ED seizes Rs.131.11 cr in micro loan scam
The Enforcement Directorate (ED) on Thursday seized over Rs.131 crore funds of a Chinese national-owned NBFC for alleged violation of foreign exchange law. The non-banking financial company (NBFC) is PC Financial Services Pvt Ltd and it was in the business of providing instant personal microloans through its mobile application ‘CashBean‘ for suspicious foreign outward remittances. This case came under the ED radar during a separate money-laundering probe against a number of NBFCs and FinTech companies that are linked to instant personal loans providing mobile apps.
These loans were being dished out with a “high rate of interest and recovered using personal data of the customer illegally and threatening and abusing them through call centers”. The alleged illegalities of these apps were reported from a number of states last year, especially following the COVID-19 lockdown economic stress, and a number of people were reported to have been driven to end their lives due to the extortion and bullying of these “dubious” companies.
“PCFS management failed to give any justification for these expenses and admitted that all remittances were done to move money out of India and to park it abroad in the accounts of group companies controlled by the Chinese promoter,” said ED.
“PCFS is a wholly-owned subsidiary (WOS) of Oplay Digital Services, SA de CV, Mexico, which is, in turn, a WOS of Tenspot Pesa Limited, Hong Kong which is owned by the Cayman Islands-based Opera Limited and Wisdom Connection I Holding Inc which are ultimately beneficially owned by Chinese National Zhou Yahui,” the ED said in a statement. The original Indian company PCFS was incorporated in 1995 by Indian nationals and it got an NBFC license in 2002 and after an RBI approval in 2018, the ownership moved to the Chinese controlled company.
PCFS, the ED alleged, “illegally” remitted huge funds outside India in the guise of imports of non-existent software and marketing services to park the funds abroad and hold them in the accounts of related foreign companies. “Thus, PCFS has contravened provisions of the Foreign Exchange Management Act (FEMA). RBI has been informed about the above contraventions,” it said.
The ED has seized a total of Rs 131.11 crore worth of funds kept in various bank and payment gateway accounts, under the provisions of FEMA. It has similarly seized Rs.106.93 crore worth of funds of the same NBFC in August. The probe found that the foreign parent companies of PCFS brought FDI (foreign direct investment) of Rs.173 crore for lending business and within a short span of time, made foreign outward remittances of Rs.429.29 crore in the name of payments for software services received from related foreign companies, it said.
“PCFS also showed a high domestic expenditure of Rs.941 crore. A detailed investigation into the foreign expenses paid by the NBFC revealed that most of the payments were made to foreign companies, which are related and owned by the same Chinese nationals, who own the Opera Group.”
“All foreign service providers were chosen by the Chinese owners and the price of the services was also fixed by them,” it said. Exorbitant payments were blindly allowed by the “dummy” Indian directors of PCFS without any due diligence and on the instructions of the country head Zhang Hong, who directly reported to Zhou Yahui, a resident of China, it said.
The agency said, PCFS, remitted forex of Rs.429 crore to 13 companies located in Hong Kong, China, Taiwan, the USA, and Singapore in the guise of payments for the license fee for CashBean mobile app (Rs.245 crore per annum), software technical fee (of around Rs.110 crore) and online marketing and advertisement fee (about Rs 66 crore). “All these services and applications are available in India at a fraction of the cost incurred by PCFS,” the ED claimed.
Moreover, all the clients of the NBFC were in India, despite that huge payments were made abroad and no proof of receipt of service is there, it said. During the same period of time, the ED said, PCFS also booked domestic expenditure of similar amount under the same heads of expenditure. “PCFS management failed to give any justification for these expenses and admitted that all remittances were done to move money out of India and to park it abroad in the accounts of group companies controlled by the Chinese promoter,” said Enforcement Directorate.
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