War against black money: Govt tightens noose around shell cos after PMO review

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Three months after Prime Minister Narendra Modi surprised the nation with his demonetization drive, followed up with a series of other steps to fight corruption, the government on Friday decided to tighten the noose and discipline shell companies to take its fight against black money to the next level. Shell companies are firms which do not conduct any operations and indulge in money laundering.

The punitive actions announced by the government include freezing of the bank accounts used to launder money or evade taxes under the Benami Transactions (Prohibition) Amendment Act, 2016.

The action comes after top officials in the Prime Minister’s Office along with those of other departments reviewed the functioning of shell companies.

Recently, a Delhi-based lawyer, Rohit Tandon was arrested by the Enforcement Directorate (ED) for allegedly floating his own shell company to convert part of his illegal cash into white money.

The meeting held at the PMO was told that just a small sample analysis has highlighted that a whopping Rs 1,238 crore in cash has been deposited in these entities after demonetization till December. The meeting decided that in order to create a credible deterrence, a new approach will be adopted through coordinated efforts and by leveraging technology.

“It has also been decided that appropriate red flag indicators would be used for identifying shell companies, and a data base of such companies and their directors will be built by pulling in information. The data base will also note Aadhaar numbers of individual directors,” the meeting decided.

A task force with members from various regulatory ministries and enforcement agencies has been set up under the co-chairmanship of the Revenue Secretary and Corporate Affairs Secretary to monitor the actions taken against such companies by various agencies. The regulatory ministry concerns will ensure that disciplinary actions are initiated against the professionals indulging in malpractices and abetting the operators of the shell companies.

The Serious Fraud Investigation Office (SFIO), a multidisciplinary organisation under the Ministry of Corporate Affairs, assigned to detect white-collar crimes and frauds, said they have already filed criminal prosecution for cheating the national exchequer. This came after investigation of entry operators running a group of 49 shell companies.

Sources said the Income Tax department has detected more than 200 shell companies operating in Delhi, Karnataka, Rajasthan, Gujarat, Maharashtra and Punjab besides Uttar Pradesh that converted illegal money to ‘legal’ in the last two months. The department is examining the pattern of revenue streams of these companies to understand the nexus between such entities and the beneficiaries who used them to engage in alleged money laundering.

A detailed analysis suggests that some 559 beneficiaries have laundered money amounting up to Rs 3,900 crore with the help of 54 professionals who have been identified.

Sources further said that this information has been shared with the Special Investigation Team (SIT), I-T Department, ED, SEBI and The Institute of Chartered Accountants of India (ICAI).

There are some 15 lakh registered companies in India, and only six lakh companies file their annual returns, implying that a large number of them may have been indulging in financial irregularities.