Often used as vehicles of offshoring for money laundering

1. A PRESENTATION ON
SHELL COMPANIES
BY
SATISH N
POOJITHA K
S SHREEDHAR

2. Synopsis :
 Panama Leaks.
Tax havens.
Shell company – Definition, Objectives, SEBI’s
crackdown and Directives on Shell Companies, Market
Response, SAT Response.
Graded Surveillance Measures stage (vi)
 Legal proceedings available for shell companies.
 Impact of shell companies on capital markets.
Conclusion

3. Panama is a country in central America situated in between South and North America.
Panama city is capital of panama

5. Jürgen Mossack
Ramón Fonseca

8. Who are exposed so far?
 Russia President- Vladimir putin
 Argentina President- Mauricio Macri
 Ukraine President – Petro Poroshenko
 king of Abu Dhabi – Khalifa bin Zayad Al Nahyan
 Former Empire of Qatar – Hamad bin Khalifa Al Thani
 Former Sudan President – Ahmed al Mirghani
 England Prime minister – David cameron
 Jordan Prime minister – Ali Abu Al Ragheb
 Iraq Prime minister - Ayad Allawi
 Italy Prime minister – Silvio berlusconi
 Georgea former Prime minister – Bidzina Ivanishvili

9. • Panama – Riccardo Francolini
• India – Anurag Kejriwal (former president of lok satta
party)
• Phillippines – Maria Imelda Imee Marcos manotoc
• Pakistan - Nawaz Sharief and Benazir Bhutto
• Saudi Arabia - salman
• Brazil – Joaquim brabosa
• Algeria – Abdeslam Bouchouareb
• Australia – Neville Wran

10. Effect of Panama papers
Internationally
• Ice land Prime Minister Resigned
• Ukraine prime Minister Resigned
• Spain's Industry Minister resigned
• England prime Minister under pressure
• Pakistan Prime Minister Resigned

11. Effect on International Economy
• More bank regularity scrutiny .
• More scrutiny by U.S prosecutors of foreign
bank
• More regulation/taxation in general

12. What is Tax Haven?
•A tax haven is a state or a country
or territory where certain taxes are
levied at a low rate or not at all
while offering due process, good
governance and low corruption
rate.

13. Top ten Tax Havens in 2017
The Bahamas
Hong kong
Switzerland
The Cayman Island
Luxembourg
Malta
The Isle of Man
Monaco
Mauritius
Singapore

15. Shell is a visible outer covering
but have nothing inside .

16. Shell company
• A shells are corporations that exist mainly on paper,
have no physical presence, employ no one and
produce nothing. They are frequently used as a
vehicle to shield identities and/or to hide money and
raise funds before starting operations.
• A Shell Company is a corporate entity without
active business operations or significant assets.
• Inactive Incorporation ( not conducting business
and not having significant assets).
• Not illegal or illegitimate entities but indulge in
illegal activities.

17. Definition of Shell Company
 Not defined under companies Act, 2013.
 Rule 144(i)(1) of Securities Exchange Commission Act, 1933
defines a shell company as a company that has
(A) No or nominal assets
(B) Either
1. No or nominal assets
2. Assets consisting solely of cash and cash equivalents or
3. Assets consisting of any amount of cash and cash
equivalents and nominal other assets.

18. Objectives or Purpose
 Tax Evasion Purposes (Offshoring - tax havens)
 Money Laundering.
 As a front for an illegal business.
 For start ups.
 Raising funds before starting a business.
 To go public (Reverse Merger).

21. SEBI’s crackdown on Shell Companies
• Identified By
(A) Ministry of Corporate Affairs (B) Serious Fraud Investigation Office
(C) Income tax Department
• 15 lakh registered companies in India and only 6 lakh companies file their
annual return.
• Unearthing Black money post Demonitisation (Rs.1238 crore cash has been
deposited in Shell entities during November-December period).
• Probes by IT department and SEBI have shown that listed shell companies
were being used to launder money by Stock Exchange Ruote.

22. SEBI’S Directives on Shell Companies
 Placed trading curbs on 331 suspected shell companies.
 Placed in Surveillance Measures Stage (vi):
Trading in the securities is allowed only once in a month
with Surveillance Deposit of 200% Of the traded value.
 To appoint an Independent Auditor and if necessary even
to conduct a Forensic Audit to verify the credentials of these
firms.

23. Market Response
 Decision has hit several Investors.
 These companies stated that they cant be termed as
Shell Companies.
 Three Companies – J kumar Infraprojects limited,
Prakash Industries, parsvnath Developers limited
approached Securities Appellate Tribunal.

25. Securities Appellate Tribunal Response
• SAT directed stock exchanges to lift trading restrictions
on the firms.
• SEBI should offer a clarification provisions used to
direct the stock exchanges to act.
• The decision have lead the other companies to move to
the tribunal to seek immediate relief.

27. Graded Surveillance Measures
• Introduction
- Introduced by SEBI and exchanges on 14.03.2017
- Surveillance Measures
- Price Band
- Periodic call auction
- T2T Segment
• Objectives of measures
- Alert and advice investors
- Advice Market participants

28. Various Surveillance Actions
under GSM

29. # Is GSM framework applicable only at BSE?
# Will the identifies securities remain under GSM permanently?
# Will an identified security under GSM remain in the same stage
permanently?
# When does the ASD become applicable?
#Who is required to pay ASD?
# Who is responsible to collect ASD?
#Is there any action against a trading member for default in
payment o ASD?
# Can ASD be refunded if securities are sold off at the later stage?
#Will there be any interest receivable on ASD?
#ASD shall be payable in which form?

30. Legal proceedings available
for Shell Companies
• SEBI itself to take Corrective actions
• Operating Companies can challenge SEBI on
different grounds
- Companies could approach SEBI
- Stock Exchanges
- SAT
- High courts for relief

32. Impact of Shell Companies on
Stock Markets
• A Margin Funding Crisis
• Sensex and Nifty fell nearly 1%
• Raising Volatility Index
• BSE midcap and BSE smallcap
indices registered heavy loss
• Loss of Genuine Investors’
Trustworthiness
• Problems of raising funds by
new enterpreneurs

35. Conclusion
Must have a more rigorous approach
to distinguish between genuine and
illegal activities.