Round Tripping of Funds – A Cross Border Hazard By CS S.Abhinav

The recent controversy surrounding the PNB scam has thrown light to ‘Round Tripping’ which is said to be rampant in Indian economy especially in diamond trade. Many Indian Corporates are resorting to round tripping to dupe the banks and to realize abnormal revenue & gains. There has been a tremendous rise in corporate bosses indulging in financial mischiefs & fraud.

So let us first understand what is Round Tripping and its effects which are forcing the India Inc. bosses to commit financial shenanigans.
Round Tripping
Round-tripping, also known as round-trip transactions or "Lazy Susans", is defined by The Wall Street Journal, as a form of barter that involves a company selling "an unused asset to another company, while at the same time agreeing to buy back the same or similar assets at about the same price."
Another form of round tripping is the round-tripping of FDI. Under this form, the money from a country (India) flows to a foreign country (Mauritius) and comes back as Foreign Direct Investment (FDI) to India. In international scenarios, round tripping is used for tax evasion and money laundering.
Round-trip trading artificially inflates volume and revenues, but in reality, adds no profit. Enron was a company that was engaged in round-trip trading, and, by doing so, was able to increase revenues (and expenses) without changing its net income.
There are a number of factors that promote roundtripping. The tax concessions provided in the foreign countries encourage the individuals to park money there. The money will be invested in a bogus company formed there (Mauritius) and later this company will be taking back the money as the foreign direct investment into the home country (India). Another factor is black money from the home country is transferred to foreign countries and returned to the home country as FDI.
Under the India-Mauritius tax treaty, a Mauritius based company that made the investment in India has to pay its tax in Mauritius. An advantage for the India Inc. boss parking his money in the Mauritius formed company is that the tax there is significantly low.
Nirav Modi the infamous diamantaire is alleged to have resorted to round-tripping, or exporting and importing the same diamond consignment several times, to dupe banks.
The modus operandi operated is as under


Company ‘A’ applies to pre-shipment credit for three months from a bank to get a working capital of
say $75 million to import rough diamonds from Belgium and pay for labor charges and other expenses.

Company ‘A’ cuts and polishes the diamonds and exports them for a value of $100 million to company ‘B’, either in Macau, Dubai, Hong Kong or US. This foreign firm is usually owned by a relative or cartel associated with company ‘A’.


After export, the firm takes post-shipment credit of $100 million against export receivables, usually extended by banks for up to six months. Against this, the firm repays $75 million extended as
pre-shipment credit to the bank.
Another example of Round Tripping is as under:
Company ‘A’ sells its unused asset/security to another Company ‘B’ for Rs.500,000/- and consequently agrees to repurchase them back at the same amount of Rs.500,000/- after a certain period of time.
The effects of such bogus transaction are that it reflects high sales & revenue in the profit/loss Account and fictitious profit is created which has no serious implication on actual revenue or business operations of the company. By inflating revenue, the company is made to look like it is doing more business than it actually is doing. Normally, growth and size of a company are judged by its sales revenue, hence the companies resort to round tripping.
In May 2017, the Indian banking regulator – Reserve Bank of India (RBI) slapped notices to at least eight companies for round-tripping of funds and violation of rules on foreign borrowing.
It is high time the Government of India introduces more stringent measures, especially in Liberalised Remittance Scheme (LRS) to curb
roundtripping of funds. Otherwise, it will lead to more financial fraudsters running amok in the Indian economy and affecting the financial stability of the country.
CS S.Abhinav
Company Secretary from New Delhi and can be contacted at

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