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Enforcement Directorate (ED) arrests Mumbai CA in Rs 1,000 crore laundering case

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In January 2016, Mumbai police’s economic offences wing (EOW) arrested three Geodesic directors—Prashant Mulekar, Kiran Kulkarni and Pankaj Kumar—after registering a cheating case against them. The ED later registered a money-laundering case against the three for allegedly defrauding investors in India and abroad. In June 2016, ED attached Mulekar’s three Rs 3 crore flats.

Fast forward two years, ED reportedly found that Jajodia was the crucial link in the case. They  summoned him for questioning on Thursday. After recording his statement, they arrested him for custodial interrogation. On Friday, he was produced before a special court, which remanded him to five days’ ED custody.

The case

In 2008-09, Geodesic raised funds under foreign currency convertible bonds (FCCB). Citibank NA, London, acted as a trustee for the company’s overseas acquisition and business expansion activities. But the funds were not used for the specified purpose. The company allegedly diverted the money into shell companies created in various foreign countries and defrauded on payment. The company also cheated its shareholders in India, said an ED official.

ED press release said, “Investigation revealed that the accused hatched a criminal conspiracy to defraud shareholders as well as FCCB holders (overseas investors) by creating a web of shell companies in various countries through fictitious dealings in order to receive wrongful gains.” He was the authorized signatory in several shell companies, said ED officials.

Jajodia’s Role

An official said that Jajodia had allegedly planned the entire strategy, from raising funds through FCCB and shareholders to diverting them into accounts of shell companies. He said, “Many of these shell companies were created by Jajodia for money laundering. He knows the details of the money trail and we are inquiring with him about it.”

Shell Companies

Shell companies include multiple layers of companies, created for the purpose of diverting money or for money laundering. There is no clear definition of what shell company is in the Companies Act, or any other Act. According to a recent report, the government has prepared a list of 16,794 shell companies after inputs from investigative agencies. However, not all shell companies may be money laundering vehicles. There are many shell companies that work within legal limits and do not have financial irregularities.

The concept of Shell companies laundering money is more than 60 years old. Only recently, after Satyam/ PNB frauds, the terminology shell companies have been more in usage.

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