Indian authorities have conducted a search operation at various premises of these Chinese entities, their close confederates and couple of bank employees to unearth the fraud. The Finance Ministry statement said that the search was conducted on the basis of credible information that few Chinese individuals and their Indian associates were involved in money laundering and hawala transactions through series of shell entities.
What Did the Search Find?
The statement said that more than 40 bank accounts were created in various dummy entities, entering into credits of more than Rs 1,000 Crore over the period. A subsidiary of Chinese company and its related concerns have taken over Rs 100 Crore bogus advances from shell entities for opening businesses of retail showrooms in India. Further, incriminating documents in respect of hawala transactions and laundering of money with active involvement of bank employees and Chartered accountants has been found as a result of search action. Evidences of foreign hawala transactions involving Hongkong and US dollars have also been unearthed.
Chinese Shell Companies – A Global Perspective
The importance of Indian authorities cracking down on the Chinese companies can be put in a perspective if only we care to examine the global instances in this regard. The Chinese shell companies and their money laundering efforts have not spared the major economy like the US. They have a large share of infamy in the recent global scandals such as Panama Papers. The US has been very vigilant in recent times in cracking down on the dangerous web of Chinese shell companies in their land which are benefiting the loopholes in the system.
The above article discussed at length on how some lenient rules in the US paved way for Chinese players to rig the system to their advantage which prompted the US administration to treat this as national security threat at present.
There are other instances to warn about the reach of Chinese corporate dirty games played through shell companies.
The tentacles of Chinese entities go back to the times of 2008 financial crisis. A documentary, “Chinese Hustle” revealed a massive fraud of Chinese companies on the US soil. To put it in a nutshell, aftermath the financial crisis hundreds of Chinese companies were able to list on US exchanges through a process called a reverse merger. Essentially, they used the defunct US entities as a front company that enabled them to avoid the same level of scrutiny that most initial public offerings receive. It led to scam as some of these companies knowingly misled auditors and banks about their values. In the process, many US businessmen made money, but the major share of the profit from the scam went to people sitting in China.
The Threat Posed by Chinese Shell Companies
One may argue that shell companies are not a new phenomenon whether in the US or in India, so, why be alarmed extra in the instances of Chinese entities? Afterall, it is private greed that leads to such scams irrespective of where it happened.
But, this argument may good for democratic systems. In the instances of China, powerful business entities are directly controlled by Chinese Communist Party. Invariably, the businessmen or traders who play abroad are among the influentials of CCP. Thus, the financial fraud committed by such entities may not be merely another example of greed but also the well-thought-out plan to disrupt the economies of other countries.
This is where the national security angle comes in. Therefore, India’s crackdown on Chinese entities that allegedly involved in hawala transactions is a very significant development.