Extracts from write up By Kala Vijayraghavan & Maulik Vyas, ET Bureau
| Aug 20, 2016, 02.33 AM IST
"Many
promoters create new companies and subsidiaries which will then go to the bank
and raise the capital. After that, showing the same money in another company, a
promoter raises further money, without any underlying assets,"
"Also, there are instances where companies have generated fake orders and inflated their order books, which helps them to raise capital further from the banks."
With
the Benami law apparently glazing over the practice, it's being used by
promoters whose businesses are deep in debt and want to protect assets or raise
more money, said experts. Parliament passed the Benami Transactions
(Prohibition) Amendment Bill, 2015, in August, paving the way for comprehensive
legislation to tackle black money within the country.
Ever more sophisticated methods are being used to conceal ownership.A web of firms can be used to make order books look better, resulting in higher valuations or making it easier to raise capital while obscuring ownership and funding sources.
Control is exercised by ensuring that trusted persons are nominated by the real/ beneficial owners to be elected as directors, said a director at an Indian conglomerate. Such practices are seen in real estate, trading and infrastructure, the person said.
However, with the evolution of know-your-customer (KYC) norms, rules mandating the disclosure of ultimate beneficiaries and Foreign Account Tax Compliance Act (Fatca) reporting, the world is becoming a difficult place to hide in.
"Prudence suggests that simplicity in structure is the need of the hour since complex will not always turn out to be efficient,"
Ever more sophisticated methods are being used to conceal ownership.A web of firms can be used to make order books look better, resulting in higher valuations or making it easier to raise capital while obscuring ownership and funding sources.
Control is exercised by ensuring that trusted persons are nominated by the real/ beneficial owners to be elected as directors, said a director at an Indian conglomerate. Such practices are seen in real estate, trading and infrastructure, the person said.
However, with the evolution of know-your-customer (KYC) norms, rules mandating the disclosure of ultimate beneficiaries and Foreign Account Tax Compliance Act (Fatca) reporting, the world is becoming a difficult place to hide in.
"Prudence suggests that simplicity in structure is the need of the hour since complex will not always turn out to be efficient,"
BUT
WHERE THERE IS A WILL...
"No matter how stringent laws might be, there are advisors who will help companies to continue business as usual. It has more to do with intention of the promoters than act itself,"
"No matter how stringent laws might be, there are advisors who will help companies to continue business as usual. It has more to do with intention of the promoters than act itself,"
Read more at:
http://economictimes.indiatimes.com/articleshow/53778875.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
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