These firms are potential source for money laundering

About 9 lakh registered companies are not filing annual returns with the Ministry of Corporate Affairs (MCA) and are a potential source of money laundering, Revenue Secretary Hasmukh Adhia said on Saturday.

The MCA has sent notices to about 3 lakh unlisted companies asking them to deregister themselves and issuance of notices to the remaining is under way.

Speaking at the Enforcement Day event here, Mr. Adhia said out of the 15 lakh companies, only 6 lakh are filing their returns, including annual audited report, with the MCA.

“How can we have in this country almost 8-9 lakh companies which are not filing any return to the government and they have become a potential threat, a potential source of money laundering. So, the task force has taken it up in right earnest,” he said.

Freezing bank accounts

In a major crackdown on domestic shell companies, the government in February had decided to take “harsh punitive” action, including freezing of their bank accounts used to launder money or evade taxes. The task force set up with members from regulatory ministries and enforcement agencies held its meeting this week.

“After registering (with the MCA), if companies do not file their return to the MCA, then there is no reason for us to let such companies operate in India. They become a potential threat. That is one strategy that we are working on,” Mr. Adhia said.

The top official said all of the 9 lakh companies which do not file return with the MCA might not be shell companies and just be idle ones not transacting any business.

As per the income tax department records, out of the 15 lakh companies registered in India, only 6 lakh file returns.

Out of these 6 lakh, about 3 lakh show nil income.

According to Mr. Adhia, trade-based money laundering is also becoming a potential big source of money laundering these days as was witnessed in the ₹6,000-crore Bank of Baroda case. The case was successfully cracked by the Enforcement Directorate (ED) and the Directorate of Revenue Intelligence (DRI).

The revenue secretary said the government is trying to improve the quality of manpower and is working to fill up existing vacancies in the ED, which is under the administrative control of the finance ministry.

“Focus should be now on use on technology because our system should be non-intrusive. There should be no need to call anybody a thief, the machines should itself catch the thieves,” he added.

Mr. Adhia said demonetisation of high-value currency notes last year has taught the department the different ways in which people try to launder money, including through multiple entries in shell companies.

“It has been a year of full of events for ED,” Mr. Adhia said, as he appreciated the agency’s efforts to effectively check money laundering.

Shell companies are characterised by nominal paid-up capital, high reserves and surplus on account of receipt of high share premium, investment in unlisted companies, no dividend income and high cash in hand.

Also, private companies as majority shareholders, low turnover and operating income, nominal expenses, nominal statutory payments and stock in trade, minimum fixed asset are some of the other characteristics.