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Money Laundering & Real Estate Bubble of India

Submitted by on Wednesday, 26 May 2010No Comment

pic no.oThere are millions of charitable and private organisations registered in India and w/o sufficient integration and coordination between regulators and law enforcement authorities the threat of terrorist financing and the likes of DLF IPL scam are bound to grow and prosper. Ironically DLF and others will have Modi to blame for all the attention. If the heat turns on, new funds will be very afraid to enter the market. Expect a real estate bubble to pop in future.

Major Indian realty firms are under the probe of enforcement agencies for alleged violation of FDI terms and use of slush funds worth several thousand crore brought in from certain tax havens. While the Enforcement Directorate has carried out raids at premises of realty firm Emaar MGF for alleged violations of Foreign Exchange Management Act in the recent past, the latest to feel the ED heat was realty fund and developer IREO.

Sources said more number of firms are under the scanner and a detailed probe is underway. The Income Tax department has also conducted its operations and is now planning to delve deep into the tax statement of the realty firms.

When contacted, IREO had said “Some officials from the department of revenue have approached IREO for certain information and clarifications, which are being duly responded to. IREO remains committed to fully cooperate with the authorities, like always.”

Incidentally, the moves come following a report prepared by an arm of the Revenue Department late last year, which identified the real estate market as the sector having the highest percentage of black money.

The most common violation that the investigating agencies have found in the realty sector is the alleged breach of Foreign Direct Investment terms. They said many firms are believed to have diverted investments meant for the real estate sector to purchase agricultural land.

Under various agreements with the Foreign investment Promotion Board (FIPB), agricultural land is a sector barred for investment. The searches that have been initiated now by the ED are the culmination of months of discreet probe into the real estate sector by various arms of the Revenue Department.

They said many of the funds are being brought in from tax havens like the Caymen Islands, Mauritius among others. In some cases, the Directorate has learnt that certain realty firms had opened up multiple companies to acquire more land than the prescribed ceiling and had even made their low level employees as its Directors without their knowledge.

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