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What is a Shell Company?
According to the US Securities Act, a Shell company is “a company, other than an asset-backed issuer, with no or nominal operations; and either:
- No or nominal assets/assets consisting of cash and cash equivalents; or
- Assets consisting of any amount of cash and cash equivalents and nominal other assets.”
Shell companies have widened their scope over the years. Businesses can set up shell companies from anywhere in the world, or move around their assets to benefit from looser tax rates in other countries.
Many companies may register Shell companies simply to hold trademarks, copyrights, and patents without actually investing in physical assets. In this case, their business reasons are legitimate.
Shell companies store money in bank accounts in their name. In this manner, financial institutions play an unwilling part in how these corporations operate.
How to identify a Shell Company
So, when does a Shell company’s activities become suspicious in nature? When a company is created simply to shield the illicit activities of its owners, or to bypass Anti-Money Laundering regulations then it is termed a Shell Corporation. Many such corporations are set up in places with looser regulations, like the Cayman Islands. A bit of digging uncovered that many of these Shell corporations have been opened in the name of or are linked to politicians or their family members in one way or another.
So, how can you find out if a company is a Shell company? There may be a number of red flags that you can look out for to confirm your suspicions.
- In order to conceal their true nature, Shell companies may not make their business goals and ideals clear. As they are simply impersonating a true company, much information about them will not be available on the internet.
- They do not contribute to the economy, as no goods or services are being sold. These companies are simply a vehicle used for transporting black money from one place to another and converting it into legitimate funds.
- Any transactions made by these corporations will also be erratic and confusing in nature. If the purpose of the transaction is unclear, or the transactions are being made to several people at once, then they might be illicit in nature.
There are many other red flags, both small and big, that can ultimately expose the true nature of a Shell company.
Adani takes over a stake in NDTV using Shell Company
Vishvapradhan Commercial Private Limited (VCPL) is an existing Shell company that was acquired by Reliance Industries Limited in 2009. At that time, it simply existed with 1 lakh in paid-up capital, however, showed no signs of any business activities or assets.
The company illegally obtained a 26% stake in New Delhi Television Ltd. (NDTV ) later that year by negotiating to control RRPR, another shell company that owned NDTV shares as their only known asset. This was seen as a loan agreement between VCPL and NDTV’s founders Radhika and Prannoy Roy, who took a loan of Rs. 403 Crore from VCPL in return for warrants that were convertible into share capital. The motive of money laundering was clearly detected in this acquisition through a series of actions to hide the source of money obtained by Reliance, which was forwarded onto to Shinano Retail Private Limited and made its way to VCPL and subsequently RRPR.
A report from Business Standard “Sebi begins action in the NDTV ownership case” details the reasons for calling this company a shell.
Over the years, VCPL’s stake in NDTV rose to 29.18% due to the continuous transfer of shares to RRPR Holdings, which is now controlled by VCPL. Incidentally, the ownership of VCPL changed hands from Reliance to Adani group. Taking advantage of the 12-year loan, the Adani group decided to exercise the warrants held by RRPR Holdings in NDTV, hence granting them the 29.18% stake in the broadcasting company. NDTV has since released a statement that it sees the Adani group’s actions as a hostile takeover, as it was done without any prior discussion with the NDTV founders.
The aforementioned loan has already landed NDTV in trouble with the SEBI in the past, who put it on blast for failing to mention the loan to its investors. Adani has also stated that he is willing to put an open offer to allow shareholders to buy another 26% of NDTV’s shares, which would take the majority away from the Roys. Details of the takeover are still yet to be ironed out, and the transaction is still not yet complete, with Prannoy and Radhika Roy determined to fight for their ownership of NDTV.
Shell Companies: Who owns them?
So how do we find out about the existence of these Shell companies and who owns them? Is there any way to find out more about Indian Shell companies?
Many prominent individuals, celebrities, and politicians were found to hold off-shore accounts and investments when a whistleblower leaked the information of 214,488 offshore entities belonging to the world’s rich and famous in 2016. This shocking discovery was soon followed by the Paradise Papers in 2017 and the Pandora Papers in 2021. The leaked data includes the accounts of a number of world leaders, politicians, billionaires and millionaires, celebrities, and many more- most of whom have no doubt opened these accounts to stash their illegally gotten black money. The papers included many influential Indian personalities as well, exposing their dealings with firms fabricating such companies in Panama, which is a popular tax haven.
If you are interested in learning more about Shell companies, how to spot them, and about the controversial leaks, then Indiaforensic has a course for you.
Where can you learn about shell company investigations?
If you are working in the Financial sector, then you may be interested in our Certification in Shell Company Investigations Course. This program is offered by Indiaforensic, especially for young professionals working in the Money Services Business Sector.
If you have professional experience in any MSB, you can sharpen your skills and add to your repertoire with this in-depth course on identifying and dealing with fraudulent shell companies. The course offers several short, easy-to-access videos on why Shell companies are formed and how one can learn to identify them. The information provided in this course will help you upgrade your skills and come one step closer to becoming an expert in your field.
The Certification in Shell Company Investigations is offered on an eLearning basis, which means that the videos can be accessed anytime and anywhere. The content is divided into short, comprehensive videos that you can even watch on your phone, making this the perfect course for busy professionals!
Once you have understood each topic, test your newfound knowledge by completing assignments and answering short questions on the content. On completing the course, you can then attempt the Uniform Exam. To obtain your certification, score more than 75%.
Who is this course aimed at?
This course is recommended for professionals already working in the field of Anti-Money Laundering or in the Money Services Business Sector who wish to further their knowledge on the subject. However, there are no requirements for registration, and anyone wishing to learn more about Shell Companies in detail can sign up for the course. So, both working and aspiring AML officers and financial professionals, add this certificate to your resume today and watch your career reach new heights!