•  Government is planning to set up an information technology (IT)­based mechanism to keep a tab on all non­cash financial transactions in the country.

• The move aims at widening the crackdown on black money and following the money trail flowing in and out of thousands of shell companies.

• Reserve Bank of India (RBI) had been asked to develop the IT infrastructure for this purpose.

• There have been a series of interactions over the past one month to discuss the issue, with these parleys attended by top government officials from the Ministries of Finance and Corporate Affairs as well as RBI officials.

• Currently, the idea is to make the RBI the sole repository of such information, which will not be made available to other agencies such as the income tax department and the enforcement directorate as a default.

• Such agencies may be required to make specific requests to the central bank if they want information on a particular set of entities.

• Among all transactions irrespective of the size of the transactions,the data collected for the large ones would be relevant for enforcement purposes.

• Banks and financial institutions are already required to alert the Financial Intelligence Unit (FIU), under the Finance Ministry, to any suspicious transactions, cash or otherwise, under the Money Laundering Act.

• Cash transactions of more than Rs.10 lakh (including a series of transactions integrally connected to each other and exceeding Rs.10 lakh in a month), need to be reported to the FIU. 

•  Shell companies include multiple layers of companies that have been created for the purpose of diverting money or for money laundering.

• There is no clear definition of what shell company is in the Companies Act, or any other Act. 

• Most shell companies do not manufacture any product or deal in any product or render any service. They are mostly used to make financial transactions.

• Generally, these companies hold assets only on paper and not in reality. These companies conduct almost no economic activity.

• The latest move to track all financial transactions aims  to curb black money and identify shell companies.

• Following the 2016 demonetisation exercise  that rendered more than 86% of the currency in circulation invalid, it was found there had been a significant spurt in the operations of shell firms that typically have no assets or active businesses.

• The Centre has shut down more than two lakh such entities. More than two lakh other firms that have not been carrying out operations have been sent notices.

• Depending on their responses, a decision would be taken on how many would be deregistered.

The Hindu,LiveMint.