Curb on money-laundering: Crackdown on 7 lakh shell companies imminent

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The Central government has declared its intentions to shut down around 6 to 7 lakh shell companies as a follow-up step to demonetisation to curb money-laundering in the country. The move, based on reports of high-value currency notes being deposited in banks, comes as a part of the ongoing war that the government had declared against black money last year.

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A probe by the Serious Fraud Investigation Office (SFIO) found that at least Rs3,900 crore was laundered through shell companies between November and December, 2017 alone.

There are around 15 lakh registered companies in India. Around 40% of these companies are “dormant” and suspected to be involved in money-laundering scams. The government has involved a number of agencies in the mammoth clean-up task. The Central Board of Direct Taxes (CBDT) is the most prominent of these agencies.

The government has also put on the task force all major intelligence agencies concerned with revenue viz. the Security and Exchange Board of India, the Intelligence Bureau, the RBI and the Corporate Affairs Ministry.

The CBDT is of the opinion that the shutting down of these shell companies would essentially bring an end to institutional money laundering in India. To that effect, the CBDT has accumulated a huge database of information on such companies. This is an integrated database of suspected shell companies and operators.

These “dormant” companies have made huge deposits in the two months following demonetisation, when the government permitted individuals and companies to deposit Rs 500 and Rs 1,000 notes in banks. The process of matching recent banking transactions with suspected shell companies is ongoing.

The CBDT data includes information gathered from property registration, foreign bank accounts, and suspicious transaction data uncovered by the financial intelligence agencies. This data is further matched against PAN number and registered address of suspected shell entities.

Shell companies are anonymous corporate entities with fake ownership. These are vital links in the money laundering chain, having been used as conduits to convert illicit money into legal cash since a very long time.

Shell firms had remained mostly under the radar till now by not filing annual returns with the Registrar of Companies (RoC).

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