SIT on black money for greater vigilance to check shell cos

To check money laundering through shell companies, the SIT on black money today asked the law enforcement agencies, including the tax department and Enforcement Directorate, to be more vigilant especially with regard to companies with same addresses. The Special Investigation Team (SIT) in its third report on black money dealing with 'Shell Companies & Beneficial Ownership' noted that 2,627 persons are directors on more than 20 companies in violation to Companies Act, 2013. A total of 345 addresses have at least 20 companies operating from the same place.

Also, the total number of firms sharing their address with at least 19 other companies are 13,581, the SIT report said. As per the provisions of Section 275 of the erstwhile Companies Act, 1956, as many as 77,696 companies were found violating the norms relating to Directorship. The twin strategy suggested by the SIT, headed by a retired Supreme Court judge, is proactive detection of creation of shell companies and deterrent penal action against persons involved in such activities.

"The SIT has requested the Ministry of Corporate affairs to take necessary action with respect to violation of the Companies Act noted above. The SIT has further requested CBDT, CBEC and Enforcement Directorate to undertake due diligence on the Companies data referred to above," said a Finance Ministry statement. It has also asked the Special Fraud Investigation Office (SFIO) to mine MCA-21 data to "red flag" the indicators that may lead to violation of the norms.

"While there is no specific Act/Rule which debars Companies from having the same address, SIT has desired that greater vigilance is accorded by law enforcement and intelligence agencies like CBDT, CBEC, ED and FIU while examining the operations of such Companies," the statement added. Shell companies are referred to those entities which are incorporated as companies and are used only for routing funds, without undertaking any real business activity.