SFIO puts early warning system for identifying shell companies on hold


The Serious Fraud Investigation Office (SFIO) has put the proposed early warning system for identifying shell companies on the back burner. A senior official at SFIO told Moneycontrolit was being done because of the high cost associated with the project.

Shell companies help in evasion of taxes and laundering of illegal money by providing bogus profits and losses. Last year, the Ministry of Corporate Affairs had proposed the early warning system and the SFIO was looking to have it in place by 2018.

“The system does not require any human intervention and would be able to spot companies filing wrong reports in the system,” the SFIO official said.

The early warning system has been put on hold after bids had been invited from various service providers. Last year, a Parliamentary panel had commented that the Corporate Affairs Ministry had failed to develop a fool proof EWS.

Over the past few months, the government has launched a major crackdown on shell companies, with close to three lakh of such firms being barred. Eliminating shell companies is critical to the government’s efforts to expand the tax base and revenues.

An official at the MCA told Moneycontrol that the delay in setting up an early warning system was in some ways a setback in the war against shell companies.

“It is not easy to check accounts of every company which submits with Registrar of Companies,” the official said.

“However, this EWS easily identifies with artificial intelligence and can improve governance in the system,” the official added.

On the positive side, data is being shared between regulators and investigative agencies. Recently, the MCA shared data of Rs 17000 crore of suspicious deposits by privately held companies in the aftermath of demonetisation.