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Sebi ups vigil for poll-related redemptions, money laundering

Sunday, 9 March 2014 - 12:45pm IST | Agency: PTI

As general elections draw closer, Sebi has enhanced its surveillance to thwart any attempts by listed companies and others to channelise illicit funds through capital markets or investment schemes for polls.
The elections are scheduled to begin next month and concerns are being raised that huge sums of money could be spent by political parties and their leaders to lure voters.

According to a senior official, there are also indications that many entities running illicit money-pooling schemes have lined up huge redemptions from fictitious investor accounts for coming weeks and this money could also find their way into electioneering activities. Capital market regulator Sebi itself has initiated action against more than 500 companies that have allegedly garnered funds from investors through illicit money collection schemes.

In many such cases, a large number of fictitious accounts are also created for money laundering purposes. 

While robust surveillance and intelligence systems are already in place for detection and prevention of any kinds of money laundering activities in capital markets, regulators are being extra watchful because of elections being typically known as periods of increased illicit fund flows. Foreign funds coming through capital markets is also being monitored closely to check any possible laundering for political purposes, the official said, while adding that the dealings of various market entities with PEPs (Politically Exposed Persons) are also being placed under greater scrutiny.

Sebi regulations mandate that market entities deploy a "high risk" approach towards their clients who could be PEPs, who include individuals entrusted with prominent public functions, heads of governments, senior politicians, senior government/judicial/military officers, senior executives of state-owned corporations, important political party officials.

Similar approach needs to be followed for accounts of the family members or close relatives of PEPs.

With regard to listed companies, it is feared that companies may divert funds from their business for funding elections without the knowledge of investors, while scrupulous entities may also use certain market intermediaries to generate funds illegally for polls.

Sebi has tightened its corporate disclosure norms requiring listed companies and stock exchanges to be more vigilant about companies informing their shareholders about any key business developments. While market intermediaries, including brokers, are not allowed to divert their clients' money without authorisation, listed firms are also supposed to utilise the money collected from investors for their specified business purposes. 

Besides, companies are also required to inform the investors for any utilisation of funds generated by running their respective businesses and any digression from these regulatory requirements would be dealt with appropriately. 

Any business transaction that raises suspicion of investors being taken for a ride or funds being diverted to related entity would also be under scanner, the official said. Through its regular inspections, Sebi is keeping a watch on compliance of norms regarding Anti-money Laundering, settlement of accounts of clients on timely basis, segregation of clients and proprietary funds/securities and KYC norms.

It is mandatory for market intermediaries to identify and verify the beneficial owner of funds, as part of Sebi's efforts to tackle the risk presented by the misuse of complex legal structures, such as, companies, partnerships, trusts, etc, to facilitate money laundering or terror financing.

A greater use of technology and communication channels in financial markets has increased the risk of money laundering activities, but the regulatory authorities have also adopted latest and modern surveillance tools to tackle these challenges, the official said.

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