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

    praveenkumar kudagi

    2 years ago

    Yesterday I have transferred 200000 amount , amount is debited from my account but not credited to account to be transferred.
    In bank I enquired they are not responding & saying it's not in our control. Disgusting. My 200000 amount is debited from account but who is responsible for that..

    Sharad Jain

    5 years ago

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

    V Rajendran

    5 years ago

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

    Gopalakrishnan T V

    5 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

    5 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 5 years ago

    I think you are correct in your observations.

    avraman

    In Reply to rajivahuja 5 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 5 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.
  • User

    NITI Aayog: Planning Commission's Revamped Avatar

    With the coming of the NITI Aayog, will it be a Planning Commission by another name or is it indeed a new way of looking at national idea?

     

    On the first day of 2015, the Union Government announced the establishment of NITI Aayog, i.e., National Institution for Transforming India – the revamped version of the erstwhile Planning Commission. With the Prime Minister as the Chairperson, NITI Aayog will have a Governing Council consisting of Chief Ministers of all States and Lt. Governors of Union Territories. There will also be a Vice-President appointed by the Prime Minister.

     

    This is a significant departure from the structure of the Planning Commission, which had the Prime Minister as the ex-officio Chairman and a nominated Deputy Chairman. The Commission reported to the National Development Council consisting of the state chief ministers and Lieutenant Governors of Indian territory.

     

    Establishment of NITI Aayog may be seen a step forward in giving individual States more say in the policy-making process. According to the Press Release issued by government, “The centre-to-state one-way flow of policy, that was the hallmark of the Planning Commission era, is now sought to be replaced by a genuine and continuing partnership of states.” NITI Aayog seeks to serve as a “think-tank” to “to provide a critical directional and strategic input into the development process”, the release read.

     

    Along with the Chairperson, the Governing Council and the Vice-President, NITI Aayog will have a CEO, full-time Members, 2 part-time members from research organisations of leading universities (on a rotational basis) and 4 ex-officio members nominated by the Prime Minister from the Union Council of Ministers.

     

    Moreover, there will be Regional Councils set up on need-basis to address specific issues, comprising of Chief Ministers/Lt. Governors of the concerned regions. These will be formed for a specific tenure. This particular aspect may not really be a change from the structure that existed before, as the Planning Commission also formed separate panels for consultation to address inter-state issues.

     

    Under the Resolution stated in the press release, there seems to be a focus on “cooperative federalism” and a “Bharatiya approach to development.” which involves “the active involvement of States in the light of national objectives”. There is also thrust on rural development, increased use of technology in governance as well as the ulitisation of the “geo-economic and geo-political strength” that we have in form of the huge NRI community.

     

    With respect to the key objectives for NITI Aayog stated in the Press Release, there is an increased emphasis on the monitoring and implementation of the programs and initiatives along with the aforementioned focus on involvement of States in policy development. It also suggests a reduced involvement of the Centre in industry and service sectors, their role being restricted to policy making, regulation, and enabling legislation.

     

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    COMMENTS

    MG Warrier

    5 years ago

    Media analysis so far have not gone deep into the rationale of the revamp of Planning Commission, which in reality has come about as part of the reform process which India is undergoing. But for the change in name and the announcement in Modi’s maiden Independence speech on August 15, 2014, perhaps the changes would not have been subjected to the criticism by the mainstream media or opposition political parties. The previous regime has done damages to the system silently, like the withdrawal of pension scheme.
    After Nehru, planning has remained an arithmetical exercise factoring in whatever was happening in the economy without much involvement of, or concern for, those affected by planning.
    The new dispensation which claims to be a ‘bottom up’ approach, hopefully will allow more participation of stakeholders at ground level and ensure distributive justice. So far, higher share of resources are cornered by more developed geographical areas and the development needs of states which did not have a ‘hold’ at the centre were neglected. By and large, the change takes care to retain the essential roles played by the erstwhile Planning Commission while bringing focus on decentralisation and wider role for states.
    The responsible opposition should, instead of ‘crying foul’, do more homework and suggest corrections where they feel the revamp goes against the broad interests of the country and the people.
    M G Warrier, Thiruvananthapuram

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