India, coupled with digital and financial growth is marching towards a new height of development. The growing economic activities, young population, and increasing purchasing power have exponentially increased the credit flow in the market. However, this digital expansion of the loan market has ignited a series of financial crimes in which Chinese Person are following unlawful means to distribute as well as recover the loan. Common people who had availed small amounts of loans through the mobile apps are facing extortion and harassment from these Chinese operated companies.
Taking cognizance based on 18 FIR registered at Cyber Police Station, Bengaluru City, the Directorate of Enforcement (ED) has launched an investigation under the provisions of the Prevention of Money Laundering Act, 2002. On 2nd September 2022, the ED carried out search operations at 6 premises in Bengaluru related to the Chinese Loan App Case.
The Chinese Financial Fraud in India
The accused entities were doing their illegal business through various Merchant IDs and Accounts held with Paytm Gateways. In light of these connections, the premises of Razorpays Private Limited, Cashfree Payments, Paytm Payment Services and entities controlled or operated by Chinese Persons were raided.
The Enforcement Directorate in its press release has revealed that “by using forged documents of Corporate of Indians and making them as dummy directors of those entities, they are generating proceeds of crime”.
In the raid, it was found that the accused entities were not operating from the addresses given on the Ministry of Corporate Affairs website or the registered addresses. They all were operating from fake addresses. Considering the proceeds of crimes, an amount of Rs 17 Crores has been seized from the merchants’ IDs and bank accounts of these Chinese persons-controlled entities.
Regulation on Credit Apps
India’s booming market and increasing purchasing power capacity are working as oxygen for the credit market. With the growth of financial technology, the credit flow has further become easy and financial companies are investing heavily in the fin-tech market. With the simple PAN-Aadhaar- Bank data of an individual, the (CIBIL) Credit Information Bureau (India) Limited calculates the credit score, and accordingly, credit apps distribute loans.
However, as most of the promoters of these apps are Non-Banking Financial companies, it becomes very difficult for RBI to regulate or keep them under the supervision of laws. Consequently, the mushrooming of credit apps has given rise to an unprecedented number of financial crimes. Here, not only professional fraudsters but companies operating these businesses are committing crimes in a concentrated manner.
With a mobile number, they extract the complete PAN-Aadhaar- Bank data of an individual and distribute loans. Even unreasonable interest rates and numerous hidden charges are levied on the debtors. After distributing loans, they follow a coercive method of extortion and harassment to obtain the money.
ED’s investigation of proceeds of crime are constituent parts of money laundering and comes under the penal provisions of the Money Laundering Act 2002. Proceeds of crime means any property obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offense in the Prevention of Money Laundering Act 2002.
The credit system forms the foundation of the expansion of an economy. It creates money according to the value added in the market with the expectation of the future growth of businesses. Credit and economic growth, complementing each other, are booming Indian markets. With the growth of various instruments of capital and credit growth, new enterprises are reaching new heights of development and creating new avenues of employment.
But, the rise of financial frauds by Chinese firms or entities may become hurdles in the balance of credit and value generations. Predatory and unlawful activities may harm the growth of the efficient credit business. Recently several chartered accountants (CAs) and company secretaries (CS) were under the radar of the Institute of Chartered Accountants of India for their role in aiding Chinese loan apps. According to the ED, many CAs and CS have helped Chinese persons to create shell companies in India in order to launder money obtained through these Chinese credit apps. In this scenario, it becomes imperative to not only investigate the involvement of China but also Indian companies who are working under their shadow. That’s why Razorpays Private Limited, Cashfree Payments, and Paytm Payment Services were raided.
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