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Sebi's Adani Group investigation hits a wall with offshore regulators

 Sources said Sebi has been writing to various regulators in several jurisdictions over the past few weeks regarding the Adani issue The Securities and Exchange Board of India’s (Sebi’s) investigation into the Hindenburg allegations is making slow progress when it comes to obtaining information from overseas regulators, particularly around ultimate beneficial ownerships of certain foreign portfolio investors (FPIs), said people in the know. “Establishing ultimate beneficial ownerships for FPIs is a very complex exercise. Several jurisdictions allow omnibus structures where the end beneficiaries are not required to be captured or are based in some other geographies. This entails writing to different regulators, some of whom may not be entitled to share information due to different pacts,” said a person in the know.Sources said Sebi has been writing to various regulators in several jurisdictions over the past few weeks regarding the Adani issue. Some of the information sought includes bank statements from offshore financial institutions, background of the offshore-related entities, licences received by them and letters submitted by Adani group companies to the offshore regulators. Transactions by the group’s entities in places like Mauritius, UAE, Cyprus and British Virgin Islands have come under scanner following the allegations by Hindenburg. An email sent to Sebi did not elicit any response till the time of going to press. Typically, Sebi has memorandums of understanding (MoUs) with offshore regulators for exchange of information. For tax-related matters, information exchange is usually done under the double taxation avoidance agreements (DTAAs).

 

“The MoUs work in most cases. However, it also depends on the extent of data sought. Not all regulators are very forthcoming with providing voluminous information. It requires multiple requests and follow-ups, which can be a cumbersome process,” said a legal expert. Sources said that the details sought by Sebi are to reconfirm certain transactions and connections among entities. It is also for independent verification and analysis of the information submitted by Adani group companies. On Saturday, Sebi filed a petition before the Supreme Court, seeking an extension in the deadline by six months to complete the Adani probe. The petition by the market regulator throws some light on the difficulties it has faced in trying to complete the probe within a stipulated time period of two months. “Sebi submits that the investigation would also require obtaining bank statements from multiple domestic as well as international banks. As the bank statements would also be for transactions undertaken more than 10 years ago, this would take time and be challenging. This process of seeking bank statements from the offshore banks would entail taking assistance from offshore regulators, which may be time consuming and challenging,” Sebi has said in its submission to the apex court. Between February 12 and April 22, Sebi wrote to the Adani group 11 times seeking documents from various listed and unlisted entities. Some of these documents involve minutes of audit committee meetings, reasons for availing or granting loans along with the details on tranche-wise payments. They also include shareholding and director details and background of offshore entities. The regulator has further submitted that it has formed only a prima facie view on the various allegations made in the Hindenburg report. And, to arrive at a final conclusion, it would require more time and analysis. The regulator has specifically highlighted eight areas where examination and investigations would require more time. These include possible violations related to related-party transaction disclosures, public shareholding norms, insider trading and FPI regulations. The Adani group, in a statement has said “There are no conclusions of any alleged wrong-doing. The Sebi application only cites the allegations made in the short-sellers report, which are still under investigation.”

 

-Business Standard, 1st May, 2023

 

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