‘High-Risk’ Companies Taken Off List After Purchase of Electoral Bonds

These Companies Had Been Flagged For High-Risk Financial Activities

Newsreel Asia Insight #164
March 18, 2024

Companies previously marked as “high risk” for violating the Prevention of Money Laundering Act (PMLA) were subsequently removed from the list after purchasing substantial amounts of electoral bonds, according to an investigation by The Wire. The revelation adds a new dimension to the controversy surrounding the electoral bond scheme, which has been criticised for lacking transparency and favouring the ruling Bharatiya Janata Party (BJP).

Previously, it was reported by media that firms raided by central agencies had bought large sums of electoral bonds, and that a bulk of the funds collected by electoral trusts were allegedly directed to the BJP. Now, the new findings by The Wire indicate that at least 19 companies, flagged by the Ministry of Finance’s Financial Intelligence Unit (FIU) in 2018 for high-risk financial activities, purchased electoral bonds worth 27.17 billion rupees. Remarkably, 18 of these companies were later omitted from the FIU’s subsequent “high-risk” lists.

The majority of these companies are based in Kolkata, a city notorious for its shell companies. The FIU’s 2018 list was part of an effort to clamp down on money laundering, especially after the demonetisation drive in 2016, which allegedly aimed to curb black money and corruption.

The Wire’s scrutiny of the Election Commission of India’s (ECI) list revealed that all 19 “high-risk” companies that bought electoral bonds were from the 2018 list. Notably, only one company, Renuka Investment Finance Limited, remained on the “high-risk” list in the subsequent years.

The timing of the bond purchases raises questions, as many transactions occurred around election periods, suggesting a potential link between the bond purchases and political funding. For instance, Kamna Credits and Promoters Pvt Ltd and Innocent Merchandise Pvt Ltd purchased bonds worth 50 million rupees and 250 million rupees, respectively, just before elections in key states.

The State Bank of India (SBI) has reported that 22,217 electoral bonds were bought between April 2019 and February 2024, with the BJP receiving nearly 48% of the total redeemed bonds, amounting to 60.6 billion rupees. The SBI, responsible for issuing electoral bonds, has yet to disclose complete information about these transactions, including the beneficiaries among political parties. This lack of transparency has fuelled concerns about the electoral bond scheme being used as a conduit for channelling unaccounted money into the political system, predominantly benefiting the ruling party.

In a particularly curious case, ABC Financial Services Ltd, listed as “high risk” in 2018, shares a common address and director with ABC India Ltd, which also purchased electoral bonds. This connection further complicates the already murky waters of electoral bond transactions and their beneficiaries.

A significant number of companies, previously raided by central agencies, have been found purchasing electoral bonds in large amounts. 

Hetero Pharma Group, a major pharmaceutical entity with a global footprint, came under the Income Tax Department’s scrutiny in October 2021. The raids unearthed unaccounted income of 5.5 billion rupees, with 1.4 billion rupees seized in cash. Following this, Hetero invested 600 million rupees in electoral bonds over two years, with purchases made at various intervals, including significant amounts before and after the company’s chairman received a Rajya Sabha ticket from the Bharat Rashtra Samithi.

Companies buying electoral bonds, which permitted anonymous donations, after government raids indicates a concerning pattern in India’s political funding scene. This points to a potential link between government actions and political donations. Such a connection might suggest that financial support to political parties could be seen as a way to positively affect outcomes or lessen legal issues.