Mauritius funds into markets face SEBI, RBI probe

PTI Updated - July 22, 2012 at 04:40 PM.

A large number of Mauritius-based entities, which have been used for investing billions of dollars in the Indian markets, have come under the scanner of financial sector regulators SEBI and RBI for possible routing of illicit wealth of Indians and NRIs back into the country.

Market regulator SEBI has identified numerous Mauritius- based funds in its various stock-specific investigations into the cases of market manipulation, as also irregularities related to IPOs, GDRs, takeovers and insider trading, sources close to the development said.

A senior official said that SEBI (Securities and Exchange Board of India) fears many of these Mauritius funds to be related to each other, as it has found various common threads between different entities based out of the island nation.

Also, Mauritius-based entities form a major chunk of the investors that have stopped investing in India, or have sold off their holdings, in the recent months amid certain fresh taxation proposals. This has further raised the hackles of the regulatory agencies, as the proposed changes in the tax regime are supposed to check flow of black money, among others.

Many of these entities, which mostly invest in India through FII (Foreign Institutional Investment) route, have been involved in large-size transactions in Indian stocks in the past, sources said, but refused to disclose the names.

As the matter involves foreign flow of funds through capital markets, as well as through banking channels, the issues are also being looked into by the banking regulator RBI (Reserve Bank of India).

There have been fears for a long time that Mauritius was being used to channelise black money, because of its tax-friendly regime.

It is feared that wealthy Indians, including some company promoters, might be using Mauritius-based funds to route their money back into the country - either to legitimise their illicit wealth or for share price rigging in the stock market.

There have been concerns that post box-like facilities given by Mauritius authorities to the companies operating from there help in setting up proxy entities to route illicit funds back into the country without any tax or other liabilities.

A large number of FIIs investing into Indian markets are based out of Mauritius and it has been noticed that many of them carry similar addresses, except for post box numbers.

The newly proposed GAAR (General Anti Avoidance Rule) taxation framework provides certain measures for filling such loopholes, but the proposal has met with stiff opposition, especially from foreign investors.

A large number of Mauritius-based entities are used for investing through P-Notes issued by the SEBI-registered FIIs, but the P-Note investment has declined sharply ever since GAAR was announced in March this year.

Published on July 22, 2012 11:10