi steps up the war on looters of wealth
WHEN India’s Prime Minister Narendra Modi banned high-denomination currency bills in a surprise move late last year, authorities noticed a surge in shell companies depositing cash in banks, seemingly in a bid to hide who owned that wealth.
The moment, said a top aide to Modi, was an eye-opener for the government, which had not realised just how much shell companies were being used to hide assets and launder money.
Modi’s office has formed a team of top law enforcement and revenue officials to go after such companies, according to the aide and a government memo.
Last month, the authorities ordered nearly 200 000 shell companies to be shut down, and the aide said the government is examining hundreds of thousands more.
The systematic crackdown on shell companies, which have no active business operations or assets, is perhaps one of the most tangible outcomes of demonetisation, which aimed to hit tax evasion and move India toward cashless, digital transactions that leave a paper trail.
“We are very much at war against black money. The impact of this (crackdown) will be huge on shell companies,” the aide said.
In his Independence Day address on Tuesday, Modi claimed credit for going after these companies, and warned “looters of the nation’s wealth will have to answer”.
Modi took office in 2014, vowing to fight corruption and bring back billions of dollars stashed away overseas as well as in real estate, stock markets and front companies through a web of fictitious names.
While the move to withdraw 85 percent of bank notes shook the economy and was widely criticised, the fight against unaccounted wealth carries overwhelming support from ordinary Indians who often have to pay bribes for services.
A high-level task force leading the investigation found hundreds of shell companies registered in a few buildings in the eastern city of Kolkata.
More than 400 companies listed their address in a dimly-lit colonial-era building at 9/12 Lalbazar Street.
A tax inspector said the Kolkata firms were a virtual money laundering industry and drew a parallel to the Panama legal firm Mossack Fonseca that emerged from obscurity last year after a leak of millions illustrated how the wealthy use offshore corporations to avoid taxes.
“The Kolkata industry does the work of obfuscating money trails,” said an inspector, who didn’t want to be identified as he’s not authorised to talk to the media.
The shell companies support much of the fraud and embezzlement in India, tax authorities say. Last week, the Securities Exchange Board of India imposed trading restrictions on 162 entities listed as shell companies as part of its broader crackdown on illegal offshore transfers and tax evasion.
The Serious Fraud Investigation Office is creating a database of shell companies, and has so far identified 114 269 as front firms.