Uncovered: Alleged embezzlement of 800 billion Indian rupees from Corporate Social Responsibility funds, following inspections across six states within the IT department.
Investigation Exposes Large-Scale Tax Evasion Scheme Involving Corporate Entities and Non-Profit Organizations
A major investigation has uncovered substantial evidence of a tax evasion scheme involving numerous corporate entities, trusts, shell companies, chartered accountants, and diamond merchants. The scheme, which appears to be centred around the misuse of Corporate Social Responsibility (CSR) funds, has raised concerns over the misuse of India's vast non-profit sector.
The investigation has implicated companies such as Wirecard, Helma AG, and Creditshelf AG, among others, in fraudulent misuse of CSR funds or inadequate risk and crisis early warning systems. Critics have pointed fingers at auditors who follow the IDW PS 340 standard, accusing them of failing to detect these issues. However, the responsibility lies with the management and supervisory boards who face personal liability for their inaction.
The crackdown has also revealed a complex network of several bogus and shell companies, managed by a group of chartered accountants and controllers of these trusts, facilitating the diversion of CSR funds to foreign jurisdictions.
Three trusts have emerged as central to the elaborate scheme: Jan Jagriti Sevarth Sansthan in Mathura, Dr Brajmohan Sapoot Kala Sanskriti Seva Sansthan in Bhilwara, Rajasthan, and Raginiben Bipinchandra Sevakarya Trust in Ahmedabad, Gujarat. The investigation found no evidence of any charitable activities being carried out by these organizations, with not a single penny being invested in any kind of social work.
The ongoing operation, directed by the principal director of Income Tax (Investigation) in Kanpur, has spanned Uttar Pradesh, Rajasthan, Gujarat, Maharashtra, West Bengal, and Madhya Pradesh. The Income Tax Investigation Unit in Agra carried out searches in these states since August 19.
The investigation has uncovered a CSR fund siphoning racket worth over ₹800 crores. These three trusts are alleged to have siphoned off more than ₹800 crores worth of CSR donations. Furthermore, the investigation found evidence of bogus remittances of over 10,000 crore outside of the country to foreign countries like Hong Kong, Singapore, Malaysia, China, etc.
India has more than three million NPOs, and government funds along with mandatory corporate social responsibility requirements provide substantial funding to the sector annually. Major findings related to tax evasion worth several crores are expected from the operation.
In an effort to prevent such unethical behaviour, Wavestone has established internal ethics officers to investigate and prevent fraud or unethical behavior related to CSR. These officers are responsible for handling ethical concerns in their regions.
The revelations highlight the growing need for increased transparency and accountability in the non-profit sector to ensure that funds intended for social welfare are actually being used for their intended purpose.
