The Securities and Exchange Board of India (Sebi) is seeking information from foreign jurisdictions related to the Adani-Hindenburg case and may approach the Central government or law enforcement agencies for assistance. The US-based Hindenburg Research had levelled charges against the Adani Group, and Sebi is awaiting details on the end-beneficiaries of foreign portfolio investors (FPIs) in connection with the case. However, offshore regulators have not been forthcoming in providing the information sought, citing privacy reasons. Sebi has written to several regulators, including those in Bermuda, Luxembourg, and Switzerland, seeking detailed information on some FPIs.
To obtain the necessary information, law enforcement agencies can opt for judicial assistance through letter rogatory (LR) and mutual legal assistance treaties (MLATs). Under the recent amendments to the Prevention of Money Laundering Rules, any individual or group holding 10 per cent ownership in the client of a “reporting entity” will be considered a beneficial owner. Sebi has international memorandums of understandings (MoUs) with overseas regulators and can exercise its information-sharing rights under these agreements. However, if the query raised is beyond the requirements, obtaining such information could be challenging.
Sebi had sought information about entities with holdings lower than the threshold and has faced difficulties due to offshore multi-layering and back-end omnibus structures. Tejesh Chitlangi, senior partner at IC Universal Legal, said that these structures can get regulatory shelter under local privacy laws, making it challenging to obtain information on end-beneficiaries. Chitlangi also noted that the reduction of the ownership threshold to 10 per cent has made it further difficult to ascertain UBO information, particularly in cases where end-investors may not be inclined to cooperate.
To identify and verify beneficial ownership in FPIs, Sebi looks at ownership/entitlement interests or control, the materiality threshold, a look-through test, or the test of designating a “senior managing official” when no owner entity can be identified. FPIs are required to inform Sebi and their custodians about their beneficial owners when there is any material change in their structure, ownership, or control.
Sebi has sought a six-month extension from the Supreme Court and said that it would require statements from multiple domestic as well as international banks.
