ED probes betting apps using AI firms to move Rs 2,000 crore abroad

Mumbai: The Enforcement Directorate (ED) suspects illegal betting syndicates may have siphoned off more than Rs 2,000 crore from India by disguising the funds as investments abroad in technology companies including artificial intelligence ventures, said people aware of the matter.

An ED probe into Parimatch, a Cyprus-based betting platform banned in India but allegedly operating through mirror websites, found that more than Rs 200 crore in suspected proceeds of crime had been sent abroad as purported overseas investments. The central agency believes some other platforms may also have used similar strategies and is looking into such suspected transactions, they said.

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“With these apps under tremendous scrutiny by multiple agencies, new avenues are being tapped by betting app operators to move the PoC (proceeds of crime) out of India,” one of the people said. The companies where funds are purportedly being invested are located abroad, which disguise the transactions as overseas direct investments by Indian firms, they said.

Money Passes Through Layer

According to an official, the money passes through several layers before reaching the offshore ecosystem. At the first layer are domestic companies, usually formed just before the reception of the proceeds of crime. At the next stage, the overseas entities receiving the money are incorporated, also shortly before the funds are received. Both domestic and foreign entities often have dummy directors with little commercial activity. Both the domestic and foreign entities are incorporated during the movement of funds, have minimal discernible business operations and become inactive or effectively disappear after receiving or sending the remittances, the official said.

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Such investments in companies claiming to work in AI and AI solutions are made at artificially inflated valuations using the discounted cash flow method —determining the valuation using projected future cash flows — even when they have little operating history, assets or revenue, he said. “The use of an apparently sophisticated valuation exercise lends the transactions the appearance of genuine technology investments while obscuring the origin and ultimate destination of the funds,” the official said.

Once the money reaches foreign shores, it is siphoned away through a network of entities to the ultimate beneficiaries, who are suspected to be the app promoters, the official said. The role of several company secretaries, who allegedly assisted in such valuations, is also under the ED scanner, according to the people ETspoke with. The agency is likely to apprise the Reserve Bank of India of its findings, they added. In the Parimatch case, the ED traced remittances of more than Rs 200 crore as overseas direct investments from two Delhi-based companies to Singapore entities, allegedly with limited commercial substance.