Indian Govt Targets Shell Companies To Curb Black Money Flow

Expanding its war on black money, the Indian government is now said to be looking at shutting down nearly 700,000 dormant companies that are suspected to be shell companies.

These companies are alleged to have carried out several high-value transactions and also deposited large amounts of cash after the recent demonetization of high-value currency notes. The move follows an announcement by the Prime Minister's Office (PMO) earlier this month that punitive action would be taken against shell companies including freezing of bank accounts and striking them off from the registry. A task force comprising members from a number of ministries is said to be probing the matter.

In a statement the Prime Minister’s Office said

There are about 15 lakh registered companies in India and only 6 lakh companies file their annual return. This means a large number of these companies may be indulging in financial irregularities

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The process is likely affect over 40 percent of the total registered firms within India. Shell companies have no assets or operations and are used only as conduits or entry operators to launder money on behalf of clients. The government is said to have involved several key agencies but the Central Board of Direct Taxes (CBDT) will be playing the primary role. The agencies involved include the regulator Security and Exchange Board of India (SEBI), the central bank RBI, the Intelligence Bureau as well as the corporate affairs ministry.

According to a CBDT official, the IT department has been collecting information on companies making large deposits in the two months following the demonetization announcement. The companies had so far managed to avoid scrutiny by not filing annual returns with the Registrar of Companies (RoC). The CBDT is hoping that by shutting down these shell companies, institutional money laundering within the country can be brought down to a minimum.

An integrated database of suspected shell companies is being prepared by the CBDT against which the recent suspicious bank transactions are being mapped. Information from other sources including property registrations, suspicious transaction reports filed by the Financial Intelligence Unit and foreign banks are also being reviewed for these companies.

The database with suspect companies is being developed on basis of identified red flag indicators and information on them including names of directors, which is being pulled from other regulatory agencies. The data is also being checked against PAN listing and registered addresses used by these suspected entities.

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