Citizens' Issues
Public Interest Exclusive
How Listed Companies Launder Money

Watch the video at the end of the article to know how unaccounted money is converted into tax-free long term capital gains

 

The Securities and Exchange Board of India (SEBI) has set anti-money laundering guidelines to put in place stronger checks against possible laundering of funds through capital markets. Despite the regulations in place, SEBI recently sought help from various investigative agencies under the finance ministry on alleged money laundering in listed companies. According to reports, the markets regulator had written to the finance ministry, highlighting the method used by certain low-value companies to evade taxes.

 

The quantum of the alleged tax evasion is said to be pegged at Rs20,000 crore.

Moneylife has published several articles in the past on how money launders operate and the need for proper regulations. Read: Low-risk bank customer accounts can be a conduit for money laundering (http://www.moneylife.in/article/38547.html), Football and cricket most susceptible to money laundering (http://www.moneylife.in/article/36919.html ),Why financial institutions should comply with anti-money laundering laws (http://www.moneylife.in/article/33471.html) and more here (http://www.moneylife.in/?imageField.x=0&imageField.y=0&cx=012932029967637413115%3Aroup7yt0ras&cof=FORID%3A9&ie=UTF-8&q=money+laundering)

How exactly does the laundering take place, using the exchange platform to convert black money into white. Here’s how.

Ambareesh Baliga, managing partner, Global Wealth Management, Edelweiss Financial Services, explained this  at a Moneylife Foundation event. He described the modus operandi of money laundering through listed companies. Mr Baliga, who has about 25 years of experience in the stock market, explains how a person reroutes his money through foreign investments in illiquid stocks which are manipulated by operators.

Such manipulative trades involves an entity seeking long-term capital gains exemption by approaching an operator, who finds out an illiquid stock on the exchange platform and gets an allotment of shares done to the entity. Over a one year at least period the operator rigs the stock price up to a pre-determined level. This is when the foreign entity gets in, and gullible investors get in taking the stock higher as the earlier entity gets out. This enables conversion of unaccounted money into tax-free long term capital gains. Watch the video:

 

From Moneylife Foundation programme on 28 February 2014.

 

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COMMENTS

Sharad Jain

2 years ago

please repost the article/writeup unable to read the last few words of each line, thanks

V Rajendran

2 years ago

Wonderful story. A very revealing one. Quite disturbing too. Perhaps the law makers are aware of the happenings.

Gopalakrishnan T V

2 years ago

This round tripping and laundering of money are known to many. How to fix the problem is what Money Life should ponder and act.NPAS are other ways of looting. No one wants to fix it as depositors bear the brunt by taking 4% rate of interest on their savings. In stead of Capital gains tax which is not there if one holds for more than an year the securities, STT should emerge as a tool to fix the problem to a great extent. There should be separate STT for purchases and sales and the rates also should vary on the quantum of Purchases and sales. If frequency increases the rates should be altogether different. There are umpteen ways to take care of the round tripping but as it is rightly observed politicains have a stake and they are the law makers. Chartered Accountants are the brain behind to enable the transacxtions cmfortably.

SuchindranathAiyerS

2 years ago

All successful crime is simplicity itself. But the source of successful crime is usually bad laws. And in making bad laws, there are few who can match India's legislative competence over the decades.

REPLY

rajivahuja

In Reply to SuchindranathAiyerS 2 years ago

I think you are correct in your observations.

avraman

In Reply to rajivahuja 2 years ago

second your opinion and strongly repeat what suchindranthji said...it is bad laws or bad implementation of the good laws ...either one means economic disorder with legal excuse & escape routes for the haves ..

avraman

In Reply to rajivahuja 2 years ago

second your opinion and strongly repeat what suchindranthji said...it is bad laws or bad implementation of the good laws ...either one means economic disorder with legal excuse & escape routes for the haves ..

Suresh Prabhu proposes to set-up SPV to address Mumbai rail issues

After years of neglect, Railway Minister proposes SPV to revamp Mumbai's ailing rail network

 

Following the sudden outburst of protests and violence in the wake of breakdown of services by the otherwise reliable Mumbai Suburban railway network, today, Union Railway Minister Suresh Prabhu has offered some hope to protesters.
 
Mumbai's train network, though old and creaking under the weight of its task, is among the most reliable and most used networks.
 
After years of being a mere cash cow and being neglected, Prabhu today hinted at a first effective step that may soon come about.
 
“We will work with Maharashtra Govt to create separate SPV to address State issues. Discussed with CM. Both Govts will work on it.”
 
If such focussed attention is indeed given to the Mumbai and Maharashtra rail network, many of the ills of the system could be resolved.
 
“Suburban rail network is under severe stress. Long neglected. Drawing up plan to revamp it on top priority. Need time to implement. Huge task” Prabhu tweeted after today's incidents in Diva.

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Nifty, Sensex headed higher– Friday closing report

Nifty will move up as long it closes above 8,380 tomorrow

 

After the indices moved in a range on Thursday and closed marginally higher, today the indices opened with a gap and rose gradually except for a small pullback later in the session.


S&P BSE Sensex opened at 27,521 while S&P CNX Nifty opened at 8,289. Both the indices hit their respective days low almost at the same level when the sessions began. Sensex moved up to the level 27,937 while Nifty reached up to 8,411. Sensex closed at 27,888 (up 380 points or 1.38%) while Nifty closed at 8,395 (up 111 points or 1.35%). NSE recorded a volume of 82.33 crore shares. India VIX fell 8.19% to close at 13.7950.


PSU bank stocks will be in focus as the two-day brainstorming session of the finance minister, the RBI governor and chiefs of state-owned banks began today. Among other things, the meeting's agenda includes consolidation and restructuring of PSU banks for better efficiency, governance and capital efficiency. At the session's end tomorrow, a reforms blueprint for phased implementation will be presented to Prime Minister Narendra Modi.


The RBI yesterday allowed banks to use immovable and movable assets, financial securities and corporate or personal guarantees as a security to loans given through external commercial borrowings (ECBs). The change was made with a view to liberalise the option of securities, RBI said.


After market hours yesterday the government decided to increase basic excise duty on petrol and diesel (both branded and unbranded) by Rs2 per litre to build 15,000 kilometres of roads during current and next financial year.


The government yesterday also announced the setting up of NITI Aayog (National Institution for Transforming India) as replacement for the Planning Commission and said that the NITI Aayog will seek to provide a critical directional and strategic input into the development process.


Adjusted for seasonal factors, the headline HSBC India Purchasing Managers' Index (PMI) climbed to a two-year high of 54.5 in December, up from 53.3 in November.


Gujarat Pipavav (12.30%) was among the top two gainers in the ‘A’ group on the BSE.

 

The stock hit its new 52-week high today. It was recently in the news, as it has entered into an arrangement with NYK Auto Logistics (India) Pvt. Ltd., wherein NYK has been sub-leased land for developing a dedicated common user integrated RO-RO (roll-on/roll-off) yard at Pipavav Port. The yard is expected to be commissioned in the second quarter of 2015 and will be provided with all port and related facilities by Gujarat Pipavav Port.


Muthoot Finance (4.51%) was among the top four losers in ‘A’ group on the BSE. It is set to acquire 51% stake in Asia Asset Finance Plc, Sri Lanka. HDFC (4.30%) was the top gainer in Sensex 30 pack. All other housing finance companies were in demand too.


Mahindra & Mahindra (0.92%) was the top loser in the Sensex 30 stock. Weak December sales pulled the stock lower.


On Thursday US markets were closed for New Year's Day holiday. Except for KLSE Composite (0.48%) all the other Asian indices which were trading today closed in the green. Hang Seng (1.07%) was the top gainer. European indices were trading in the red while US Futures were trading higher.

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