On Wednesday, the Enforcement Directorate said that number of fintech companies and NBFCs “backed by” Chinese funds have generated proceeds of crime worth more than Rs 940 crore. These fintechs have indulged in the predatory lending activities as well as violated RBI guidelines while they were operational in India.
Companies Operating Under Foreign Instructions
A crackdown on such companies who were “operating on the basis of instructions from Chinese, Hong Kong persons” has been started by the federal probe agency.
A money-laundering investigation found that these companies do agreements with the help of domestic NBFCs to enter into the business of providing illegal “instant personal loans” to the gullible public of the country.
A total of Rs 86.65 crore worth of funds lying in a total of 155 bank and payment gateway accounts have been attached by the ED in the account of NBFCs like Kudos Finance and Investments Private Limited, Acemoney (India) Limited, Rhino Finance Private Limited and Pioneer Financial and Management Services Private Limited.
It said that under the criminal sections of the Prevention of Money Laundering Act (PMLA), a provisional order was issued to carry out the attachments.
The agency said in a statement “ED has been conducting a money-laundering investigation against a number of NBFC companies which are in the business of instant personal micro loans. It was found that various fintech (financial technology) companies backed by Chinese funds have made agreements with these NBFC companies for providing instant personal loans of terms ranging from 7-30 days”.
It said that for their lending license, fintech companies brought the funds to be lent to the public, and did MoU (memorandum of understanding) with “defunct” NBFCs.
The ED found out that since it is unlikely that these fintech companies like get a fresh NBFC license from the RBI, that the companies have devised the MoU route with defunct NBFCs as a via media to do large-scale lending activities.
A Camouflage Scheme
The agency said that it was just “projected” that the NBFCs had hired fintech companies for customer discovery, however when it comes to reality all was going on piggybacking on the license of the NBFCs and doing large-scale lending business.
It said that it was “on the basis of instructions from Chinese, Hong Kong persons,” that the entire decision around the interest rate/processing fee/platform fee etc was fixated.
The ED said that “An amount of Rs 940,46,39,498 has been considered to be proceeds of crime as the same was gained by way predatory lending activities in violation of RBI guidelines”.
Funds of Rs 72.32 crores have been attached by the agency to Kudos Finance and Investments Private Limited and its fintech partners. It said that the total attachment, in this case, stands at Rs 158.97 crore now.