SOON, CRITERIA TO SPOT SHELL COMPANIES THAT LAUNDER MONEY

As part of its effort to curb black money, the National Democratic Alliance (NDA) government is seeking to finalise a list of 10 criteria to identify shell companies that are being used for tax evasion and money laundering, and trying to put in place an automated system to tackle such entities, two officials with knowledge of the matter said.

First off, the government will attempt to define a shell company, a term that is used for entities that are typically thinly capitalized and have minimal assets, employees and operations, but a definition for which doesn’t exist so far. Such entities, which are used mainly for financial transactions, are different from dormant and defunct companies, one of the officials cited above said on condition of anonymity.

Other potential red flags include the share capital of a company not being proportional to its revenue, the bank balance not matching the revenue it generates , and inflows of money being immediately followed by outflows.

The government has been cracking down on shell companies as part of its larger effort to tackle black money, or income that is unaccounted for and hidden away from the tax department. In 2016, the government invalidated high-value banknotes and enforced a tougher law to deal with benami properties, or assets whose real beneficiaries purchase them in the name of someone else or a fictitious name.