#1-“SHELL”-fish companies-The “shell”-shocking truth

From flying successful rockets, Artificial Intelligence, creating self driven cars to online banking and selling, all the credit goes to the “company world” for creating a better place and environment for all of us to live in. Despite such advancements and growth, one often wonders why companies are still striving to keep pace with the rigid laws, growing restrictions, regular amendments and rigorous audits?

From the 1600th era till date, it has been 418 years of progressive human development and still counting!

From Apple to Wal-Mart to Amazon to Reliance, every company has paved its way towards modernisation and globalisation through modern advancements.That’s what brings me to the dark, scary and “shell”-shocking side of companies called SHELL COMPANIES.

What are shell companies? What is all the controversy surrounding it? Why are there crackdowns by the government regularly on them? Why are stock exchanges continuously delisting companies from the stock exchange? Why does every scam involve shell companies?

However, there is always a saying “the most complicated questions have the simplest answers “and that’s what I intend to achieve at the end of it.

Shell companies in its basic form refer to a corporation without active business operations or significant assets. Most of them only exist on paper with a mailing address, a cleverly designed website along with addresses that don’t exist. Majority of them are not listed on the stock exchange. A shell company is a normal legal company which is formed using the same procedure as a company itself and has to be governed and operated in the same way as any other company. However if a company remains stagnant or does not do any business within a prescribed period it is considered a shell company and is ordered to be shut down.

Shell companies are usually used only for two purposes:-

  1. Reverse merger take-over i.e. In case a public company is already listed on the stock exchange, acquiring that company would reduce the expenses and burden of going through the entire procedure of IPOs and listing it. It serves as a ready platter to begin eating.
  2.  Protection from criminal targets and Preservation of goodwill: In case two companies do not want to merge publicly or do not want to expose their partnership in a particular project to preserve their goodwill and keep away from bad eye , a company is made under which all common transactions are carried forward and business activities are conducted. This keeps the goodwill intact, business separate and away from criminal minds. However………

Shellfish companies use these shell companies for shell shocking reasons which include

1)Saving taxes:-. The shell companies are used as a scapegoat to carry on business activities in a foreign country at a tax rate which is relatively lower than what they should be paying.Eg:- Mr x opens a company in a foreign company. He provides 1 million dollars interest free to that company. The company shows the interest( notional and fake)being paid to the lender and reduces tax by charging the interest against the profits in the foreign country. In the home country the lender shows no interest received thus no tax levied.

2)Money laundering and terror financing :Also termed as “Havala”(in Hindi), the easy way to send money out of the country is through shell companies. All the rich enemies of the state undergo this process and smuggle currency out of the country to finance terrorism weaponry wrong missions causes and issues. Eg:- Mr X starts a shell company in a foreign company and provides an interest free loan of 1 million dollars. That money is shown by the company as purchasing assets for the firm. This indirectly is used to convert it into current assets like gold silver bank notes which are thus converted into dollars and used to finance wrong activities. Locally called as Havala , it includes many agents and every one gets commission for forwarding the money ahead.The notional interest along with losses in business is shown to avoid any inquiry or taxes.

3)Conversion of white money into black and visa versa:Shell companies are mere puppet for converting money to avoid taxes and grow wealth at an abnormally fast and illegal rate. Eg:-“A” infrastructural company sends a cheque of 1 million dollars to shell company “B”. B returns the entire money in cash back to A ,recording it as fulfilment of services. Thus money is converted from white to black and no tax is paid. Furthermore A then invests this money in a shell companies X Y Z as share capital( completely notional and fake). X Y and Z are then sold at a loss(pretended) to another investor who contributes 70% white and the remaining 30% as black ( shown as taken over at 70% of the value).Thus the black money creeps into the system and becomes white.

4)Another common usage of shell companies is to hide wealthy assets under the name of  these companies in order to stay out of sight, subject to less tax and avoid IT raids of any kind.

Shell companies acts as an open platter for the “who’s who of town” to use it as a scapegoat to benefit from it in many ways. The shell-shocking fact of shell companies is it exists everywhere irrespective of a country like India where the procedure is never-ending or like the United States where it can be formed in a few minutes. Some of the biggest crimes are achieved in these fraudulent ways. Non-governmental organisations and trusts are also used in similar fashions to create riots, smuggle money, topple governments, avoid taxes.Â

A few suggestion from my side are

  1. De-list the companies found to be shell ones and take criminal action against the owners. In case of beneficiaries, similar action to be taken.
  2. Stricter laws like reducing the time period of stagnant businesses to around 6-7 months in order to bring about crackdowns faster.
  3. Any connections found with regard to multinationals in connection with operation of shell companies should receive criminal action too.
  4. Take audits more seriously and punish heavily in case of non-filings.
  5. Add additional layers of verification and security at the time of company registrations.
  6. Develop a team, an independent branch under the judiciary, along with complete autonomy to take actions in special courts and convict accordingly.
  7. Develop a world agreement with regard to taxation structures in order to prevent biases to do business with respect to taxation.
  8. Involve the International court of justice to take up matters separately with regard to situations like the Panama papers leaks and convict everyone involved on a world level.

However, there is nothing like right or wrong in this world. There is always a point of opinion that prevails with every thought.

I know I’m not 100% right, yet I choose to write and convey my thoughts. I hope to share my opinion and connect with every one of you.

However, this platform to every type of criticism and appraisal along with comments. Any type of discussions and view points are encouraged.

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