The Enforcement Directorate (ED) on Thursday seized funds worth about Rs 107 crore of a Chinese-controlled Non-Banking Financial Company (NBFC), engaged in dishing out instant personal loans over an internet-based app, for alleged violation of the foreign exchange law. The total amount seized is Rs 106.93 crore.

The funds of PC Financial Services Private Limited (PCFS), an NBFC, were lying in bank accounts and virtual accounts over online payment gateways and those have been seized under the provisions of the Foreign Exchange Management Act (FEMA), the agency said.

PCFS is a wholly-owned subsidiary (WOS) of Oplay Digital Services, SA de CV, Mexico, which is in turn is a WOS of Tenspot Pesa Limited, Hong Kong, owned by Opera Limited (Cayman Islands) and Wisdom Connection I Holding (Cayman Islands), which are ultimately beneficially owned by Chinese national Zhou Yahui.

The original Indian company, PCFS, was incorporated in 1995 by Indian nationals and got NBFC licence in 2002 and after RBI approval in 2018, the ownership moved to the Chinese-controlled company.

The ED said the case came on its radar during an ongoing money-laundering probe against a number of NBFCs and FinTech companies that are linked to instant personal loan-providing mobile applications.

These loans were being dished out with a high rate of interest and recovered using the personal data of the customers illegally and threatening and abusing them through call centres, the agency said in a statement.

The ED claims its investigation into the foreign expenses of PCFS revealed that most of the payments were made to foreign companies which are related and owned by the same Chinese nationals who own the Opera Group.

“All foreign service providers were chosen by the Chinese owners and the price of the services was also fixed by them. ED has found that exorbitant payments were blindly allowed by the dummy Indian directors of PCFS without any due diligence and on the instructions of the country head Zhang Hong, who directly reported to Zhou Yahui, a resident of China,” added the ED.

According to the ED, PCFS remitted foreign exchange worth Rs 429 crore to 13 foreign companies located in Hong Kong, China, Taiwan, USA and Singapore under the guise of payments for the license fee for Cashbean mobile application (Rs 245 crore per annum), software technical fee (around Rs 110 crore), online marketing and advertisement fee (around Rs 66 crore).

PCFS also showed a high domestic expenditure of Rs 941 crore, the agency said.

“All these services and applications are available in India at a fraction of the cost incurred by PCFS. Moreover, all the clientele of the NBFC was in India. Despite that, huge payments were made abroad and no proof of receipt of service is there,” said an ED official.

According to the ED, PCFS simultaneously booked domestic expenditure of a similar amount under the same heads of expenditure. The PCFS management allegedly failed to give any justification for these expenses and admitted that all remittances were done to move money out of India and to park it abroad in the accounts of group companies controlled by the Chinese promoter.

PCFS, ED claims, has illegally remitted huge funds outside India under the guise of imports of non-existent software and marketing services to park the funds abroad and hold them in the accounts of related foreign companies.

The ED, after identifying the local assets of PCFS, has issued an order under FEMA to seize the amount of Rs 106.93 crore lying in its various bank accounts and payment gateway accounts.

Image source- CNBC TV