Unravelling the money trail through Asset tracing

22In today’s day and age, fraudsters’ methods have become sophisticated. They are able to influence other individuals into supporting, executing or ignoring these dubious activities or transactions.

There have been cases where fraudsters deposit a large amount of funds into different accounts in the names of their relatives, friends, employees, etc. This money is then invested into new business and real estate in the names of the same or different relatives and friends. Seasoned fraudsters or their accomplices always have “safe” options to conceal the proceeds of fraud and acquisitions made with that amount.

Another window for such frauds is in cases of misappropriation of funds invested by financial institutions or private equity firms into certain businesses. Here, investors could be led to believe that the funds have been drained through a series of bad debts or business losses. The reality is that they have probably been siphoned off with little or no trail.

Naturally, these types of operations would be conducted in secrecy. The question now is, can these funds be presumed gone? Maybe, but can they be traced? Probably yes.

Previously, such situations were ignored or there were no means to pursue such cases. However, now, there are a number of cases that are being investigated, and action is undertaken to recover these “lost” assets. Asset tracing has emerged as a key technique that can help organizations and investors find and recover stolen assets.

The Government intends to come down heavily on individuals engaging in such unethical practices. To this effect, it has various regulations in the pipeline. These include new bills, as well as amendments in existing laws in an attempt to curb black money, tax evasion, track siphoned funds and enable greater transparency. Some of these regulations include:

  • Undisclosed Foreign Income and Assets (Imposition of New Tax) Bill, 2015
  • Benami Transactions (Prohibition) Bill, 1988
  • Prevention of Money Laundering Act (PMLA), 2002
  • Foreign Exchange Management Act (FEMA), 1999

What constitutes Asset tracing?

Asset tracing is a technique used to identify and locate assets held by fraudsters or their third-party accomplices to recover defrauded funds. Investigating and recovering assets is a complex and onerous task, as fraudsters use different means to hide and invest funds obtained by dishonest means.

The figure below depicts the path followed by a fraudster to conceal and invest funds in a clandestine manner.


This could pose a host of challenges such as uncertainty around costs, diversion of funds and purchase of assets in the names of relatives or friends. To mitigate such risks, companies should take precautionary steps such as monitoring expenses, analyses of ongoing operations and third-party relationships, and conducting regular training sessions. These measures will prove essential for enhancing companies’ compliance quotient.

(Devendra Pardeshi, Director, Fraud Investigation & Dispute Services contributed to the above post) 

Follow @EY_India and track #EYForensic for regular updates

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