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Suspicious transactions involving Rs 17K cr detected after demonetisation

The government said in one case, a company with a negative balance as on November 8, 2016 (the day note ban was announced), deposited and withdrew Rs 2,484 crore post demonetization.

black money crackdown Updated: Nov 07, 2017 20:54 IST
Gireesh Chandra Prasad
In this file photo, discontinued currency notes of Rs 1,000 denomination are seen after they were deposited by people at a bank in Bangalore.
In this file photo, discontinued currency notes of Rs 1,000 denomination are seen after they were deposited by people at a bank in Bangalore.(AP )

After last November’s demonetization, over Rs 17000 crore was deposited into 58,000 bank accounts and subsequently withdrawn, the corporate affairs ministry said on Sunday, announcing what is perhaps the most significant instance yet of possible tax-fraud or, worse still, money laundering after the exercise to clamp down on black money by invalidating all old high-value currency notes.

Regulatory agencies unearthed these suspicious transactions on the back of intelligence gathering and data analysis after demonetization, the ministry said.

“In one case, a company with a negative balance as on 8 November 2016 (the day note ban was announced), deposited and withdrew Rs 2,484 crore post demonetization,” the ministry added in its statement.

The ministry said that the number of shell companies struck off from official records for either being a drag on the regulatory system or for financial irregularities after last November’s demonetization has gone up to 2.24 lakh as on 5 November, up from 2.09 lakh reported in the first week of October.

The ministry doesn’t define shell companies, most of which punctiliously comply with statutory requirements so as to not attract attention. Usually, shell companies are used to launder money, evade tax or engage in illegal activities.

Many of the 35,000 companies have been struck off from the registry, but their promoters and executives will still be held responsible.

Earlier, the government had disallowed directors of dissolved companies from accessing the bank accounts of these companies.

Experts said that defunct and shell companies that have no economic activity clog the regulatory system at best and commit financial crimes at worst.

“Weeding out such entities will help in cleaning up the system and ease the pressure on regulators. Statutory compliance by companies such as filing annual returns is essential for transparency in the corporate sector,” said Pavan Kumar Vijay, founder of advisory firm Corporate Professionals. Statutory filings by a potential business partner is a source of information for companies to do due diligence before entering into transactions.

Defunct companies, termed the dead wood of the system by some, are those that have not met their statutory requirements for a variety of reasons, the most common being that they have gone under. Recently, the corporate affairs ministry struck off 162,000 defunct companies from its registry. In addition, around 300,000 directors have been disqualified because the companies on whose boards they sit, did not comply with the statutory requirement of filing annual returns.

Abuse of corporate structure has been identified by various panels that have looked into the menace of unaccounted wealth in the economy as a ‘standard operating procedure’ by tax evaders. Shell companies are also used for fictitious transactions aimed at inflating expenses by larger companies as well as by promoters of such to divert funds to privately held entities.

In the third week of September, the ministry took the bold step of curtailing the flexibility available to businesses to form unlimited number of operating subsidiaries which opened up the possibility of concealing beneficial ownership in firms. The restriction on the layers of subsidiaries that companies can have to two applies prospectively, while existing companies have to disclose details of their entire list of subsidiaries to the registrar of companies within 150 days.

To make regulatory oversight over businesses more stringent, senior officials of the Serious Fraud Investigation Office (SFIO), a multi-disciplinary body attached to the corporate affairs ministry, have been authorized to make arrests for certain company law violations. The corporate affairs ministry has also asked the finance ministry to make these offences under the Prevention of Money Laundering Act.