SIT traces black money to P-Notes, shares and cricket

The Supreme Court-appointed Special Investigation Team (SIT) has identified circular trading in shares, routing of overseas investments through P-Notes from tax havens, shell companies, mispricing of imports and exports and betting on cricket as major sources of black money generation.

The SIT, tasked with tracing black money and its origins and to recommend ways of curbing black money, has, in its third report submitted to the finance ministry, called for identification of beneficial ownership of Participatory Notes (PN).

SIT has recommended among others, enacting of tough laws to curb betting in cricket, bringing donations to education and religious bodies under tax net, monitoring unusual rise in stock prices and regulating P-Notes.

On P-Notes, SIT has said that the information of beneficial owner with the Securities and Exchange Board of India (Sebi) should be in the form of individual whose KYC information is known to Sebi.

In no case should the KYC information end with name of a company.

In case a company is the holder of P-Notes/Offshore Derivative Instruments (ODIs), Sebi should have information of its promoters / directors who exercise effective control over the company, the SIT report states.

In case of companies / trusts represented by service providers like lawyers / accountants, Sebi should have information on the real owners / effective controllers of these companies / trusts.

With half of the Rs2,70,000 crore overseas investment using P-Notes coming through tax havens of Cayman Islands, Mauritius and Bermuda, the SIT on black money wanted market regulator Sebi to come up with regulations so as to be able to identify the final beneficiary of Participatory Notes.

P-Notes are instruments issued by FIIs to overseas investors wanting to invest in Indian stock market without registering themselves with the regulator.

SIT said action be taken under Prevention of Money Laundering Act (PMLA) against trade based money laundering through mispricing of imports / exports.

The panel headed by Justice M B Shah (retd) in its third report has also suggested measures to ensure donations by cheques to prevent black money generation in education sector, religious bodies and charities, and sought prosecution of those donating and accepting unaccounted money under the anti-corruption law.