Post-demonetisation, there has been a crackdown on shell companies, a way to convert black money into white. Recently, prime minister Narendra Modi said that shell companies would all be eliminated in five years. Pradeep Lankapalli, who heads information and data analytics firm Thomson Reuters, however, believes we might not have to wait so long. In conversation with Governance Now, he talks about how his company is engaging with the ministry of finance and the Reserve Bank of India in demystifying financial transactions and making an alert system for frauds and non-performing assets. Lankapalli represents the Thomson Reuters business lines in India, which includes financial, risk, tax, accounting and legal. Edited excerpts:

How is Thomson Reuters helping Indian government agencies and regulators in tracking fraudulent transactions and tradting?

From a traditional news and media organisation, over the years we have evolved into a core information and workflow platform. We help professionals and organisations from all spheres with required information, helping them in dealing with regulations and business expansion plans across multiple geographies. We help where regulations intersect with doing business. We have access to inordinate amount of data and trusted content. We have access to proprietary data (data from firms such as ours, Karvil, among others) and also publicly available content, a part of it being structured and unstructured data. We procure micro-economic data. We procure trade content, about imports, exports, which ships are going to which ports. Many of this is publicly available. We can help a regulatory body or an investigating body to pull all this together to have early alerts about possible fraudulent financial transactions. We can help agencies in putting a tracking mechanism.

If someone is doing a business with let us say a trading or a shipping agency, the investigating agencies can connect our data with publicly available data and our algorithm can check if a particular ship has reached a sanctioned port. These things are not readily available but we can connect the dots and provide that information [read intelligence]. We can connect dots to track the ultimate owner of a financial transaction.  

In India, which has a history of businesses setting up shell companies, with our data integration – what we call ‘link-data’ – we can help government agencies know who the ultimate beneficiary/owner was in a transaction.

The PM said no shell companies in five years. But you can’t wait for five years, you can do it now.

We can do ‘related party transaction’ analysis. Most of these transactions involve conflict of interest. For example, when you are running a company and award a contract, you end up awarding a contract to your own company except that this is being set up in three or four degrees of separation [in a way to conceal relation between the company awarding a contract and company receiving the contract] so you can’t easily identify. To investigative agencies, it appears as if the contract is awarded to someone else.

The ‘related party transaction’ analysis is getting below the guts of the transaction to understand whom the contract is being awarded. For example, if a government secretary is connected in some away to the contract awardee, those are the things we can track in ‘related party transaction’ and this is quite relevant in the Indian context.

I think there is a lot of interest in the government including SEBI, CBI, ministry of finance and some of the state level finance departments of the progressive states. This is a new thing for the Indian government agencies to adopt.

What are the key financial data analysis tools Thomson Reuters offers?

Our first tool, big open link data (BOLD), is now five years old. Big data has been a buzz word for several years. But we felt that it is meaningless. The most important things are ‘open’ [access to databases] and ‘link’ [connecting the dots, transactions]. ‘Open’ concept comes from platforms like us that have historically been closed platforms. We have Eikon – a financial information analysis platform. You buy the license and use it. However, what we are realising now is that at some point in time you have to embrace the Apple iStore concept, wherein you throw open your platform for app developers.

Shell companies crackdown

• 3,19,637 directors have been disqualified under section 164 (2) (a) of the Companies Act, 2013.
• It is estimated that the list could go up to 4.5 lakh.
• Section 164 pertains to disqualification for appointment of director.
• The ministry of corporate affairs has eliminated names of 2,17,239 companies from its records.
• Prior to action against defaulting companies, there were about 13 lakh companies in the registry.
• After closing of around 2.10 Lakh companies, there are about 11 Lakh companies having active status in the registry.
Agencies involved in the crackdown include the ministry of corporate affairs; serious fraud investigation office (SFIO), ROCs, department of financial services and Indian Banks Association.

 

We will open up our APIs. We will partner with RBI to build an exclusive app on our platform, where we will share [link] our data with the client’s data. Other areas where the idea of ‘open’ comes from are in cases of a Fintech company. For example, if a Fintech startup approaches with an idea of, let’s say, building an app for all regulatory bodies and wants to use our data and platform, we would open up the platform for them and jointly commercialise it. It’s been two years since we have opened up. Value Fi is one such app.

Which are the agencies using your tools?

The RBI has been a major customer for the Eikon platform for quite some time. For BOLD, we are in discussions with the RBI. The department of economic affairs (DEA) has been another user. The other possible agencies and people include economic advisors to various ministries. We position ourselves as a trusted source for global data.

Are you working on solutions around non-performing assets (NPAs)?

We are trying to create an early warning system. We have a lot of content on corporates, their performance, and other details, like a complete list of board of directors. The banks themselves have a lot of data on corporates to which they have lent money. Then, there is a lot of information available outside about the organisation, which could be related to the company’s financials, board members, among others. We will link all pieces of information to give some useful alerts. Ultimately, we can create an alert of early warning on quarterly, monthly and weekly basis, predicting if a company would be an NPA in a few months or years.

We cover 1.6 million companies in India. We also track regulatory bodies. We track 200 regulatory changes coming out every day and we make sure that our system can update so that customers can comply.

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(The interview appears in the November 15, 2017 issue)