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Challenges in investigating frauds related to virtual currency investments


Forensic Accounting is becoming a dynamic domain and understanding the challenges with the new technology instruments play a significant role in the assignments conducted by the Certified Forensic Accounting Professionals. These days, virtual currency investment is becoming the top choice of the investors as the real estate and gold have yielded negative returns for the investors.

One of the most known frauds in the virtual currency space was witnessed by a small nationalised bank based out of Pune, when the Unified Payment Interface system was tweaked to pay the money without checking the balances was found to be transferred to the Bitcoin Exchange.

Understanding Virtual Currency Exchanges

During the forensic audits conducted on behalf of the large multi national banks, many forensic auditors observe the debit entries in the bank statements containing names of Bitcoin Exchanges. There are two types of Virtual currency Exchanges.

  1. Exchanges which convert the fiat currency in bitcoin
  2. Exchanges which convert Bitcoins to other virtual currencies such as Ethereum and Waves etc.

When the fiat currency is converted to the virtual currency, most of the exchanges complete the KYC process and obtain the requisite documents from the customers. Now the real challenge is to retrieve the information from cross border exchanges.

Virtual Currency Exchanges in India

The entries in Bank account statements pose critical questions about the end-use of the funds. Most of the times the Narrations in the bank account statements contain the names of the Virtual Currency Exchanges in India such as

  • Unocoin Technologies Private Limited

Challenges related to Virtual Currency Transactions

  • Tracing money: Once the fiat currency is converted to virtual currency, it is very easy for the account holder to keep moving the money across the countries. Virtual currency exchanges requires confirmation of the email addresses in most of the cases. Traditional financial institutions (such as banks) often are not involved with Bitcoin transactions, making it more difficult to follow the flow of money.
  • International scope: Bitcoin transactions and users span the globe. Although the government authorities and large market intelligence companies regularly obtain information from abroad (such as through cross-border agreements), there may be restrictions on how the same can be used. However, in cases related to the virtual currency transactions, even the government agencies and law enforcement may be unable to obtain information located overseas.
  • No central authority: As there is no central authority that collects Bitcoin user information, the information need to be sought from the Bitcoin exchanges or users, for this type of information.
  • Seizing or freezing bitcoins: Once the forensic auditor submit the report and the bank of Law enforcement officials are required to trace the assets it may face difficulty in seizing or freezing illicit proceeds held in bitcoins. Bitcoin wallets are encrypted and unlike money held in a bank or brokerage account, bitcoins may not be held by a third-party custodian.

It is important to consult the experienced professionals who have handled the virtual currency related transactions and understand the nitty gritties of the forensic accounting related to the virtual currency related transactions.

If you are facing the issues related to the transfers of money to bitcoin exchanges kindly feel free to call us on +91-9766594401

How did Indian Government Zeroed on only 6000 companies as Shell


Shell Companies is a Buzz word in the Indian compliance professionals. There is significant activity in the Indian Corporate world. The Revenue authorities have followed an interesting strategy to zero down on the shell corporations. It is interesting to check the chronology of the events.

Chronology of Events

  1. 07.08.2017 – In an interesting development Securities Exchange Board of India restricted the trading in 331 Listed Companies. Only 48 out of these 331 were listed on National Stock Exchange. The complete list was put on the website of BSE
  2. 18.08.2017 – Leading publication publishes list of 16000 plus companies 
  3. 06.09.2017 – The names of more than 209 thousand firms have been struck off under Section 248 of the Companies Act. This act provides that company registry may take action against the company if a
    • company has failed to commence its business within one year of its incorporation or
    • it has not carried out any business for two financial years or
    • has failed to file its financial statements for three years
  4. 12.09.2017 – The government of India identifies 1,06,578 directors for disqualification under Section 164(2)(a) of the Companies Act, 2013 as on September 12, 2017. This section restricts the directors of the firm which has not filed the Financial Statements for last 3 years.

Post disqualification of the companies and the directors, government sought the information from Banks about the bank accounts and the financial transactions to understand the role of shell companies which were involved in laundering the cash during the period of Demonetization.

Data obtained from 13 banks produced names of merely 5,800 companies out of more than 2 lakh that were struck off involving 13,140 bank accounts. In few cases there were more than 2100 accounts opened in the name of a single company.


Forensic Audits ordered for 3 more companies


Regulator Securities and Exchange Board of India (SEBI) has ordered an audit of three more firms

  1. Mumbai Based Indian Infotech and Software, which was also known as Indian Leasers Limited
  2. Kolkata Based Newever Trade Wings, which was also known as Newer Infrahomes
  3. Kolkata Based Shivom Investment and Consultancy, which was also known as G.Raj Financial Consultancy Services.

These three companies appeared in the 331 suspected shell companies list published by the regulator. SEBI, on August 7, had initiated action against the 331 suspected shell companies by ordering trading restrictions.

This has taken the total number of firms to 11 against which the SEBI has ordered an audit.

In three separate orders passed on September 21, SEBI said the regulator, prima facie, found evidence on misrepresentation by these companies and strong suspicion of misuse of books/funds by them.

SEBI orders forensic audit of JMD Ventures Ltd


Regulator Sebi has ordered a forensic audit of JMD Ventures Ltd (JVL), which figures among 331 ‘suspected shell companies’, after finding prima facie evidence of misuse of the firm’s funds.

JMD Ventures Limited was also known by two different names viz. Avtar Finance and Management Consultants and JMD Telefilms. Some of the directors of this firm have directorships in more than 10 companies.

According to the website of JMD Telefilms, Purohit family dominates the shareholding in the company along with some other body corporates. Detailed order of Securities Exchange Board can be obtained from the SEBI website

There have been prima facie evidences that these companies have entered into misuse of funds according to the suspicions of the market regulators.

Stock Market Regulator of India orders Forensic Audit of Shell Companies


India’s Stock Markets regulator, Securities Exchange Board of India (SEBI) has ordered forensic audit of three firms

  1. Mumbai Based Trinity Tradelink,
  2. Chennai based Info–Drive Software which was also known as Info Drive Computers Limited
  3. Delhi based 17 years old Edynamics Solutions

All the three companies figured amongst 331 suspected shell companies that was published by SEBI earlier.

Though the names of the forensic auditors are not known, the same would be soon performing the forensic audits.

These are in addition to SEBI ordering forensic of four other such firms — IRIS Mediaworks, Hit Kit Global Solutions, Kavit Industries and GV Films.

SEBI orders forensic audit of Shell Companies


As the more enforcement agencies and regulators order the forensic audit of the books of accounts of the registered companies, scope of Certified Forensic Accounting Professionals (CFAP) increases in India. CFAPs are specifically trained for conducting the forensic audits. The certification program which started in 2008 is now generating momentum as the Regulators have started ordering the forensic audits of the books of various companies.

What is Forensic Audit ?

Though it is used as the synonym to forensic accounting, there is a significant difference. Forensic Audit is performed for identification of the financial statement frauds of the suspected, shell or other fraudulent businesses. It is a small subset of services rendered by the Forensic Accountant (CFAP).

Forensic Audits in India are ordered by the agencies such as Serious Fraud Investigation Office, Securities Exchange Board of India or Reserve Bank of India etc.

RBI & Forensic Audit

PRofession witnessed the first wave of demand when the Reserve Bank of India issued the notifications requiring the forensic audits for tackling the Non Performing Assets. Growing Non Performing assets helped Bank Forensic Audits to grow exponentially. Bank Forensic Auditors are typically asked to look at the nature of loss to the bank and comment on whether the loss is willful default caused by the borrower or it is a genuine business problem. Banking Sector in India is tightly regulated and now requires the services of Market Intelligence to strengthen the sources of informal information

SEBI Orders forensic Audit

Securities Exchange Board of India, on 7th August’2017 Declared 331 Companies as Shell Companies. The stock market regulator received the list from the ministry of corporate affairs (MCA) on 9 June, wherein it was asked to initiate necessary action under its regulations. SEBI empaneled forensic auditors for conducting the detailed investigation of books of accounts (Forensic Audit).

On 5th September’2017, SEBI ordered Mumbai Stock Exchange to get the forensic audits of the two firms done from Independent forensic auditors viz. GV Films and Kavit Industries.

GV Films’ standalone revenue stood at Rs5.68 crore in FY15, fell to Rs3.36 crore in FY16 and further to nil in FY17, Sebi said, while observing that it had no other revenue stream to support expenditure of about Rs9 crore and was incurring losses year after year.

Besides, the company made investments in shares of a subsidiary company to the tune of Rs15.05 crore even as its net worth was getting eroded over years. “The financials of the company is dominated by current liabilities of Rs96.87 crore against which total assets of Rs118.73 crore are shown, which are disproportionate to the income and expenditure of the company. SEBI Ordered forensic audits of many other companies and is entrusted with Independent Forensic Auditors.

NSE Academy Certification

NSE Academy Limited (NAL) is the subsidiary company of National Stock Exchange Limited. Looking at the growing need of the Forensic Auditors in the different financial sectors, NAL launched its first Forensic Audit Certification in association with Indiaforensic. This course prepares the non-chartered accountants to take up the career in forensic audit. In order to get more information on Forensic Audit Courses please write an email to education@indiaforensic.com or call us on +91-9766594401