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Mumbai, 15 May The Securities and Exchange Board of India ( Sebi) has flagged money laundering as a hurdle in the new depository receipt (DR) regime, saying tracking fund flows by companies raising capital abroad might pose difficulties. Sources said Sebi, in a recent communication to the finance ministry, had said it lacked the legal and regulatory framework to effectively monitor funds raised abroad. " The monitoring compliance of companies raising capital abroad, with respect to the Prevention of Money Laundering Act, should be left to agencies that have such regulatory powers," Sebi said. It added the Securities Act didnt have specific provisions to track funds raised abroad and enforce the requirement of filing returns. Sebi suggested to the finance ministry that the Enforcement Directorate be given the charge of monitoring funds raised by unlisted Indian companies in foreign markets, a source said. The market regulator's submission comes ahead of a possible notification by the ministry of the proposed DR norms recommended by a panel led by former Sebi member MS Sahoo. The committee had put the onus of monitoring funds raised abroad by domestic companies on Sebi. "In our report, we recommended a liberal framework for depository receipts, in line with international standards, as it is the need of the market. Sebi's contention could be it lacks jurisdiction over unlisted companies," said Sahoo. Though the Sahoo committee had presented its report last year, it was accepted and made public only earlier this week. "Sebi has limited powers to monitor funds, compared to the Enforcement Directorate. If Sebi is to given the responsibility to monitor funds raised abroad by unlisted entities, it will require some legislative changes," said J N Gupta, former executive director of Sebi. This is not the first time Sebi has expressed displeasure over allowing unlisted companies to access the foreign market. After the finance ministry had proposed allowing unlisted companies to go for initial public offerings abroad, Sebi had said the move could shift the domestic primary market abroad. Even as fund- raising by unlisted companies abroad is set to become a reality, Sebi has urged companies to mobilise funds from the domestic market. " We are ready to accommodate the needs for domestic public offerings, rather than outsourcing to the foreign market. If a company markets an issue, it is likely to get good valuations here," Sebi Chairman U K Sinha said on the sidelines of an event on Thursday. He added allowing unlisted companies to list couldn't be a permanent measure. Sebi has been battling the issue of manipulation in global depository receipts ( GDRs). In a representation to the ministry last year, it had said extending GDR issuances to unlisted Indian companies would make tackling manipulation on this front difficult. In the past, Sebi has cracked down on companies for GDR manipulation. Investigations by the regulator had found funds raised abroad were diverted and used for activities not authorised by shareholders. Regulator says money- laundering a concern as tracking overseas flows could prove difficult Sebi Chairman U K Sinha ( right) with YES Bank's MD & CEO Rana Kapoor during Assocham's interactive session on ' Re- energising the primary equity market' in Mumbai on Thursday. CONCERNS APLENTY |The Sahoo panel has put the onus of monitoring funds raised abroad by domestic companies on Sebi |Sebi has said it lacks the legal and regulatory framework to effectively monitor funds raised abroad |It suggested the ED be given the charge of monitoring funds raised abroad by unlisted companies |Last year, Sebi had said allowing unlisted companies to go for IPOs abroad could shift the domestic primary market |In the past, Sebi has cracked down on firms that used funds raised abroad for unauthorised activities PHOTO: SURYAKANT VITHOBA NIWATE |
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