Crackdown On Shell Firms Reveals Vast Money-Laundering After Notes Ban

Last month, the Finance Ministry froze the accounts of two lakh shell companies which it believes have no active business operations or activities.

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Crackdown On Shell Firms Reveals Vast Money-Laundering After Notes Ban

Last month, the Finance Ministry froze the accounts of two lakh shell companies

New Delhi: 

Highlights

  1. Government froze accounts last month of 2 lakh shell firms
  2. Banks share data on 5,000 of these firms with government
  3. Zero balance at time of notes ban, big deposits, withdrawals after that
Among the top offenders of companies whose bank accounts were blocked last month by the government for illegal transactions and tax evasion was one that had more than 2,000 bank accounts, making it tough for tax officials to track transactions.

Last month, the Finance Ministry froze the accounts of two lakh shell companies which it believes have no active business operations or activities. NDTV has learnt that in recent weeks, 13 banks have shared early information with the government on some of these dodgy companies. One had 2,134 accounts; another had 900 in its name; plenty had at least 100.

The information supplied so far is the first installment of what banks are expected to purvey and is related to about 5,000 of the two lakh blacklisted companies. Data shows that between demonetisation being announced on November 8 and when they were identified in July as fronts, these 5,000 firms collective deposited about 4,570 crores and withdraw nearly the same amount, which suggests vast money-laundering.

Many companies with multiple accounts showed a tiny balance on November 8 but after Prime Minister Narendra Modi's shock decision to outlaw high-denomination notes, the firms deposited and withdrew substantial tranches of money after which they returned to dormant accounts with no activity.

In one bank, more than 3,000 companies with an abnormally high amount of bank accounts were identified. They had a cumulative balance of about 13 crores on November 8, 2016; after demonetisation was called, these companies deposited and withdrew about 3,800 crore, leaving a negative cumulative balance of almost Rs 200 crore at the time of freezing of their accounts. A tax expert suggested that this shows reports unreported and untaxed income was converted into white money.

It needs to be re-emphasized that this data is only about 2.5% of the total number of suspected shell companies that have been struck off by the government. Finance Ministry officials believe that further mining of data will unearth thousands of other such tax evaders.

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