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Gaming apps converting earnings to crypto, Rs 700 crore moved out of India, reveals GST probe

Aug 16, 2023

Parimatch, a Cyprus-based group, sits at the centre of the largest such network under investigation, which even advertises during local sports leagues on TV. The Directorate General of Goods & Services Tax Intelligence has recently dismantled one such network linked to Parimatch, the majority of which use multi-jurisdictional communications and transactions to avoid legal action.

In a concerning development, Indian authorities are grappling to curtail the growing prevalence of overseas gaming and betting applications that are evading taxes in India through the conversion of earnings into cryptocurrency and the utilization of networks of shell companies.

As per a ToI report, at the center of one of the largest such networks under investigation stands Parimatch, a Cyprus-based group, that even engages in advertising during local sports leagues on television.

The Directorate General of Goods & Services Tax Intelligence (DGGI) in Mumbai has recently managed to uncover and dismantle one such network linked to Parimatch. The network was responsible for amassing Rs 700 crore from Indian users of gaming apps, and the funds were subsequently funneled out through conversion into cryptocurrency. The DGGI tracked network's activities for months, scrutinised the backgrounds of 50 entities and individuals in Delhi, along with 350 in Kolkata, TOI report stated. 

The majority of such gaming companies, which are headquartered in tax havens and illicitly operating within India, employ intricate layers of communication and transactions spanning international jurisdictions to circumvent legal action. Dubai plays a pivotal role in facilitating the flow of funds through cryptocurrencies. The workers for these applications receive remuneration online without formal contracts. Parimatch, for instance, interacts with its Indian contacts solely through email, phone calls, or unidentified individuals.

The DGGI has recently apprehended the director of an unregistered payment aggregator that facilitated the collection of money in shell company accounts from users of Parimatch's gaming and betting services. The amassed funds were then channeled from the payment aggregator to the bank accounts of shell companies. In the process, more than 400 bank accounts were frozen.

Nevertheless, a substantial portion of these funds had already been transferred out of banks and converted into cryptocurrency. A crypto exchange operator based in Mumbai was apprehended by the agency for handling one set of shell companies endorsed by dummy directors. The operator revealed that Rs 96 crore collected from app users had been transformed into cryptocurrency. However, the investigation reached an impasse as the accused had no knowledge of the recipient of the wallet to which the crypto money was transferred. The accused maintained that the entire operation was executed based on explicit instructions received via email and phone calls from an "unknown person."

The DGGI also interrogated the dummy directors of the shell firms, who were paid meager amounts to represent the companies through which cryptocurrency was purchased and sent overseas. Most of these individuals were drivers, street vendors, or individuals in miscellaneous roles who had shared their details with a book-entry operator (also involved in hawala payments) in exchange for a modest sum.

The dummy directors disclosed they were aware that money was entering their accounts/wallets through Parimatch apps. They indicated that "video KYC of their family members were used for opening the accounts/wallets" by the crypto exchange operator. They maintained ignorance regarding the amounts credited to their accounts and the recipients of the transferred funds.

Regrettably, the investigation has encountered a dead-end at this juncture.

Similarly, the DGGI has traced funds transferred to shell companies located in Kolkata. The individual responsible for these shell companies in Kolkata is believed to have fled the country before the DGGI could ascertain their identity. Officials suspect this person converted the funds into cryptocurrency and sent them abroad.

During their inquiry, DGGI officials discovered that Parimatch had disseminated advertisements featuring celebrity endorsements during live broadcasts of local sports leagues. A high-ranking executive from a television network informed DGGI officials that they had received email instructions for broadcasting Parimatch ads and entered into an online agreement accordingly. Similarly, media management companies were directed by Parimatch, via email, to enlist celebrities for the ads.

The Enforcement Directorate (ED) is actively investigating numerous such gaming and betting companies. Many are believed to be operating through shell companies registered abroad in tax havens. These companies lack a physical presence in India and solely communicate through email, phone calls, or intermediaries. Sources have revealed that the Union Ministry of Home Affairs has been informed about this trend to consider potential restrictions on these apps and websites, citing national security concerns.

Despite the existence of advanced tools developed by Israeli companies to trace cryptocurrency movements within wallets, these efforts have yielded limited success in this case. An expert familiar with such tools has explained that interoperability between blockchains permits users to access various platforms' applications and move cryptocurrency between exchanges. Nevertheless, the movement of cryptocurrency can still be traced using advanced tools, the expert noted.

[The Economic Times]

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