Reported by: Andy Mukherjee | Bloomberg

Accusations of stock-market manipulation by the Adani Group, strenuously denied by the conglomerate, have shone the spotlight on a festering global problem loosely estimated to amount to between 2% to 5% of the world’s output: Money-laundering. Obscure funds based in Cyprus and Mauritius, one of whom is linked to an intermediary that’s also alleged to have played a role in the $4.5 billion 1MDB looting from taxpayers in Malaysia, may be funneling someone else’s money into Adani stocks, the short seller Hindenburg Research has alleged. 

But whose money is it and whose job is it to find out? 

“A listed entity does not have control over who buys/sells/owns the publicly traded shares or how much volume is traded, or the source of funds for such public shareholders,” the Indian group said in its 413-page rebuttal. “Nor is it required to have such information for its public shareholders under laws of India. Hence we cannot comment on trading pattern or behavior of public shareholders.”

The Securities and Exchange Board of India, however, can and must talk — and act. A more than $100 billion rout in the share prices of the highly leveraged infrastructure owner has the potential to spark a broader contagion, especially if the local banking system gets infected. It’s SEBI’s job to restore trust in the Indian market.

Stripping off the layers of shell companies and gleaning hard evidence on people behind them is tough for regulators. Not all overseas jurisdictions are willing to share information without prima facie evidence of criminality. It’s a doubly knotty challenge in India, where families control large business empires and have a natural incentive to shortchange minority shareholders. While other developing countries struggle with money leaving their shores via mispriced trade invoices and other illegal means, India is one of the weightiest emerging markets after China in the schema of index providers like MSCI Inc. Illicit flows tend to come back, to profit at the expense of genuine investors. 

To keep the market clean, SEBI has to rely on an 11,000-member club.

Read full report: https://www.washingtonpost.com/business/adani-hindenburg-now-for-those-money-laundering-allegations/2023/02/09/3f554b1c-a8b7-11ed-b2a3-edb05ee0e313_story.html