Sebi is learnt to have written to several regulators including those in Bermuda, Luxembourg, and Switzerland, seeking detailed information on some FPIs.
IMAGE: Gautam Adani, founder and chairman of the Adani Group. Photograph: PTI Photo
The Securities and Exchange Board of India may approach the central government or law enforcement agencies to be able to get information from foreign jurisdictions in the Adani-Hindenburg case.
Sebi is awaiting details on end-beneficiaries of foreign portfolio investors (FPIs) in connection with the charges levelled by the US-based Hindenburg Research against the Adani Group.
The market regulator may refer the matter to ministries because some offshore regulators were not very forthcoming in providing the information sought, citing privacy reasons, said two people in the know.
Sebi is learnt to have written to several regulators including those in Bermuda, Luxembourg, and Switzerland, seeking detailed information on some FPIs.
Law enforcement agencies can opt for judicial assistance through letter rogatory (LR) and mutual legal assistance treaties (MLATs) in getting information.
LR is a formal request from a court to a foreign judicial body for assistance in an investigation, while MLAT requests can be made for collecting evidence and examining witnesses residing abroad.
Ultimate beneficial owners (UBOs) are those that ‘own’ or ‘control’ an FPI, which is a pooled investment vehicle.
FPI regulations, along with the Prevention of Money Laundering (Maintenance of Records) Rules, make a foreign entity responsible for maintaining and disclosing the records of UBOs at regular intervals.
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 as against the ownership threshold of 25 per cent applicable earlier.
Explaining the issue, a regulatory source said Sebi could exercise information-sharing rights under its international memorandum of understandings (MoUs) entered into with overseas regulators.
But in case the query raised is beyond the requirements, then getting such information could be challenging.
About 32 securities regulators, including Sebi, are signatory members of the International Organisation of Securities Commissions (IOSCO), and also there are MoUs with other nations on exchanging information and cooperation.
Sources said Sebi had sought information about entities with holdings lower than the threshold.
“Offshore multi-layerings and a back-end omnibus kind of structures are nothing new and have generally been established for varied structuring reasons. Since lots of these ultimate holding structures can also get regulatory shelter under local privacy laws, at times it may be difficult to get the clear picture on end-beneficiaries,” said Tejesh Chitlangi, senior partner, IC Universal Legal.
According to Chitlangi, the reduction of the threshold to 10 per cent has made it further difficult to ascertain UBO information, particularly in matters where the end-investors may not be inclined to cooperate for a variety of reasons.
Identifying and verifying beneficial ownership in FPIs mean finding out ownership/entitlement interests or control, the materiality threshold, a look-through test or the test of designated a ‘senior managing official’ whenever no owner entity can be identified.
FPIs are required to inform Sebi as well as their custodians about their beneficial owners when there is any material change in their structure, ownership, or control.
While seeking a six-month extension from the Supreme Court, Sebi said it would require statements from multiple domestic as well as international banks.
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