Crackdown on India shell companies unearths RM4.2b


New Delhi • India is intensifying its crackdown on dubious companies after it unearthed over US$1 billion (RM4.23 billion) in suspicious cash deposits as part of its investigations into corruption and efforts to boost foreign investment, a minister said.

While the government has already revoked permissions for over 200,000 companies and restricted their bank accounts, it is now working on limiting property transfers to trace any further generation of black money, said PP Chaudhary, junior minister for corporate affairs, in an interview on Oct 18 in New Delhi.

The ministry is probing deposits of over US$1 billion made by around 20,000 companies during the cash ban last year, while its Serious Fraud Investigation Office is investigating 1,505 companies for allegedly violating the Companies Act. It is examining another 809 listed companies, found untraceable by the Securities and Exchange Board of India, to check their status, existence of their offices and directors, the minister said.

After winning the 2014 election in a landslide on the promise of tackling corruption and improving the ease of doing business, Prime Minister Narendra Modi has been taking measures to prevent money laundering, counterfeiting, hoarding and tax evasion.

In November last year, he withdrew 86% of currency on circulation aiming to crackdown on unaccounted wealth and put an end to India’s vast shadow economy. In an Independence Day speech on Aug 15, Modi claimed the move had unearthed over 300,000 shell companies.

“Our purpose is to increase compliance so that investors’ confidence increases in Indian companies,” Chaudhary said. “This will also attract foreign investors who would be sure that the companies they are
investing in are genuine.”

Following Modi’s speech, the ministry of corporate affairs struck off the names of 217,239 companies for failing to comply with regulatory requirements and disqualified directors on these companies’ boards from assuming directorship at other firms.

“The final list of disqualified directors may touch up to 450,000,” Chaudhary said. “The companies which deposited money during demonetisation are being investigated using artificial intelligence (AI).”

The ministry is conducting massive data mining exercise to trail ultimate beneficiaries of these companies. Using data analytics and AI, the information gathered will be used to take action against the offenders, the minister said.

It’s also developing a state-of-the-art early warning system using AI that will throw up red flags and provide information in case a company’s financial health deteriorates or if it’s transactions are suspect.