Sebi probing UBS on round-tripping

Companies in mining, liquor, and real estate also being investigated, it appears, with ED asked to have a look

In the midst of the Special Investigative Team (SIT) on undisclosed money flagging concern on participatory notes (p-notes), the Securities and Exchange Board of India (Sebi) says it is probing a case of alleged round tripping. The term refers to transactions between companies that bolster their revenue but, in the end, don't provide real economic benefit to any of them. It is not necessarily illegal but is something tax officials frown on.



The case involves UBS Bank and eight companies spanning sectors including mining, liquor and real estate.

ROUND-TRIPPING MENACE

• UBS under Sebi scanner for alleged round-tripping activity
• Sebi admits to the probe in Bombay high court
• Case involves use of FII sub-accounts with UBS  to bring money into India via transactions that were illegal under India laws through the Mauritus route
• Eight other companies also under the scanner in the sectors of mining, real estate, liquor, infrastructure

The markets regulator said a probe in the matter was on since February, as a sequel to a public interest suit at the high court here in 2014.

The suit had sought investigation in the matter from various agencies, including the enforcement directorate, Serious Fraud Investigative Office and Sebi. It was withdrawn once Sebi said it was looking into it. Sources indicate the regulator has sought queries from the bank.

Mark Panday, a Hong-Kong based spokesperson of UBS, replied by e-mail that it had no comment to offer. An e-mail to Sebi on Tuesday did not get a response.

The alleged method involved was to send funds abroad through fictitious companies and bring the money back to India through the bank, said a source. This probe was based on a tip from Britain's Financial Services Authority. It had named companies that allegedly had accounts and foreign institutional investor sub-accounts with UBS. These might, went the suspicion, have been used for bringing money into India via transactions that were illegal under India laws, through the Mauritius route.

The matter appears to have also been recently referred to the enforcement directorate, on whether there was a violation of the Prevention of Money Laundering Act, said a person with knowledge of the matter.

The SIT had suggested Sebi have more regulations to determine the end-beneficiary of offshore derivative instruments (ODIs) and to curb downstream transfer of these. Their comments on p-notes led to the stock market falling 500 points. The government sought to calm the market by stating no action would be taken in haste.

SIT had said jurisdictions like the Cayman Islands seemed to account for a disproportionate amount of the flows in question. “The Cayman Islands had a population of 54,397 in 2010, according to Wikipedia. It does not seem conceivable that a jurisdiction with a population of less than 55,000 could invest Rs 85,000 crore in one country… Sebi needs to examine the issue and come up with regulations on the final beneficial owner of p-notes/ODIs,” it had said.

Sebi later said it had been working on curbing tax evasion through the stock market route. A source added it would look into the SIT report.