In what could come as a big relief to investors duped by ponzi schemes such as Saradha, the government, on Friday, said it was amending the law to provide compensation to them.
“The government has provided and made amendments in the Prevention of Money Laundering Act (PMLA), which after the full passage of the Finance Bill, will enable for the ‘restitution’ of assets to those investors whose assets and monies have been fraudulently cheated away by chit fund or ponzi schemes,” Revenue Secretary Shaktikanta Das said.
Thousands of crores of rupees are stuck in these schemes as CBI Director Anil Sinha had recently said that Rs. 80,000 crore of 6 crore investors stands locked in such scams probed by the agency.
“Talking about ponzi schemes, a very important component in the Finance Bill has been not highlighted adequately...the Enforcement Directorate (ED) attaches and confiscates the assets involved in a ponzi scheme (during its money laundering probe against perpetrators of such scams) but we have to also think about the small, innocent and poor investor,” Mr. Das said.
It was a fact that people in rural India got carried away by the promise of some handsome returns under these schemes, he said while speaking at an event organised by the ED here.
“Hence, the government has very rightly provided in the PMLA to the Finance Bill for restitution of these assets to the duped investors,” he said.
Mr. Das said guidelines and rules in this regard would be spelt out in due course. The entire restitution (of assets) would be done under court supervision and the orders of the court, he added.
He also said the second important component in the Finance Bill had been the amendment in the PMLA that violations under direct or indirect tax laws would be treated as “predicate offences” now.
This effectively meant that the ED could now book cases of tax evasion under the criminal provisions of the money laundering law as, till now, they were being dealt only under the civil clauses of the Foreign Exchange Management Act (FEMA), he said. The Secretary also said investigative agencies, including the ED, had three ‘huge’ challenges before them in the form of checking and curbing hawala trade (illegal transfer of funds by skirting the legal banking route), trade-based money laundering (TBML) and evasion of taxes by way of accommodation entries.
``Under the TBML, an offender either under-invoices or over-invoices his trade receipts,’’ Mr. Das said.
The modus operandi was to evade taxes and funds, which could be illegally transferred across the world in a matter of seconds and minutes, he added.
With regard to accommodation entries crime, he said this entailed an offender setting up a company only on paper, launching of an IPO, offer shares at face value and then later ‘jack up’ its value several times, and, hence, stood to escape capital gains tax.
“There is a serious component of money laundering here (in accommodation entry cases),” Mr. Das said.
He added tackling ponzi schemes required a good interaction and co-ordination between various investigative agencies such as the ED, income-tax department, DRI, Customs, CBI and the IB.
He asked the ED to “step up” its performance in the coming days and focus on fighting the menace of illegal funds being sent and stashed abroad.
“The role of ED has become far more important than it was ever before,” he said.
Mr. Das said ``our (Indian probe agencies) system of intelligence gathering and investigation will have to “match up” to the level of the minds, who do illegal financial frauds and crimes.’’
He added that the Ministry was aware of issues plaguing the ED like shortage of manpower and space.
“We are undertaking a special drive to fill vacancies in ED,” he said.
Mr. Das said as the ED had some “strong” powers vested with it and hence it also had a “huge responsibility to be very fair and judicious” in its investigations.
