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Wary of chit fund scam, finance ministry to fast-track Prize Chit Banning Act amendments
May, 20th 2013

Bubai Ghosh's suicide in Jalpaiguri early this year was not a standalone case. His body represented broken homes of thousands of families who were sold to the 'quick bucks' dream by the Saradha Group. The company collapsed leaving thousands dumb founded and financially stranded resulting in cases of suicide.

The money vanished into thin air and the government could only arrest the fraudsters as the law lacked teeth.

Waking up to this horrific reality, the finance ministry has decided to fast-track the process to amend the Prize Chit and Circulating Scheme (Banning) Act, 1978. The department of financial services circulated a proposal to this effect in February which is now being given final shape.

The proposal intends to cover certain sections of the Chit Fund Act, 1982, under the Prevention of Money Laundering Act, 2002, (PMLA).

The proposal states, "It is felt that certain sections of the amended Act can be included in the schedule of PMLA for curbing money laundering, which could be associated with some of the multi-level marketing and collective investment schemes (CIS)." The finance ministry's feels that since the PMLA was further amended in 2012, it would be better to include its portion in the Chit Fund Act rather than amending the PMLA again.

The proposed Prize Chits and Money Circulation Schemes (Banning) Amendment Bill, 2013, (PCMCS) will give more teeth to enforcement agencies by allowing them to attach properties of fraudsters and bring in harsher provisions. PCMCS is not covered by PMLA and to bring it under its umbrella, Sections 3A and 4 will be amended.

The Central Board of Direct Taxes (CBDT) in written reply to the parliamentary standing committee on finance accepted that many companies are running schemes similar to CIS and are chit fund companies only in the name. "The schemes offering high returns were floated in the garb of selling land or holiday time share, sale of consumer goods, etc. under schemes like "Own Land Scheme" and other. These schemes were just a façade to hide the real nature of the enterprise from regulatory scrutiny," the note said.

CBDT said that its Kolkata department investigated the matter and found that such companies have host of other business activities, including in the media and real estate, where deposits are siphoned off for payments. "They were all running a typical Ponzi scheme where fresh deposits kept the business going but as soon as the fresh deposits started drying up, the entire business crumbles down," the note further read.

No access to Saradha documents

1. The income tax (I-T) department in a written note to the parliamentary standing committee on finance has accepted that it does not have access to relevant people and documents in the Saradha case.

2. The I-T department has launched its own investigation but has been denied proper access to the papers.

3. The state police have sealed the business premises, including the headquarters, of the Saradha Group and seized all documents, computers, laptops and the server

4. The promoter of the Group too is in the state police' custody too, the note says.

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