This write-up gives an insight into foreign direct investment from dubious sources including secret Swiss accounts flowing into India with focus on JP Morgan affiliate-aided investment from numbered Swiss accounts into an Indian firm. visit nareshminocha.com to know about my write-up on finance, fdi, budget and many other topics.
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Unravel jp morgan affiliate aided fdi from secret swiss accounts in stpl
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Unravel JP Morgan affiliate-aided FDI from secret Swiss accounts in STPL
Created on Monday, 31 March 2014 10:03
Road Tunnel image: courtesy Soma
The public suspicion that a part of foreign direct investment (FDI) in India comes from secret Swiss numbered accounts
through circuitous route has turned out to be true.
In a case perhaps first of its kind, Soma Tollways Private Limited (STPL) has reluctantly admitted to the Government that a
chunk of the unapproved FDI in its share capital has flowed in from two Swiss numbered accounts. The curtain over this unapproved FDI
aggregating to Rs. 350 crore is, however yet to be lifted fully.
This money has been pumped in by certain Mauritius-registered foreign institutional investors (FIIs) whose ultimate control lies in the hands of
high profile American Investment Bank, J.P. Morgan.
STPL has not disclosed the names of persons holding the two mysterious accounts, Geneva 4813 and Geneva 7631 accounts. It has justified non-
disclosure by citing Swiss secrecy laws. That is where the case stands at present.
If STPL does not disclose the ownership of these accounts, then the Indian Government should seek requisite information under the Indo-Swiss
Double Taxation Avoidance Convention (DTAC). When and whether this initiative would be taken is unclear at present.
It also remains to be seen whether the Government would take STPL’s case as a tip of the dubious FDI running into thousands of crore of Rupees
which has flowed through Mauritius-registered FIIs.
Non-disclosure of the ownership of numbered accounts and failure to reveal the source of part of the money would obviously raise certain
questions. An obvious question is whether the Geneva accounts are owned by Indians or foreigners. Another issue is whether the money flowing
from these accounts is black money or some other tainted wealth or tax-paid savings.
It remains to be seen whether the new Government would latch on to this case to make mandatory full disclosure of the names and addresses of
all entities on whose behalf FIIs invest in Indian companies both as portfolio investment and as FDI through the Government/RRBI route.
The Government’s political will be put to test on the issue of treating shopping and round tripping. Revenue Department has been opposing the
inflow of FDI through these dubious practices but Foreign Investment Promotion Board (FIPB) has mostly brushed aside such opposition and
cleared FDI applications over the years.
The bigger challenge for the Government lies in subjecting all approved investments over the years to the disclosure norms. If the Government
fails to do so, it might face the charges of targeting STPL for non-transparent reasons.
The basic objective should be to find out whether tainted money generated by Indian businesses, politicians, bureaucrats, journalists and other
members of the influential section of the society has been brought back to India under the veil of FIIs investment.
The credit for unearthing of Swiss numbered accounts as faceless investors in STPL should go to Department of Revenue (DOR) that has lately
been demanding disclosure of the identity of ultimate beneficiaries of FIIs that invest in Indian companies.
In this case, FIPB initially overruled DOR’s objection on grounds of treating shopping by dubbing it as “generic” objection. FIPB thus recommended
clearance of STPL’s Rs 350-crore FDI at its meeting held on 19th October 2012.
While considering this recommendation, the Finance Minister P. Chidambaram directed FIPB to examine the source of funds and ultimate
beneficiaries of the FDI proposal.
Soma Tollways Private Limited (STPL), a member of Hyderabad-based infrastructure developer Soma group, has, however, declined to reveal the
names of entities that own the two Swiss accounts, whose money has been invested by AIRRO (Mauritius) Holdings II and VI. Both these entities
are fully owned by AIRRO (Mauritius) Holdings III, which, in turn, is wholly held by JP Morgan Asian Infrastructure and Related Resources Opportunity
Fund Cayman Master, LP, Cayman Island. This Fund is ultimately managed by JP Morgan.
STPL, a subsidiary of Soma Enterprise Ltd, serves as the holding company of the Group for investment in Highway projects executed through the
build, operate and transfer mode.
When STPL secured the Government’s approval for Rs 500-crore investment by AIRRO entities (16.66% stake) in June 2011, it did not realize that it
was heading for trouble.
The approval was given to STPL as an investing company with stipulation that it would comply with Reserve Bank of India’s (RBI’s) core investment
company regulatory framework. Another condition incorporated in the clearance letter was that the company would fulfill two provisions specified
in Circular 1 of 2011 on the consolidated FDI policy.
One of the provision relates to types of instruments/securities through FDI investment is made and the manner in which the securities should be
valued. The second provision deals with downstream investment or indirect foreign investment by one Indian company into another Indian firm.
Without seeking prior approval, STPL later secured an additional inflow of Rs 330 crore from AIRRO in June 2012. This resulted in an increase in FDI
in STPL to 24.92% from the earlier approved 16.66%.
When STPL applied for ex-post facto clearance of this second tranche of investment, Foreign Investment Promotion Board (FIPB) told the company
that it had not complied with two specified conditions of FDI policy and Reserve Bank of India’s (RBI’s) core investment company regulatory
framework. The transaction would thus attract penalty referred to as “compounding by RBI”.
Compounding refers to resolution of cases where entities voluntarily admit contravention of Foreign Exchange Management Rules (FEMA). RBI
imposes certain penalty on the violators after giving them a hearing.
When STPL proposal again came for consideration at FIPB meeting on 14th June 2013, DOR again opposed the application on the grounds of
treaty abuse and lack of clarity regarding the identity of ultimate beneficiaries.
FIPB advised DOR to give one more opportunity to STPL to provide requisite information relating to source of funds and ultimate beneficiaries.
When the proposal again came up for consideration by FIPB on 19th September 2013, DOR observed that “in spite of repeated opportunities, the
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