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Detect and penalise shell companies proactively SIT

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The Special Investigation Team (SIT) on black money has suggested amechanism for proactive detection of shell companies and deterrent penal provisions against persons involved in setting them up. It also wanted those making donation and recieving it in cash to be prosecuted under the prevention of corruption act ( PCA), particularly in the context of private schools and colleges. In its third report, made public on Friday by the finance ministry, the SIT wanted the Serious Frauds investigation Office (SFIO) to use MCA 21 filings to detect black money and more teeth for the Directorate of Revenue Intelligence ( DRI) to investigate in special economic zones. Pointing out that schools and colleges are accepting large donations by cash, running in even more than ? 1 crore, SIT wanted them to be booked under PCA, deeming them to be public servant.
The SIT recommended the SFIO, which comes under the ministry of corporate affairs (MCA), actively and regularly mine the ministry’s ( MCA21) database for certain red flag indicators.
“These indicators could be based on common Director Identification Number ( DIN) numbers in multiple companies, companies with the same address, same contact numbers, use of only mobile numbers, and sudden and unexpected change in turnover declared in returns,” the SIT said. According to the SIT, the SFIO can prepare a set of indicators based on its experience and in consultation with other law enforcement agencies.
The SIT, headed by Justice (retired) M B Shah, has also observed that in many cases, the shareholders or directors of such shell companies are persons of limited financial means like drivers, cooks or other employees of the main persons who intend to launder black money.
“Section 89( 1) and 89( 2) of the Companies Act, 2013, provides for persons to declare if they have “ beneficial interest” in the shares of the company. Section 89( 4) enjoins the central government to make rules to provide for the manner of holding and disclosing beneficial interest and beneficial ownership under this section,” said SIT, adding that the MCA should frame such rules at the earlies.
Business Standard, New Delhi, 25th July 2015 

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