By Mukesh Jagota From My Digitalfc

Use of stock market for money laundering must be checked

The special investigation team (SIT) set up by the centre after the Supreme Court intervention to deal with the problem of black money has asked the government to get tough with foreign investors who hide behind promissory notes (P-notes) to access Indian markets and stock market manipulators.

The team headed by former judge M B Shah has also recommended putting a limit on cash that can be held and cash transactions.

Many foreign investors who do not want to register with Indian regulators use P-notes to invest in stock markets through foreign institutional investors. The rules says FIIs issuing P-notes should also file with Indian authorities the beneficial owners of these instruments. The SIT said many of the P-notes are held by companies whose ultimate beneficial owners are not own and much of these investments are routed through jurisdictions like Cayman Islands whose population does not justify the quantum of investments that actually have been made in Indian markets.

“Sebi needs to come up with regulations where final beneficial owner of P-notes and other overseas derivative instruments are known. The information of beneficial owner with Sebi should be in form of individual whose ‘know your customer’ (KYC) information is known to Sebi. In no case should the KYC information end with name of a company,” the report said.

If a company holds the P-notes, Sebi should have information on its promoters and directors who exercise effective control, the report said. The SIT has also recommended putting curbs on tradability of P-notes to make it easier to track down their beneficial owners. At present P-notes are freely traded. The panel said stock market platforms are often used to launder black money by inflating prices of shares of companies whose trading volumes are low and financial fundamentals weak and standard action of barring such people from the market is a poor deterrent.

Sebi should use its IT infrastructure to detect such cases and then refer them to central board of direct taxes (CBDT) and financial intelligence unit (FIU) for action under tax laws. The SIT has also recommended that a limit should be put on cash holdings for private use and provisions be made in the law for confiscation of any amount beyond that. “A number of European countries bar any cash transaction above a particular limit. This can be done in India too,” the report said.

The government has been asked to speed up the setting up of a central KYC registry that will enable it to track persons behind business and financial transactions even if they use different proof of identity like passport number, unique identification number, driving licence for each of those transactions.

It has also asked for powers to be given to the directorate of revenue intelligence to carry out investigation, inspection, and search and seizure operations in special economic zones without the approval of the development commissioner of the zone. The SIT has also recommended that payment by cheque should be made mandatory for donations to religious and charitable institutions and if donation is in the form of gold donor’s name and his PAN should be mentioned on the receipt.

For more on this story go to: http://www.mydigitalfc.com/news/shah-panel-strict-monitoring-p-notes-266

IMAGE: studypoints.blogspot.com