SIT recommends steps to curb money laundering

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Published: September 3, 2015 10:12:21 PM

Supreme Court-appointed SIT on black money has come out with a slew of recommendations to curb various ways of money laundering, including misuse of exemption on long-term capital gains tax, Participatory Notes and creation of shell companies.

The Supreme Court-appointed SIT on black money has come out with a slew of recommendations to curb various ways of money laundering, including misuse of exemption on long-term capital gains tax, Participatory Notes and creation of shell companies.

The Special Investigating Team (SIT) has advocated action under anti-money laundering law for trade-based money laundering, putting a cap on huge cash transactions as these mostly take place in illegal activities like drug trade and betting deals.

In its report submitted to the apex court, the SIT said there was a need to check the generation of black money in the education sector and through donations to religious institutions and charities.

The SIT has emphasised the need for establishing additional courts to decide the pending cases under the Income Tax Act, establishment of Central KYC Registry and empowering the Directorate of Revenue Intelligence under the Special Economic Zone Act.

A specific recommendation has been made to check generation of black money through cricket betting.

While dealing with the misuse of exemption on Long Term Capital gains tax for money laundering, the SIT has recommended that SEBI needs to have an effective monitoring mechanism to study the unusual rise in stock prices of companies when such an increase takes place.

“We understand that SEBI has a strong IT infrastructure which can generate red flags for such instances. Such red flags could be built upon trading volumes, entities which contribute to trading volume, financial background of firms through their annual returns and any other indicators SEBI may develop.

“We believe that with effective and timely monitoring by SEBI a significant number of such instances can be checked in time,” it said, adding that when such instances are detected, SEBI must share the information with CBDT and FIU.

It said Enforcement Directorate should then be informed to take action under Prevention of Money Laundering Act for the predicate offences.

While deliberating on the misuse of Participatory notes for money laundering, the panel said it is clear that obtaining information on “beneficial ownership” of P-notes is of crucial importance to prevent their misuse.

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