How shell companies turn black money of India Inc, politicians into white and vice versa

http://economictimes.indiatimes.com/news/news-by-company/corporate-trends/how-shell-companies-turn-black-money-of-india-inc-politicians-into-white-and-vice-versa/articleshow/20947474.cms?curpg=2

By Avinash Celestine, ET Bureau | 7 Jul, 2013, 06.47AM IST

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Companies with no assets except on paper, fake addresses and whose ultimate owners are difficult to trace are hardly a staple of exotic tax havens only.

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On May 19, 2010, one of India's largest engineering and construction companies paid a small amount — around Rs 1.38 crore — to a Kolkata-based company. The money was ostensibly payment for a contract that the Kolkata firm had fulfilled. For the engineering firm, the money was less than the average revenue it earned in an hour over the course of that year.

But as income tax sleuths later discovered, the way that money flowed to the Kolkata firm, through it, and then out of it, provided an all-too-rare insight into a business that has always existed in the shadows. It's a business that serves the needs of India's biggest and most well-known companies, and in many ways is essential to the way Corporate India functions. A trade that has existed for decades, it became an organised business in Kolkata around the 1980s.

At the heart of this business, and what ensured its survival and growth, is the reality that the Indian economy has a kind of dual personality, split as it is, into the 'white' and the 'black' economy, with cash transactions (though not always of an illicit nature) dominating the latter. But these economies don't exist separately from each other. They drive each other, and feed off each other, and money flows from one into the other, depending on the economic cycle and entrepreneurs' 'animal spirits'.



The Kolkata company, and thousands of others like it across the country, sit squarely at the junction between white and black. They perform what is an essential function — that of converting, or laundering, black money to white. But they do the reverse as well, converting white money to black. And in the same way that a stockbroker brings together buyers and sellers of a share, and 'makes' markets, such companies, and the people who operate them, bring together buyers and sellers of another, much sought-after commodity.