These days it is very common for investors to foster investments funds via private equity, venture capital and hedge funds (Alternative Investment Funds - AIF).
The Securities and Exchange Board of India (SEBI) has expressed concern over the possibility of using AIF as potential route to indulge in money laundering transactions which will likely to defeat the very purpose of the AIF.
SEBI identified the imminent need to meticulously monitor the AIF transactions to detect the potential money-laundering tendencies to ensure the funds generated via AIF route are not employed to sidestep other laws.
As per official records, AIF (only next to foreign portfolio investors) generated investments worth INR 90,000 crores in the year 2017 (which is higher than what Indian companies raised from the capital markets) and the figure is predicted to grow more than 50% during 2018.
In the last 12 years, AIF also invested in the Indian capital market investments worth INR 9.1 lakh crore.
Ease of certain SEBI regulations with the objective to encourage educated and high net worth investors to invest via AIF route has played vital role in an upsurge of investments into Indian capital markets.
SEBI does not have the intent to tighten the regulations with immediate effect but issued a word of caution to AIF industry to self-regulate and conduct the business in a transparent mode leaving no latitude of any money laundering transactions.
In the light of certain loan disbursements via AIF route in violation of the investment requirements, the SEBI further issued a stern warning to the AIF industry not to misuse the investment structure and immediately to curb such irregularities.
It is time for AIF industry to streamline the investment structure and build robust mechanism in place to detect any money laundering transactions at the earliest possible instance.
If AIF industry fails in this aspect, it will certainly affect the credibility of investments generated via AIF route and stability of capital market.
It is hoped that with the warning received from SEBI, AIF industry will self-regulate and streamline the disparities within AIF industry – failing which will leave the SEBI no option except to tighten up the regulations to curb such disparities to salvage AIF industry from money laundering transactions.
Research and inputs by Paruchuri Baswanth Mohan
About the Author:
Bhumesh Verma is a lawyer with over 2 decades of experience in advising domestic and international clients on corporate transactions (M&A, Venture Capital, Private Equity, Startups, corporate advisory, etc.) and features in "The A-List - India's Top 100 Lawyers" by India Business Law Journal. He keeps writing frequently on FDI, M&A and other corporate matters and is a guest faculty as well. He can be reached at email@example.com