Mains Paper 3: Internal Security| Money Laundering
From UPSC perspective, the following things are important:
Prelims level: Shell companies, MCA21
Mains level: Issues associated with Shell companies and government action against them.
Geo-tagging of Companies
- Too many transactions in the same premises is the most noticed trend in investigations of shell companies.
- Hence Companies may soon have to geo-tag their registered offices in the statutory filings with the Registrar of Companies (RoC).
Benefits of Geo-tagging
- Geo-tagging will help in identifying clusters of companies with the same address.
- The ministry seeks to prevent abuse of the corporate structure by companies that inflate costs by issuing fake invoices and laundering unaccounted wealth in the form of loans or equity through bogus transactions.
- The coordinates of the registered premises will act as a key input for mining data in the ministry’s IT infrastructure, called MCA21.
- This will zero-in the companies with a common address, common contact numbers, common directors and sudden and unexpected changes in revenue, etc. that may warrant a closer look into their affairs.
- The idea is to seek the coordinates of the registered office at the time of incorporation in the case of new companies and at the time of filing annual returns in the case of existing ones.
- After the November 2016 demonetization of high-value currency notes, the government combed through records to identify dormant companies and those that were used to launder money.
- In a clean-up exercise in 2017-18, the government struck off more than 226,000 such shell companies from the records for not filing annual returns for two or more years.
- Now, investigations are on into the real ownership of 68 companies that deposited ₹ 25 crore or more after demonetization, which the authorities have found suspicious.
- Having a common address alone does not point to wrongdoing.
- It is a practice among professional services companies such as law firms and audit firms to work from a large, common infrastructure.
- Geo-tagging will certainly help in identifying such clusters, but one has to keep in mind that some start-ups, too, opt to work in clusters.
- Having a common address is not illegal.