The FT editorial board had commented thus on the Adani affair –“Whatever the merits of the Hindenburg report, India’s business and political elites would be misguided to simply shrug and hope the affair goes away. India’s ambitions to be an economic counterweight to China rely in part on investor trust in transparency, quality of governance, and the strength of its institutions. When allegations such these are made, those institutions need to be seen to be doing their job. “ (The Adani share offer closed successfully today, with the help of high net-worth Indian investors concerned about the adverse impact of falling Indian markets on their wealth. But transparency and trust issues remain.)
Here also, we want to see FSC doing its job . We are not satisfied with such routine statements from the FSC like “As per established procedures the FSC has requested a compliance report from the Management Companies. The FSC will devise the course of action in light of the report.” I do not think that this will help in safeguarding our reputation of a being “a robust supervisory framework to safeguard public interest and foster investor confidence". More is needed.
In its report, Hindenburg had made several allegations relating to offshore entities, and had raised several questions for the Adani Group. It has stated that Adani family members allegedly operated offshore shell entities in tax havens such as Mauritius, UAE and the Caribbean Islands, and that they allegedly generated false import, export documentation to generate fake, illegitimate turnover and and pump up share prices.
The report, had more severe allegations for Gautam Adani’s elder brother Vinod Adani, who, it said, was key in managing a network of offshore entities to facilitate fraud. It said Vinod Adani through close associates, “manages a vast labyrinth of offshore shell entities”.
Four Mauritius-based funds - Elara India Opportunities Fund, Cresta Fund, Albula Investment Fund and APMS Investment - have attracted attention for parking almost all their money in companies controlled by the Indian billionaire . The funds have a history of investing in firms which ended up defaulting or were investigated for wrongdoing. Cresta, Albula and Elara have been subject to at least one probe for alleged round-tripping in 2018. This is a process illegal under Indian rules where money is transferred typically to a shell company before being returned, giving the impression the funds originate from a clean source.
Some of the Mauritian management companies mentioned are Amicorp, Trustlink International ltd, IQ EQ … There are indications that a fourth offshore management company managed to offload many Adani companies in response to growing impropriety concerns. Hindenburg also said that SEBI was still investigating a case in Mauritius in September 2022, but that no action has been taken against the group so far.
We all know how the FSC with its old ways of light-touch regulation landed us on the FATF grey list and on the EU blacklist for failing to ensure compliance to minimum FATF standards on effective and risk-based supervision that could have put a stop to the long list of financial scandals like those related to Sobrino and Bastos, Mauritius Leaks or Fishrot .....
These latest developments are not good for the financial sector which may be at risk again after having worked so hard to put in place the necessary legislations and measures that enabled us to be back in business in terms of enforcement and immediate and effective responses to addressing financial crime.
This bad publicity, comes at a bad time when the financial sector is struggling to regain its footing . The FSC will have to move fast to offset the negative impact on an already flailing economy. Let us keep our fingers crossed and hope that the FATF,EU... are not taking notice.
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