Black money: SIT tightens noose, wants bogus companies to be closely monitored!

In a bid to curb black money menace, The Special Investigation Team (SIT) has turned its gun towards shell companies in India. A shell company is a firm that is registered in order to facilitate financial maneuvers for its other sister concerns.

In its third report on black money, the SIT has suggested a two-pronged strategy and recommended that the Modi government should take proactive steps to detect inception of shell companies in India. The investigative agency noted that through regular data gathering and dissemination processes, various law enforcement agencies can begin active surveillance of such companies.

It also added that following the information gathered, penal action can be taken against the persons involved in creations of such bogus firms. “Serious Frauds Investigation Office (SFIO) under Ministry of Company needs to 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 among others. These indicators are illustrative in nature and the SFIO office can prepare a set of indicators based on its own experience and consultation with other law enforcement agencies like CBDT, ED and FIU,” said Ministry of Finance in a statement.

It further added, “In case after investigation or 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 Enforcement Directorate for taking action under PMLA for all such cases of money laundering.”

The report has also observed that the directors of such shell companies are of limited means and are generally employed in blue-collar jobs such as driver, cooks for persons intending to launder black money.

It should be noted that the SIT had requested the Ministry of Corporate Affairs to disclose data on the persons who were the directors of more than one company as well as companies that have one single common address.

The data collected by the agency revealed that there are at least 2627 persons that hold directorship in more than 20 companies—a violation of Section 165 of the Companies Act, 2013. The overall number of companies with common directors is 77,696. The data also disclosed that over 13,000 companies were operating from the same address.