Industry custodians are intensifying efforts to reveal and combat shell companies, aiming to staunch the flow of illegal funds and ensure industry transparency
Banks are set to blacklist diamond houses, jewelers, and gem stores that neglect to reveal the 'ultimate beneficial owners' (UBOs) of their business associates. This initiative aims to scrutinize the authenticity of foreign trading partners, combat deceptive exports and imports, and unveil illicit practices wherein companies exploit cross-border trades involving precious stones for irregular fund transfers and hawala deals, as per a report by the Economic Times.
Over 9,500 jewelers and diamantaires are working with local banks to create a framework blocking firms using overseas shell companies from accessing export credit. This assurance was given in a recent meeting with the Financial Action Task Force (FATF), the global body combating money laundering and terror funding.
The Gem & Jewellery Export Promotion Council (GJEPC) leads UBO tracing in the jewelry trade through the 'MYKYC' regime, enforced since 2019 post the Nirav Modi-Mehul Choksi scam.
The ECGC (Export Credit Guarantee Corporation of India), a state-owned entity under the Ministry of Commerce and Industry, offers credit risk insurance and associated services for exports. ECGC's position could facilitate the implementation of connecting bank credit with the UBO details of overseas counterparts.
The 2010 FATF evaluation of India, while not legally binding, might influence international investors' capital allocation. Being in the FATF grey list or under enhanced monitoring risks reduced hard currency inflows for a country.
The FAF (Financial Accounting Foundation) assessment, triggered by the Hindenburg report on Adani companies, prompted Sebi to introduce strict UBO disclosure regulations for foreign portfolio investors (FPIs). These regulations focus on identifying the last natural persons controlling FPIs, particularly those over-exposed to stocks of companies within a corporate group.