NEW DELHI, Nov 3: To check money laundering through shell companies, the SIT on black money today asked the law enforcement agencies, including the tax department and Enforcement Directorate, to be more vigilant especially with regard to companies with same addresses.
The Special Investigation Team (SIT) in its third report on black money dealing with ‘Shell Companies & Beneficial Ownership’ noted that 2,627 persons are directors on more than 20 companies in violation to Companies Act, 2013.
A total of 345 addresses have at least 20 companies operating from the same place. Also, the total number of firms sharing their address with at least 19 other companies are 13,581, the SIT report said.
As per the provisions of Section 275 of the erstwhile Companies Act, 1956, as many as 77,696 companies were found violating the norms relating to Directorship.
The twin strategy suggested by the SIT, headed by a retired Supreme Court judge, is proactive detection of creation of shell companies and deterrent penal action against persons involved in such activities.
“The SIT has requested the Ministry of Corporate affairs to take necessary action with respect to violation of the Companies Act noted above. The SIT has further requested CBDT, CBEC and Enforcement Directorate to undertake due diligence on the Companies data referred to above,” said a Finance Ministry statement.
It has also asked the Special Fraud Investigation Office (SFIO) to mine MCA-21 data to “red flag” the indicators that may lead to violation of the norms.
“While there is no specific Act/Rule which debars Companies from having the same address, SIT has desired that greater vigilance is accorded by law enforcement and intelligence agencies like CBDT, CBEC, ED and FIU while examining the operations of such Companies,” the statement added.
Shell companies are referred to those entities which are incorporated as companies and are used only for routing funds, without undertaking any real business activity.
Observing that in many cases shareholders or directors of shell companies are persons of limited financial means like drivers, cooks and other employees related to the main person, the SIT said the government should frame rules at the earliest “to provide for the manner of holding and disclosing beneficial interest and beneficial ownership”.
According to the SIT report, it has been observed in various high-profile cases that shell companies have been used for money laundering purposes.
The strategy to curb this menace has to be two-pronged — proactive detection of creation of shell companies by involving intelligence gathering through regular data mining and dissemination of information gathered to various law enforcement agencies for active surveillance, it said.
Secondly, there should be a deterrent penal action against persons involved in creation of shell companies and providing accommodation entries, the report added.
It recommended that SFIO should actively and regularly mine the MCA 21 database for certain red flag indicators.
“These red flag indicators could be based on common DIN numbers in multiple companies, companies with same address, same contact numbers, use of only mobile numbers, sudden and unexpected change in turnover declared in returns etc,” it said.
The SFIO can prepare a set of additional indicators based on consultation with other law enforcement agencies like Central Board of Direct Taxes (CBDT), ED and Financial Intelligence Unit (FIU).
“Once certain companies are identified through data mining above, the list of such high risk companies should be shared with CBDT and FIU for closer surveillance,” SIT said.
In case after investigation/assessment by CBDT, a case of creating accommodation entries is clearly established, the matter should be referred to SFIO to proceed under relevant sections of IPC for fraud.
SFIO should also refer the matter to the Enforcement Directorate for taking action under PMLA for all such cases of money laundering, it added. (PTI)
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