Mumbai/New Delhi: A multi-agency probe of marketing company Speak Asia Online, under investigation for suspected fraud, has found it breached India’s foreign exchange laws and evaded payment of income tax.
The Enforcement Directorate (ED), which investigates money laundering and violations of foreign exchange regulations, and income tax (I-T) authorities have found that the multi-level marketing firm, which has raised Rs 2,400 crore from consumers in India, had remitted money to Singapore, ED and I-T officials said.
According to an ED official directly involved in the investigation, the agency is probing at least 100 overseas bank accounts of the promoters and close associates of the Singapore-based firm to unravel the money trail.
“The investigation is at an advanced stage and we expect to file a show-cause notice by the end of December,” said the official, who didn’t want to be named pending the completion of the investigation.
Speak Asia conducts online surveys on a variety of products and services, and has around two million Indian panellists, or members, who pay money to join the firm’s network and earn reward points for referring its offerings to friends and peers.
Apart from ED and the I-T department, the firm is being investigated by the economic offences wing (EOW) of the Mumbai Police and the ministry of corporate affairs (MCA) for several violations, including complaints of non-payment to its members.
The I-T department has already issued show-cause notices to the firm and its associates, asking them to explain why they should not be penalized for not filing tax returns. It has also frozen Rs 134 crore in the bank account of Speak Asia.
“The adjudication proceeding in the case is on and Speak Asia has now agreed to file income-tax returns with the department. We are expecting the tax returns by the end of this month,” an I-T official said.
Manoj Kumar, chief executive officer (India) of Speak Asia, did not respond to an email sent to him on Thursday. He also could not be reached on his mobile phone.
“We have sought information from foreign countries on these accounts. The company has raised Rs 2,400 crore in India and remitted about Rs 900 crore to Singapore without requisite approvals,” the ED official said.
Multi-level marketers typically run a network where sellers of the company’s product or service, in turn, hire more sellers. These sellers, or agents, earn money not only from the products and services they sell, but also from the products and services sold by the people they hire.
Some multi-level marketers require sellers to pay a substantial amount upfront to enter the network—they get some products in return—and effectively function as Ponzi schemes, with individuals in the network earning money as long as the network keeps growing.
The people at the apex of the network, the promoters of the firm, earn the most. Such multi-level marketing firms are also called direct selling, or referral, companies.
ED began its investigation in August after India’s central bank referred alleged violations of foreign exchange regulations to the agency.
The I-T department, which is investigating the company for its tax liabilities, has also found that Speak Asia has been remitting money to Singapore. “Between January and June, around Rs 600 crore had been remitted,” said the I-T official privy to the development.
The Serious Fraud Investigation Office (SFIO), the investigative agency of MCA, has, meanwhile, sought another month to submit its report on Speak Asia, a senior official at the ministry said on condition of anonymity. “MCA is expecting the SFIO report by December,” he added.
Rajvardhan Sinha, additional commissioner of police at EOW in Mumbai, said the department is still investigating Speak Asia and declined to share details of any findings.
In August, the Bombay high court directed EOW to file a report on Speak Asia and other multi-level marketing firms, which were being investigated by the police, and detail preventive steps it proposes to put in place to deal with such marketers.
“We have submitted a report on the company to the Bombay high court,” Sinha said. Mumbai Police is organizing a two-day seminar on law enforcement next week that will also discuss how to investigate the so-called Ponzi schemes, he added.
A Ponzi scheme is a racket that pays returns to investors from their own money, or the money paid by subsequent investors, instead of any actual profit. The name comes from Charles Ponzi, who first used the technique in 1920.
In July, Mumbai Police’s EOW arrested Tarak Bajpai, chief operating officer of Speak Asia, and four vendors of the company from Mumbai and Indore as part of its investigation. EOW has now initiated criminal proceedings against the firm.
According to a June statement by Speak Asia, 1.2 million of its customers in India have received upwards of $52 million (around Rs 260 crore today) since last year through bank transfers via Reserve Bank of India-authorized foreign exchange channels. This income has been generated by filling up surveys, giving online opinions on advertisements watched, and income accrued from referring other panellists.
Since its entry into India, Speak Asia has invested at least $9 million in various marketing, training and business development programmes.