Govt plans Geo-tagging to identify shell companies

Govt plans Geo-tagging to identify shell companies

Companies may soon have to geo-tag their registered offices in the statutory filings with the Registrar of Companies (RoC), as the government seeks to prevent fraud by tightening regulatory systems.

Why Companies have to Geo-tag their registered offices ?

Geo-tagging, or attaching data of the exact location of the office, will allow the online return filing system to alert government officials wherever it detects far too many companies are registered in the same premises, a trend noticed in past investigations into shell companies.

Many companies that exist only on paper with the same address were found in the past offering what is referred to as “accommodation entries” or bogus transactions without commercial substance. A special investigation team led by Justice M.B. Shah, a former judge of the Supreme Court, in 2015 highlighted the role played by such entities in money laundering.

In a clean-up exercise in 2017-18, the government struck off more than 226,000 such shell companies from the records for not filing annual returns for two or more years. It also identified some cases that called for a probe. Now, investigations are on into the real ownership of 68 companies that deposited ₹ 25 crore or more after demonetisation, which the authorities have found suspicious.

Why Ministry is focusing on Geo-Tagging ?

With this move, the Ministry seeks to prevent abuse of the corporate structure by companies that inflate costs by issuing fake invoices and laundering unaccounted wealth in the form of loans or equity through bogus transactions.

How  Geo-Tagging will help Ministry to identify fraud companies ?

  • The coordinates of the registered premises will act as a key input for mining data in the ministry’s IT infrastructure, called MCA21, to zero in on companies with a common address, common contact numbers, common directors and sudden and unexpected changes in revenue, etc. that may warrant a closer look into their affairs.
  • The idea is to seek the coordinates of the registered office at the time of incorporation in the case of new companies and at the time of filing annual returns in the case of existing ones.

Experts View :-

  • Experts said that having a common address alone does not point to wrongdoing. It is a practice among professional services companies such as law firms and audit firms to work from a large, common infrastructure.
  • “The registered office need not necessarily be the place from where a business conducts its commercial operations,” a corporate law expert said on condition of anonymity.

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