With many citizens filing complaint against entrepreneurs and industrialists trying to evade taxes post demonetisation, the Centre has finally announced a crackdown on offenders, this Friday. It had come to government notice that since the ban of high-value currency notes in India, a lot of shell (fake) companies cropped up in the market. These companies were established by corporate houses and individual businessmen for money laundering and tax evasion purposes.

Government officials have been tracking these shell companies since long. They’ve finally discovered strong evidences pointing out at misuse of funds and illegal property-related transactions conducted by these companies.

Money Frauds during Demonetisation were Revealed in Survey Reports

A sample analysis survey by the authorities revealed deposit of about Rs 1,238 crores cash in these companies during November-December. They’ve tracked down 559 beneficiaries who’ve laundered Rs 3,900 crores in these months through 59 professionals.

Not only this, the Indian Income tax department conducted an inspection of its own. They’ve claimed that there are 15 lakh registered companies in India. Out of this, just 6 lakh file annual returns regularly. They’ve noticed frequent financial regularities in the data presented by most of the companies.

How will the Government Punish Shell Company Holders and People Involved in Money Laundering?

Based on these findings, the income tax department reopened the completed assessment of companies and the Enforcement Directorate will initiate appropriate action under PMLA (Prevention of Money laundering Act) of 2002.

Meanwhile, the SFIO (Serious Fraud Investigation Office) has filed criminal prosecution against offenders for cheating the exchequer by directing cash flow through 49 shell companies to avoid detection.

The ICAI (Institute of Chartered Accountants of India) has instigated disciplinary actions against CAs (Chartered Accountants) who were involved in handing out illicit financial advice for conducting frauds.

The authorities have already winded up the ‘punishment’ process for 49 shell companies. Now, they’ll form a new law to prohibit ‘benami’ properties and entities held by directors and other members holding high management posts in these shell companies.

How can Government Prevent Such Happenings in Future?

This issue will be approached in a coordinated manner, with the help of digital technologies and various groups. The government has adopted a list of ‘red flag indicators’ to identify fake companies and beneficiaries. These groups will be aid the authorities to tighten reins around alleged offenders.

  • ICAI,
  • SEBI (Securities and Exchange Board of India),
  • The Enforcement Directorate,
  • Special Investigation team on black money appointed by the Supreme Court and
  • Income Tax Department Officials.

These agencies will help create a database of all companies and their owners/directors. Attempts are being made to link Aadhaar number of individual directors and owners to verify their authenticity.

For those who don’t know, these shell companies show low turnover, limited assets and nominal equity base on papers. They invest in unlisted companies and don’t gain divided from them. They’ve high reserves because they issue shares at a premium and hold them apart from nominal expenditures.

This move will not just help the government control flow on black money in India, but also restore the faith of a common man in its government. Post-demonetisation, it’s the middle class that has faced the brunt of currency ban whereas the elite classes have managed to dodge punishment and high taxes through fraud operations. Now that the elites have been trapped, they’ll be punished to send a strong message across that the Centre won’t tolerate any illegal financial activities, anymore.


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