Govt may shut 7 lakh shell companies to curb black money

28 Feb 2017


The government has expanded its black money probe into shell companies that have deposited huge cash in bank accounts following the demonetisation of high-value currencies on 8 November 2016.

The government is looking to curb institutional money laundering by shutting down "dormant" companies, estimated to be anywhere between 6 and 7 lakh.

Of the 1.5 million registered companies in India, at least 40 per cent are suspect entities, according to estimates. Many of these firms had carried out high-value transactions and deposited huge amounts of cash in banks following the demonetisation of high-value currency notes.

The Income Tax Department is reported to have gathered information on shell companies which made huge deposits in the two-month period post-demonetisation when companies and individuals were allowed to deposit scrapped notes of Rs500 and Rs1,000 in banks.

The I-T department also gathered a wealth of information on these "dormant" companies. These firms had managed to remain under the radar till now by not filing annual returns with the Registrar of Companies (RoC).

While the Central Board of Direct Taxes (CBDT) id playing a key role, the government has also involved all major revenue intelligence agencies in the exercise, besides the Security and Exchange Board of India, the RBI, the Intelligence Bureau and the corporate affairs ministry.

The CBDT is believed to have impressed upon the government that once these 6-7 lakh dormant firms are deregistered, it could bring an end to "institutional money laundering" in the country.

Shell companies do not have actual business operation or assets. They are merely used by "entry operators" to launder money on behalf of clients.

The CBDT has prepared an integrated databank of suspected shell companies and entry operators and is in the process of matching recent banking transactions with other suspect "dormant" companies.

The data is also matched with information gathered from property registration, suspicious transaction reports shared by the Financial Intelligence Unit and foreign bank accounts. These are further cross-checked with PAN and registered address of suspected entities.

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