The deep roots of shell companies in India

Shell companies

Problem of Shell companies is widespread.Identifying these companies have became a challenge for the enforcement and investigative agencies as they are used in the wider money laundering activities.

The layers of these paper companies help the money launderers to disguise the root of the transaction from the enforcement agencies.

During the month of May’2017 there was a news that Central Bureau of Investigation (CBI) busted a complicated network of 339 shell companies used for allegedly diverting funds worth Rs 2900 crore illegally. Out of these 339 shell companies 9 were claimed to be from the NSEL Scam.

Companies Related to FTIL

CBI in its probe of bank frauds has found that NSEL run by FTIL was allegedly using nine shell companies namely

  1. Brinda Commodity Pvt Limited
  2. Tavishi Enterprises
  3. Mohan India
  4. PD Agro Processors
  5. Dunar Foods
  6. White Water Foods
  7. ARK Imports
  8. Vimaladevi Agrotech
  9. Yathuri Associates

Riskpro TechnologyAccording to the study conducted by the Riskpro Technology group there are more than 45 Individuals who directly or indirectly played role in the NSEL scam. These individuals are associated with at-least 189 distinct companies.

While CBI has prosecuted these companies on charges of cheating and corruption, it will also share its findings with specialised agencies like SFIO, Income Tax and Enforcement Directorate among others.

What do the Intelligence Reports Say ?

The problem however is not as small as it looks. There are many companies which are identified as the shell companies by using the different parameters by the team of Riskpro. The total number of the shell companies may be as much as 50% of the legitimate companies registered in India.

 

Professional Shell Company operators

shell

In the month of March’2017, there was a news that almost 54 Chartered Accountants have come under the radar of the Income Tax department and the Enforcement Directorate over money laundering through shell companies.

Professional Chartered Accountants are always found to be the center of various shell company related transactions. The money movement is masterminded by the Chartered Accountants and is part of the practice of some of these accountants. Out of these 54 Chartered Accountants, who are being investigated by the Enforcement Directorate, 2 prominent Chartered Accountant brothers are Virendra Jain and Surendra Jain.

Jain Brothers

The news item revolved around the arrest of two Jain Brothers  Virendra and Surendra Jain (Not to be confused with the Jain Hawala Case) in connection with the case.  Search of Virendra Jain or Surendra Jain on the MCA website yields hundreds of the results and many of them may not be involved in the actual laundering case. Following observations may be helpful for the professionals in the intelligence and compliance space to understand more about these Chartered Accountants who were also on the board of many privately floated companies.

What do the Riskpro Intelligence Reports Say ?

Riskpro has built its own proprietary tool called Biznexxus, which establish the nexus between the heightened risk professionals with the Indian companies. Here are few highlights of the Riskpro Intelligence Reports

  1. Virendra Jain is the elder brother and is found to be associated with more than 46 companies
  2. Surender Kumar Jain, the younger brother is found to be associated with 14 companies.
  3. More than 90% of the companies where Virendra and Surendra are associated were incorporated in Delhi.
  4. The most important finding of our intelligence study is that  Virendra and Surendra Jain aka Jain brothers were found to be directly or indirectly associated with the leaders from Bahujan Samaj Party from Uttar Pradesh. This indicates that there is a likelihood of the political money being systematically transferred through the layers of the bank accounts.
  5. It was also observed that one of the companies represented by the Jain brothers, who are alleged of laundering thousands of crores from 2004 – 2015, have raised more than Rs. 400 crores from the Public Sector Bank.

This article is one of the first articles in the series of Riskpro Intelligence Articles based on the biznexxus database.

Cert Fin is the 2017 Budget gift for anti fraud professionals

Cyber security is critical for safeguarding the integrity and stability of the financial sector of India. A Computer Emergency Response Team for Financial Sector (CERT-Fin) will be established,” Finance Minister Arun Jaitley promised in his Budget Speech for the year 2017.

The entity will work in close coordination with all financial sector regulators and other stakeholders.

Last year, more than 32 lakh debit cards of various public and private sector banks were compromised. It was one of the biggest cyber frauds related to banks in India.

Post demonetisation, promotion of a digital economy is an integral part of government’s strategy to clean the system and weed out corruption and black money.

Investigation in Maharashtra Insurance Fraud Scheme

Agriculture Insurance Fraud

The state agriculture department is investigating all agriculture insurance fraud claims made by farmers for the Khareep and Rabbi seasons after it came to light that in Beed district alone, Rs 58 crore insurance money was claimed illegally and banks had to reverse that amount to the state exchequer.

According to a report on the incident, over 15,000 farmers from the district had fraudulently claimed insurance for a larger area of cultivation, or for premium paid for crops they hadn’t even sowed. The episode was investigated when it emerged that the cultivated land shown as insured was much higher than the area available for cultivation in the district.

Procedure for Insurance

According to the norms, a farmer has to get a crop certificate from the talathi mentioning the area under cultivation and the crop he will sow before he can get insured for that crop. The premium has to be paid in any of the banks that are authorized by the national agriculture insurance company.

In some cases, the farmer would get a crop-sowing certificate from the land revenue officer. A few days later, he would go back to the officer saying he had changed his mind and would be sowing another crop and hence would need another certificate. The farmer would take these two certificates (the earlier one wasn’t cancelled) to two different banks and pay the insurance premium for both the crops, but sow only one crop. In these cases, insurance claims were admitted for both the crops.

Agriculture Insurance Fraud

There were cases where farmers didn’t even cultivate anything and had yet paid up premium for cotton and had received insurance money. Some had registered inflated land areas so that more compensation could be claimed.

Insurance premium that the farmer has to pay is very meager and the amount depends on the crop and the area under cultivation. Currently, once an agricultural cycle is completed, crop production estimates are made by visiting random fields in one insurance circle, and then extending them to the entire circle. The indemnity levels for availing crop insurance in 2015 were kept at 60.

Certified Forensic Accounting program offered by the Indiaforensic Center of Studies and customised for the Insurance sector discuss the various Insurance fraud schemes. For detailed information on the Insurance sector certification please call us on +91-9766594401 or write us on education@indiaforensic.com