Country of 54k puts Rs 85k cr in India!

The Cayman Islands have a population of just over 54,000, but people from there have invested around Rs 85,000 crore in India!

This startling figure has been highlighted by the Special Investigation Team (SIT) on black money to flag concerns over the use of Participatory Notes (P-Notes) by Indians to legitimise black money.

P-Notes are instruments issued by registered foreign institutional investors to overseas investors who wish to invest in Indian stock markets without registering themselves with market regulator Securities and Exchange Board of India (Sebi).

Sebi has informed the Supreme Court-appointed SIT that the outstanding value of Offshore Derivative Instruments (ODIs) or P-Notes at the end of February 2015 stood at Rs 2.715 lakh crore.

In its report to the SC, the SIT said the top five locations of beneficial owners of P-Notes were the Cayman Islands, the US, the UK, Mauritius and Bermuda, contributing to 31.31 per cent, 14.20 per cent, 13.49 per cent, 9.91 per cent and 9.10 per cent, respectively, of the total ODIs outstanding.

“It is clear from this that a major chunk of outstanding ODIs invested in India is from the Cayman Islands. This translates to roughly Rs 85,006 crore. The Cayman Islands had a population of 54,397 in 2010 according to Wikipedia. It does not seem conceivable that a jurisdiction with a population of less than 55,000 could invest Rs 85,000 crore in one country. The main point of this elaboration is it does not appear possible for the final beneficial owner of ODIs originating from the Cayman Islands to be from that jurisdiction,” said the report.

Studying Sebi’s report on P-Notes, the SIT said obtaining information on “beneficial ownership” of P-Notes is of crucial importance to prevent their misuse.

“Sebi needs to examine the issue and come up with regulations where the ‘final beneficial owner’ of P-Notes/ODIs are known,” it said.


The SIT also noted that P-Notes are transferable in nature. “This makes tracing the 'true beneficial owner' even more difficult since layering of transactions can be made so complex as to make it impossible to track them. Sebi needs to examine if this provision of allowing transferring of P-Notes is in any way beneficial to easing foreign investment,” it said.

The SIT was of the view that the information of the “true beneficial owner” with Sebi should be in the form of an individual whose Know Your Customer (KYC) information it knows. In no case should the KYC information end with the name of a company.

“In case a company is the holder of P-Notes, Sebi should have information of its promoters or directors who exercise effective control over it. In case of companies or trusts represented by service providers like lawyers or accountants, Sebi should have information on the real owners or effective controllers of those companies or trusts,” it said.