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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.