Chinese shell shock
THE Ministry of Corporate Affairs has launched a crackdown on Indian entities that have been providing ‘dummy directors’ to hundreds of Chinese shell companies in cities such as New Delhi, Gurugram, Bengaluru and Hyderabad. The Serious Fraud Investigation Office has arrested the person allegedly responsible for getting these firms incorporated through underhand means. His interrogation is expected to throw much-needed light on the involvement of China-linked shell companies in serious financial crimes in India. It’s imperative for Indian agencies to get to the bottom of the matter because such crimes can jeopardise the country’s financial security and stability.
A shell company is usually inactive or almost defunct; it neither manufactures/offers products nor hires employees or generates revenue. It does stash money and engage in transactions that are not above board. It’s very risky for any company to do business with a shell entity in view of the latter’s dubious credentials. The Panama Papers, published in 2016, had unearthed global corruption that was concealed behind the operations of anonymous shell companies. About 40,000 such firms were linked to Chinese citizens enjoying political clout, including a close relative of President Xi Jinping. Documents obtained from the hacked database of Panamanian law firm Mossack Fonseca had revealed that many Chinese conglomerates and individuals were banking on shell companies to park ill-gotten wealth in offshore tax havens.
India seems to have taken a while to gauge the gravity of the situation. The ongoing investigation needs to be thorough as well as time-bound so that the entire gamut of activities of Chinese shell companies and their Indian accomplices can be laid bare to warn unsuspecting investors. The possibility that this menace is part of Beijing’s ploy to make India bleed financially can’t be ruled out. Reports of Indian employees being in touch with their China-based counterparts through a Chinese instant messaging app point to the blatant misuse of technology for committing fiscal offences. Citing a threat to national security, the Indian government has banned hundreds of Chinese apps in recent years; more such steps should be taken to curb Chinese-origin fraud and other malpractices.
