The geo-tag crackdown on shell companies

The Central government plans to introduce geo-tagging of registered offices of companies in their statutory filings with the Registrar of Companies. This move is aimed at cracking down on shell companies as geo-tagging will allow the online return filing system to alert the government when the system detects multiple companies registered at the same premises. In the past, it has been found that hundreds of shell companies have offices registered at the same premises. Some of the shell companies have even provided addresses of vacant plots as their registered offices!

Geo-tagging involves attaching data pertaining to the exact location of the office premises and its introduction will enable the government to prevent fraud by tightening the regulatory systems. Geo-tagging will serve as early warning system for the government and help detect the mushrooming of shell companies.

The shell companies are formed with the objective of abusing the corporate structure by inflating costs through the issue of fake invoices and then laundering the unaccounted wealth by way of loans or equity investments through bogus transactions. So, the existence of shell companies is only on paper and, many a time, these companies are used as a front for money laundering. These shell companies not only have the same address, but they also have common contact numbers and common directors between themselves.

During 2017-18, the government identified 2,26,000 shell companies and struck them off the register for not filing annual returns for two or more years.

Of course, the existence of many companies at the same place and having common infrastructure (furniture, telecom, etc.) does not necessarily indicate that these are shell companies. Many small law and audit firms operate from the same office to save on operational costs. Some of the start-ups too may prefer to operate from clusters with common office and infrastructure set-up to save on costs.