The Supreme Court-appointed Special Investigation Team (SIT) on black money has, among other things, suggested a slew of measures to curb money laundering, including misuse of exemption on long-term capital gains tax, participatory notes and creation of shell companies, even as it sought time till October to submit its fourth investigation report.
The Supreme Court, meanwhile, sought to know from the government about the steps taken to implement the SIT's suggestions to bring back illegal money stashed in foreign banks.
The SC's insistence on the government formally presenting his views may inconvenience the government that is after foreign capital to boost investments in the country.
Prime Minister Narendra Modi had assumed power on a promise to resolve the issue of black money within 100 days. The issue is now back to haunt the government with the Supreme Court asking it to give its views on the steps recommended by the probe panel.
"The attorney general will tell us what the centre has done on the recommendations of the SIT," a bench comprising Chief Justice H L Dattu and Justices M B Lokur and A K Sikri said while posting the hearing for 28 October.
Appearing for the SIT, senior advocate Dushyant Dave informed the bench that the subsequent report on the progress of investigation would be complete by the month end and sought its nod to place before the court in October.
The recommendations of the SIT include:
- Action under anti-money laundering law on trade-based money laundering, putting a cap on huge cash transactions as these mostly take place in illegal activities like drug trade and betting deals;
- Check the generation of black money in the education sector and through donations to religious institutions and charities – probably the most contentious suggestion, which has potential to put the government in a spot;
- Establish additional courts to decide the pending cases under the Income Tax Act, establishment of central KYC registry and empowering the Directorate of Revenue Intelligence under the Special Economic Zone Act;
- Specific recommendations on steps to check generation of black money through cricket betting – another hot stuff as many senior ministers and political leaders are directly involved with cricket;
- Check money laundering through misuse of exemption from long-term capital gains tax. It has recommended that capital markets regulator Sebi needs to have an effective monitoring mechanism to study the unusual rise in stock prices of companies when such an increase takes place.
"We understand that SEBI has a strong IT infrastructure which can generate red flags for such instances. Such red flags could be built upon trading volumes, entities which contribute to trading volume, financial background of firms through their annual returns and any other indicators SEBI may develop. We believe that with effective and timely monitoring by Sebi a significant number of such instances can be checked in time," reports quoted the SIT as saying;
- Wants Sebi to share any such information with the Central Board of Direct Taxes and the Financial Intelligence Unit (FIU). Also, the Enforcement Directorate should be asked to take action under Prevention of Money Laundering Act for the predicate offences;
- In the case of participatory notes, SIT has said obtaining information on "beneficial ownership" of these instruments is of crucial importance to prevent their misuse. P-Notes issued by registered foreign institutional investors to unregistered overseas investors wishing to invest in the Indian stock markets, could form channels for illegal money finding way back into India;
- SIT has noted that the value of P-Note investments as of end February 2015 was at Rs2,72,000 crore. The top five countries where P-Notes beneficiaries are located are Cayman Islands, the US, the UK, Mauritius and Bermuda. Of this, Cayman Islands, a small country of 55,000 people, accounted for Rs85,000 crore, of P-Notes investment.