Modus Operandi of Shell Companies in India
Create a shell company using fraudulent or forged documents. The inception is done by naming personal servants, chauffeurs as board of directors to create obscurity. As creating these firms requires a trail of paperwork, enterprising auditors are appointed to form and expand such companies.
Carry out fake transactions to window dress the financial statements of the company and create cash. For instance:
Record sales and purchase over and above the actuals, inflate payrolls, under or over value stock and assets, etc.
This usually requires an ally third party to syphon cash/assets from the books.
Park money in the form of investments in equity shares. This is facilitated through buying shares of shell firms, inflating the prices and selling after a year to claim tax exemption on long-term capital gains.
Evasion of both direct and indirect taxes to ensure the audit trails do not leave any footprint of the illegal transactions. To evade indirect taxes, companies misrepresent information during the return filing process, especially those associated with product categories, vendors, customers and quantum of transactions etc. Consequently, these companies survive as shadow firms and inject money to propel the growth of a parallel economy or black market in India.
Shell companies launder money by operating below the radar and acting as fulcrums, converting black money to white and vice versa. Experts believe that in sectors such as real estate and manufacturers of metals and alloys, where facilitation payments are common, money is laundered to fulfill illicit payments.
How to spot a shell?
Shell companies are hard to trace as they disguise their ownership to escape regulatory monitoring.
However, some of the red flags to watch out for include:
Its product or service is completely out of line as opposed to the corporation’s core business.
Recurring defaults in timely filing of returns and furnishing information to the regulatory authorities.
Reverse merger, involving a formerly private company gaining access to the stock market by allowing itself to be acquired by a firm whose shares already trade, essentially a backdoor entry to go public without having to disclose the risk portfolio.
Sudden increase in the traded volume of shares possibly due to the trading of shares within the promoter group shareholders.
Several payments of high-value or transfers between shell companies carried out without any legit business objective more
Carry out fake transactions to window dress the financial statements of the company and create cash. For instance:
Record sales and purchase over and above the actuals, inflate payrolls, under or over value stock and assets, etc.
This usually requires an ally third party to syphon cash/assets from the books.
Park money in the form of investments in equity shares. This is facilitated through buying shares of shell firms, inflating the prices and selling after a year to claim tax exemption on long-term capital gains.
Evasion of both direct and indirect taxes to ensure the audit trails do not leave any footprint of the illegal transactions. To evade indirect taxes, companies misrepresent information during the return filing process, especially those associated with product categories, vendors, customers and quantum of transactions etc. Consequently, these companies survive as shadow firms and inject money to propel the growth of a parallel economy or black market in India.
Shell companies launder money by operating below the radar and acting as fulcrums, converting black money to white and vice versa. Experts believe that in sectors such as real estate and manufacturers of metals and alloys, where facilitation payments are common, money is laundered to fulfill illicit payments.
How to spot a shell?
Shell companies are hard to trace as they disguise their ownership to escape regulatory monitoring.
However, some of the red flags to watch out for include:
Its product or service is completely out of line as opposed to the corporation’s core business.
Recurring defaults in timely filing of returns and furnishing information to the regulatory authorities.
Reverse merger, involving a formerly private company gaining access to the stock market by allowing itself to be acquired by a firm whose shares already trade, essentially a backdoor entry to go public without having to disclose the risk portfolio.
Sudden increase in the traded volume of shares possibly due to the trading of shares within the promoter group shareholders.
Several payments of high-value or transfers between shell companies carried out without any legit business objective more
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A simple FIR at the right time would have averted further unwarranted things, BUT who is going to bail the cat?????? The written complaints are just kept lingering for several years, with camouflaged reports to white wash. more
Mar 11
The Sad part is the Authorities like RBI, SEBI, NABARD and others, who never takes any cognizance even after severally complained - even in writing. They are supposed to take action on their OWN but in-spite the complaints, the response and reply given is just the window/white wash, as if they are NOT aware How the things are done. The expertise which they supposed to extend is used only to camouflaged &/or to favor the situation to the Beneficiaries/culprits. There are several incidents to the effect. more
Mar 11
From various crimes detected now, the FM, PMO to form a high level team consisting of Honest CA's, officers from CAG, CBI, Income tax, IT,RBI and select burecrats to immediately and collate the causes identified in these cases and arrive at authenticated measures/system to toally Ban registering and or forming Shell companies. The Limited company laws to be tightened besides abolishing Brand value estimation by Banks and sanctioning loan. more
Mar 10
shell companies are being established for quite long and how is it nether banks nor government could not identify them. That means these shell companies work under the nose of banks and government . the person who register these shell company need to be booked the bank official who gave loans with out proper verification need to be booked the man who drafted how to establish a shell company need to booked but who will do all this government no never more
Mar 09
It eventually looks like that, but nobody forms companies to fake that they had / not very low / high volume of trade in their company. It just happens that the director(s) decide not to disclose / take excessive loans - a due circumstance in decision making or bad decisions. It's free will at play. Or / and market play. For example: Last year this shop , (let's just say flowers-all for example) in the mall had bumper business. But this year the newer shop in the newer mall had a bumper business. Still the old shop can take a large loan from banks showing their balance sheet from last 2 years, with no collateral. This is the fault at play. Creates Nirav Modis - whi were hitherto genuine industrious shop keepers. This must be part of the due diligence. Also add, that collateral in some form / guarantor is a must - there is no substitute for collateral / guarantor. more
Mar 09
