Black Money – Domestic and International Efforts

Govt. regulators mull ‘shell firm’ definition


Mains Paper 3: Internal Security: Money Laundering

From UPSC perspective, the following things are important:

Prelims level: Shell companies

Mains level: Issues associated with these companies and government action against them.


Lack of proper definition impeding government action

  1. As multiple agencies and regulators probe the suspected use of ‘only-on-paper’ firms for financial irregularities, the government is looking to put in place a proper definition for ‘shell companies’ so that investigations are not hampered and prosecution can withstand scrutiny in courts of law
  2. A key issue has been lack of a proper and uniform definition for ‘shell companies’ — a term generally used for companies that are set up for financial maneuverings only or are kept dormant for some future use
  3. These companies generally exist only on paper and may be used for nefarious activities

Recommendations of Task Force on Shell Companies

  1. The Ministry of Corporate Affairs has received preliminary suggestions from a multi-agency task force comprising officials from the Enforcement Directorate, Financial Intelligence Unit, Directorate of Revenue Intelligence, capital markets regulator SEBI and the Income Tax Department
  2. Definitions under consideration include those from the Organisation for Economic Cooperation and Development, which has defined a shell company as being formally registered, incorporated or otherwise legally organized in an economy but which does not conduct any operations in that economy other than in a pass-through capacity
  3. SEBI has suggested entities having no significant operational assets or business activity but acting in a pass-through capacity as conduits may be thus defined
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