MUMBAI: The government proposes to clinch information-sharing agreements with key Middle East countries as evidence mounts of local promoters using Gulf countries to initiate questionable transactions and siphon off money.
Top government officials told ET that work is under way on an agreement that would help secure financial records and other details about firms owned or set up by Indian promoters or firms and operating in those countries.
The decision has been spurred by investigations into loan defaults in India uncovering suspicious transactions of money being routed to offshore shell companies or accounts based in the Middle East, official say. These accounts or shell companies operate in places such as the Dubai Free Trade Zone or other similar havens. Information is often hard to obtain from companies based here.
Industry experts say that an information exchange agreement would mean that Indian investigating agencies such as the Enforcement Directorate (ED) or the Central Bureau of Investigations (CBI) would be able to get access to information about suspect shell companies that could help investigations.
Finance ministry officials would be involved in the discussions and the new agreement is expected to be struck sometime this year, officials added.
MANY SUSPICIOUS TRANSACTIONS
“Many Indian promoters have misused banking channels for diverting their funds from India. At least one of the agreements could be reached in the next few months,” a person with direct knowledge of the matter told ET.
Indian agencies with the help of forensic investigators have uncovered several cases of such suspicious transactions when examining cases of loan default. These involve round-tripping, fraud and siphoning off money from corporate balance sheets to shell companies owned by promoters or their friends and relatives.
For instance, forensic investigations into an infrastructure company which defaulted on loans of around Rs 2,000 crore, found that properties worth a similar amount had been created outside India in the name of the promoter’s brother in the time leading up to the default. Investigators also uncovered a complex maze of shell companies through which money is believed to have siphoned out for building the property.
“Our forensic investigators highlighted similar issues in many high-value accounts which have had trouble servicing debt. Many S4A (Scheme for Sustainable Structuring of Stressed Assets) cases are also stuck because the independent techno-economic viability study has thrown up discrepancies in usage of funds,” said a banker on condition of anonymity.
WINSOME CASE
In another case, investigators examining the loan default of Winsome Diamonds uncovered suspicious transactions which involved taking loan based on fictitious orders that were never fulfilled. Winsome Diamonds has already been declared a wilful defaulter. A forensic investigation ordered by the Reserve Bank of India on a New Delhi-based firm found that Rs 2,400 crore has been siphoned off into accounts based in the Middle East.
“While working on several forensic investigations, we have noted that some organisations have used mechanisms to route transactions through different countries, including a few in the Middle East. Local laws in these countries could make it difficult to gather information around such transactions (including the “owners” of such entities),” said Mukul Shrivastava, Partner, Fraud Investigation and Dispute Services, EY India.
In another case involving a Mumbai-based infrastructure company, it emerged that the proposed buyer of the stressed asset may have been a related party. ET had on August 22 reported that the bidder for Jyoti Structures under a bank-led stake sale plan had not only worked in the company in the past but is now associated with aDubai-based accounting firm that audits Jyoti’s UAE arm.
THE DUBAI WALL
“In most NPA situations we have seen some element of diversion of funds in real estate either through buying benami properties in India or for buying properties in the Middle East. While information-sharing system with the Western countries is becoming quite transparent now, we hit a wall when money is funnelled through Dubai or any other Middle Eastern countries, and so investigations could only establish fraud through circumstantial or corroborative evidence,” said Samir Paranjpe, partner, Grant Thornton. “Some NPA cases have not been resolved because forensic audits revealed fund diversion by promoters,” he added.
Total bad loans of banks crossed Rs 7 lakh crore at the end of the December quarter, up 60% from the same period last year. Rating agency ICRA has projected that gross non-performing assets will increase to Rs 7.5-7.7 lakh crore by the end of FY17 and to Rs 8.2-8.5 lakh crore by the end of FY18. According to RBI’s Financial Stability Report the gross NPA ratio climbed to 9.1% in September, 2016 from ..
Source: economictimes.indiatimes.com