Lok Sabha Question No. 120 (STARRED), answered on 2018-02-09
Subject: Money Transfer and Funding
Ministry: FINANCE
Asked by: V. SATHYABAMA, PR. SENTHILNATHAN

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF ECONOMIC AFFAIRS LOK SABHA STARRED QUESTION NO. *120 TO BE ANSWERED ON FRIDAY, FEBRUARY 09, 2018 / MAGHA 20/1939 (SAKA)

## MONEY TRANSFER AND FUNDING

*120: Smt. V.Sathya Bama and Shri. PR. Senthil Nathan

Will the Minister of FINANCE be pleased to state:

(a)    Whether the money coming into India from foreign countries for various purposes as Participatory Notes was monitored/ probed/scanned; (b)  if so, the details thereof and the agency-wise findings thereof during the last three years, agency-wise; (c)  the action taken by the  Government in this regard so far; (d)  whether  the  Government  has  booked  any  individual/company/trust  for transferring    large  amount  from  India  to  tax  havens  and  if  so,  the  details thereof; and (e)  whether  the  Government  has  entered  into  agreements  with  Singapore, Mauritius,  Cayman  Islands  and  other  tax  havens  to  share  the  information pertaining to money transfer and funding and if so, the details thereof?

.

## ANSWER

## MINISTER OF FINANCE (SHRI ARUN JAITLEY)

(a) to (e): A statement is laid on the Table of the House.

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STATEMENT REFERRED TO IN REPLY TO LOK SABHA STARRED QUESTION NO.  *120  RAISED  BY  SMT.  V.SATHYA  BAMA  AND  SHRI.  PR.  SENTHIL NATHAN,  HON'BLE  MEMBERS  OF  PARLIAMENT  TO  BE  ANSWERED  ON 09.02.2018 REGARDING 'MONEY TRANSFER AND FUNDING.'

- (a) to (c): Foreign Portfolio Investors (FPIs) who  issue Offshore Derivative Instruments (ODIs), also known as Participatory Notes (PNs), are required to submit the details of their ODI/PN activity to Securities and Exchange Board of India (SEBI) in  the  prescribed format  on monthly  basis and the same is uploaded on the SEBI website.  The  reporting  format  for  ODI  activities  was  modified  vide  SEBI  Circular dated  June  10,  2016.  As  per  the  submissions  made  by  the  ODI  issuing  FPIs  the outstanding notional value of ODIs issued by them during last four years is given at Annexure-A. In order to ensure transparency, and in light of various recommendations of Special Investigating Team (SIT) on black money appointed by Honorable Supreme Court of India, SEBI has been constantly tightening norms for taking exposure in Indian Capital Markets through ODI/ PN route. Some of the recent measures taken by SEBI are stated at Annexure-B.
- (d): Income-tax  Department  takes  action  against  individual/company/trust  etc. involved in the violation of various provisions of Direct tax laws. Such actions include search and seizure, assessment of income, levy of tax, penalty and prosecution as applicable. Apart from taking actions under the provisions of Income tax Act 1961, the  Income  tax  department  has  also  issued  54  notices  under  the  Black  Money (Undisclosed Foreign Income & Assets) Act 2015, to various assessees, who had undisclosed  assets  abroad,  including  in  no  tax/low  tax  jurisdiction.  Further  the provisions of section 84 of the Black Money (Undisclosed Foreign Income & Assets) Act 2015, read with section 138 of the Income-tax Act 1961 prohibit the disclosure of information of individual/company/trust under investigation.
- (e): The  Government  of  India has entered into Double  Taxation  Avoidance Agreements (DTAAs), Tax Information Exchange Agreements (TIEAs) and Multilateral  Convention  on  Mutual  Administrative  Assistance  in  Tax  Matters  (MAC) with over 130 countries including tax havens. These agreements allow exchange of information  between  countries  for  tax  purposes  including  information  pertaining  to money laundering and funding. On request made by Government of India under the above agreements, these countries provide relevant information including information pertaining to money laundering and funding.

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ANNEXURE  -A  REFERRED  TO  IN  PART  (a)  to  (c)  OF  THE  REPLY  TO  LOK SABHA  STARRED  QUESTION  NO.  *120  RAISED  BY  SMT.  V.SATHYA  BAMA AND SHRI. PR. SENTHIL NATHAN, HON'BLE MEMBERS OF PARLIAMENT TO BE  ANSWERED  ON  09.02.2018  REGARDING  'MONEY  TRANSFER  AND FUNDING.'

| Outstanding Notional Value of Offshore Derivative Instruments (ODIs) Vs Assets Under Custody (AUC) of FPIs/deemed FPIs   | Outstanding Notional Value of Offshore Derivative Instruments (ODIs) Vs Assets Under Custody (AUC) of FPIs/deemed FPIs   | Outstanding Notional Value of Offshore Derivative Instruments (ODIs) Vs Assets Under Custody (AUC) of FPIs/deemed FPIs   | Outstanding Notional Value of Offshore Derivative Instruments (ODIs) Vs Assets Under Custody (AUC) of FPIs/deemed FPIs   | Outstanding Notional Value of Offshore Derivative Instruments (ODIs) Vs Assets Under Custody (AUC) of FPIs/deemed FPIs   | Outstanding Notional Value of Offshore Derivative Instruments (ODIs) Vs Assets Under Custody (AUC) of FPIs/deemed FPIs   |
|--------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------|
| As on the last day of the Month                                                                                          | Notional Value of outstanding PNs on Equity, & Debt and Derivatives * (INR cr.)                                          | Assets Under Custody of all FPIs # (INR cr.)                                                                             | Notional Value of outstandi ng PNs on Equity, Debt and Derivative s as %of B                                             | Notional value of ODIs on Equity & Debt excluding Derivatives (INR cr.)                                                  | Notional Value of outstanding PNs on Equity & Debt excluding Derivatives as %of B                                        |
|                                                                                                                          | A                                                                                                                        | B                                                                                                                        | C                                                                                                                        | D                                                                                                                        | E                                                                                                                        |
| Jan-14                                                                                                                   | 163,348                                                                                                                  | 1,426,875                                                                                                                | 11.5                                                                                                                     | 111,646                                                                                                                  | 7.8                                                                                                                      |
| Feb-14                                                                                                                   | 172,738                                                                                                                  | 1,473,802                                                                                                                | 11.7                                                                                                                     | 113,600                                                                                                                  | 7.7                                                                                                                      |
| Mar-14                                                                                                                   | 207,639                                                                                                                  | 1,593,869                                                                                                                | 13.0                                                                                                                     | 135,821                                                                                                                  | 8.5                                                                                                                      |
| Apr-14                                                                                                                   | 187,486                                                                                                                  | 1,606,596                                                                                                                | 11.7                                                                                                                     | 127,627                                                                                                                  | 7.9                                                                                                                      |
| May-14                                                                                                                   | 211,740                                                                                                                  | 1,770,781                                                                                                                | 12.0                                                                                                                     | 145,258                                                                                                                  | 8.2                                                                                                                      |
| Jun-14                                                                                                                   | 224,248                                                                                                                  | 1,909,400                                                                                                                | 11.7                                                                                                                     | 158,532                                                                                                                  | 8.3                                                                                                                      |
| Jul-14                                                                                                                   | 208,284                                                                                                                  | 1,971,822                                                                                                                | 10.6                                                                                                                     | 158,303                                                                                                                  | 8.0                                                                                                                      |
| Aug-14                                                                                                                   | 211,499                                                                                                                  | 2,047,175                                                                                                                | 10.3                                                                                                                     | 161,682                                                                                                                  | 7.9                                                                                                                      |
| Sep-14                                                                                                                   | 222,394                                                                                                                  | 2,084,161                                                                                                                | 10.7                                                                                                                     | 168,322                                                                                                                  | 8.1                                                                                                                      |
| Oct-14                                                                                                                   | 265,675                                                                                                                  | 2,171,276                                                                                                                | 12.2                                                                                                                     | 186,496                                                                                                                  | 8.6                                                                                                                      |
| Nov-14                                                                                                                   | 249,210                                                                                                                  | 2,267,910                                                                                                                | 11.0                                                                                                                     | 187,039                                                                                                                  | 8.2                                                                                                                      |
| Dec-14                                                                                                                   | 236,677                                                                                                                  | 2,245,157                                                                                                                | 10.5                                                                                                                     | 190,595                                                                                                                  | 8.5                                                                                                                      |
| Jan-15                                                                                                                   | 268,033                                                                                                                  | 2,402,441                                                                                                                | 11.2                                                                                                                     | 208,783                                                                                                                  | 8.7                                                                                                                      |
| Feb-15                                                                                                                   | 271,752                                                                                                                  | 2,456,321                                                                                                                | 11.1                                                                                                                     | 208,447                                                                                                                  | 8.5                                                                                                                      |
| Mar-15                                                                                                                   | 272,078                                                                                                                  | 2,411,810                                                                                                                | 11.3                                                                                                                     | 211,605                                                                                                                  | 8.8                                                                                                                      |
| Apr-15                                                                                                                   | 268,168                                                                                                                  | 2,355,308                                                                                                                | 11.4                                                                                                                     | 206,374                                                                                                                  | 8.8                                                                                                                      |
| May-15                                                                                                                   | 284,826                                                                                                                  | 2,413,049                                                                                                                | 11.8                                                                                                                     | 213,163                                                                                                                  | 8.8                                                                                                                      |
| Jun-15                                                                                                                   | 275,436                                                                                                                  | 2,386,457                                                                                                                | 11.5                                                                                                                     | 208,578                                                                                                                  | 8.7                                                                                                                      |
| Jul-15                                                                                                                   | 272,053                                                                                                                  | 2,453,014                                                                                                                | 11.1                                                                                                                     | 205,444                                                                                                                  | 8.4                                                                                                                      |
| Aug-15                                                                                                                   | 253,310                                                                                                                  | 2,313,548                                                                                                                | 10.9                                                                                                                     | 188,027                                                                                                                  | 8.1                                                                                                                      |
| Sep-15                                                                                                                   | 253,875                                                                                                                  | 2,303,513                                                                                                                | 11.0                                                                                                                     | 186,849                                                                                                                  | 8.1                                                                                                                      |
| Oct-15                                                                                                                   | 258,287                                                                                                                  | 2,344,179                                                                                                                | 11.0                                                                                                                     | 192,630                                                                                                                  | 8.2                                                                                                                      |
| Nov-15                                                                                                                   | 254,600                                                                                                                  | 2,308,769                                                                                                                | 11.0                                                                                                                     | 191,190                                                                                                                  | 8.3                                                                                                                      |
| Dec-15                                                                                                                   | 235,534                                                                                                                  | 2,320,539                                                                                                                | 10.1                                                                                                                     | 180,072                                                                                                                  | 7.8                                                                                                                      |
| Jan-16                                                                                                                   | 231,317                                                                                                                  | 2,200,837                                                                                                                | 10.5                                                                                                                     | 171,732                                                                                                                  | 7.8                                                                                                                      |

| As on the last day of the Month   | Under Custody Notional Value of outstanding PNs on Equity, & Debt and Derivatives * (INR cr.)   | (AUC) of FPIs/deemed Assets Under Custody of all FPIs # (INR cr.)   |   Notional Value of outstandi ng PNs on Equity, Debt and Derivative s as %of B | Notional value of ODIs on Equity & Debt excluding Derivatives (INR cr.)   |   Notional Value of outstanding PNs on Equity & Debt excluding Derivatives as %of B E |
|-----------------------------------|-------------------------------------------------------------------------------------------------|---------------------------------------------------------------------|--------------------------------------------------------------------------------|---------------------------------------------------------------------------|---------------------------------------------------------------------------------------|
| Feb-16                            | 217,740                                                                                         | 2,043,139                                                           |                                                                           10.7 | 160,946                                                                   |                                                                                   7.9 |
| Mar-16                            | 223,077                                                                                         | 2,224,537                                                           |                                                                           10   | 169,470                                                                   |                                                                                   7.6 |
| Apr-16                            | 212,132                                                                                         | 2,281,346                                                           |                                                                            9.3 | 161,280                                                                   |                                                                                   7.1 |
| May-16                            | 215,338                                                                                         | 2,348,618                                                           |                                                                            9.2 | 160,867                                                                   |                                                                                   6.8 |
| Jun-16                            | 210,731                                                                                         | 2,387,685                                                           |                                                                            8.8 | 161,379                                                                   |                                                                                   6.8 |
| Jul-16                            | 212,179                                                                                         | 2,514,038                                                           |                                                                            8.4 | 162,921                                                                   |                                                                                   6.5 |
| Aug-16                            | 216,232                                                                                         | 2,565,304                                                           |                                                                            8.4 | 158,848                                                                   |                                                                                   6.2 |
| Sep-16                            | 212,509                                                                                         | 2,556,450                                                           |                                                                            8.3 | 152,624                                                                   |                                                                                   6   |
| Oct-16                            | 199,987                                                                                         | 2,577,073                                                           |                                                                            7.8 | 143,235                                                                   |                                                                                   5.6 |
| Nov-16                            | 179,648                                                                                         | 2,409,042                                                           |                                                                            7.5 | 126,596                                                                   |                                                                                   5.3 |
| Dec-16                            | 157,306                                                                                         | 2,348,007                                                           |                                                                            6.7 | 112,243                                                                   |                                                                                   4.8 |
| Jan-17                            | 175,088                                                                                         | 2,456,716                                                           |                                                                            7.1 | 119,309                                                                   |                                                                                   4.9 |
| Feb-17                            | 170,191                                                                                         | 2,563,431                                                           |                                                                            6.6 | 115,413                                                                   |                                                                                   4.5 |
| Mar-17                            | 178,437                                                                                         | 2,705,729                                                           |                                                                            6.6 | 124,277                                                                   |                                                                                   4.6 |
| Apr-17                            | 168,545                                                                                         | 2,786,083                                                           |                                                                            6   | 128,380                                                                   |                                                                                   4.6 |
| May-17                            | 180,718                                                                                         | 2,856,637                                                           |                                                                            6.3 | 133,045                                                                   |                                                                                   4.7 |
| June-17                           | 165,241                                                                                         | 2,883,104                                                           |                                                                            5.7 | 132,785                                                                   |                                                                                   4.6 |
| July-17                           | 135,297                                                                                         | 3,055,984                                                           |                                                                            4.4 | 127,075                                                                   |                                                                                   4.2 |
| Aug-17                            | 125,037                                                                                         | 3,035,509                                                           |                                                                            4.1 | 116,393                                                                   |                                                                                   3.8 |
| Sep-17                            | 122,684                                                                                         | 3,003,476                                                           |                                                                            4.1 | 113,706                                                                   |                                                                                   3.8 |
| Oct-17                            | 131,006                                                                                         | 3,170,194                                                           |                                                                            4.1 | 120,629                                                                   |                                                                                   3.8 |
| Nov-17                            | 128,639                                                                                         | 3,188,354                                                           |                                                                            4   | 123,567                                                                   |                                                                                   3.9 |

# AUC figures are compiled based on reports submitted by custodians & do not include positions taken by FPIs in derivatives.

ANNEXURE -  B  REFERRED  TO  IN  PART  (a)  to  (c)  OF  THE  REPLY  TO  LOK SABHA  STARRED  QUESTION  NO.  *120  RAISED  BY  SMT.  V.SATHYA  BAMA AND SHRI. PR. SENTHIL NATHAN, HON'BLE MEMBERS OF PARLIAMENT TO BE  ANSWERED  ON  09.02.2018  REGARDING  'MONEY  TRANSFER  AND FUNDING.'

## Recent measures undertaken by SEBI for tightening the norms for ODI/PN

1. In terms of SEBI (FPI) Regulations, 2014, ODIs/ PNs can be issued only to those  entities  which  are  regulated  by  the  appropriate  regulatory  authority  in  the countries  of  their  incorporation,  after  compliance  with  'Know  Your  Client'  (KYC) norms.  Further,  only  Category  (I)  and  Category  (II)  FPIs  can  issue/subscribe  or otherwise  deal  in  ODIs/PNs  whereas  none  of  the  Category  (III)  FPIs  can  deal  in ODIs.
2. In terms of SEBI (FPI) Regulations 2014, an FPI shall ensure that transfer of ODIs/PNs are  done  to  persons  which  are  regulated  by  the  appropriate  regulatory authority  in  the  countries  of  their  incorporation,  after  compliance  with  'Know  Your Client'  (KYC)  norms  and  prior  consent  of  the  FPI  is  obtained  for  such  transfer, except when the persons to whom the ODIs/PNs are to be transferred to are preapproved by the FPI itself.
3. In  terms of SEBI circular dated November 24, 2014 the applicable eligibility norms between Foreign Portfolio Investors (FPI) regime and subscription through the ODIs have been aligned.
4. In terms of SEBI circular dated June 10, 2016 FPIs are required to maintain the BO information of its ODI subscribers in line with the Rule 9 of PMLA, i.e., BO information  is  to  be  furnished  in  case  the  holding  of  natural  person(s)  is  above specified thresholds.
5. In  terms  of  SEBI  (FPI)  Regulations,  2014  Resident  Indians/NRIs  or  the entities which are beneficially owned by Resident Indians/NRIs cannot subscribe to Offshore Derivative Instruments.
6. In terms of SEBI (FPI) Regulations, 2014, an ODI issuing FPI is required to collect  regulatory  fee,  as  specified  in  Part  C  of  the  Second  Schedule,  from  every subscriber of offshore derivative instrument (ODI), issued by it and deposit the same with the Board.
7. In  terms  of  SEBI  circular  dated  July  7,  2017  the  ODI  issuing  FPIs  were advised that from the date of the circular, they shall not be allowed to issue ODIs with derivative as underlying, with the exception of those derivative positions that are taken by the ODI issuing FPI for hedging the equity shares held by it, on a one to one basis.

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