Illegalities of Benami Transactions

“Without a name” is the meaning of benami’s word and a Benami transaction is a transaction made by an individual without using his name or by using the name of another individual. For example, a property bought by a person in the name of another person is a Benami property. Sometimes, Benami transactions are used to camouflage the absolute ownership for reasons, including maintain clandestineness, tax avoidance, unaccounted parking money, etc.
In India, the law governing Benami transactions is the Prohibition of Benami Property Transactions Act (1988) that was amended with the Benami Transactions (Prohibition) Amendment Act, 2016. Under this Act, the Benami Transaction means a transaction or an arrangement where a property is transferred to a person. The consideration for such possessions has been provided or paid by another person. Nevertheless, there are some exceptions:

• A member of a HUF (Hindu Undivided Family): The property is apprehended for the advantage or benefit of other members in the family, and the consideration for such property has been provided of the known sources of the Hindu undivided for this purpose.
• A person has a fiduciary capacity for the benefit of another person towards whom he is in such power and comprises a trustee, executor, partner, director of a company, a depository, or a member as an agent of a depository according to the Depositories Act (1996).
• Any individual in the name of his spouse or in the name of any child
• Any individual in the name of his brother or sister or lineal ascendant or descendant.

It is essential to know the meaning of the “benamidar” that is a person in his/her name a Benami property is transferred. According to the Law, a benamidar cannot re-transfer the Benami property held by him to the beneficial owner. Concerning the power of authorities, the agreed rules under the Act have pervasive powers. The controls are similar to those of civil court, and inter-alia include powers relating to:

• Discovery and examination
• Applying the attendance of any person, including officers of banking, financial institution or any other intermediary
• To train to produce the books of accounts
• Getting evidence on affidavits

Furthermore, authorities such as customs and central excise departments, officers of the income-tax department, and narcotic drugs department will assist the previous authorities in implementing the Act. The individual against whom any proceeding is started can clarify his position and file submissions before the authorities. The main goal of the Act is to empower the authorities to attach properties tentatively. The attachment implies a prohibition on conversion, transfer, or disposition of property. The Central government can confiscate the property once it is referred to as a Benami property. If a person is found guilty of a Benami transaction, he or she will face imprisonment from one (1) to seven (7) years. Concerning the Fine is also charged up to 25% of the fair market value of the property. Additionally, any person who supplies untrue information or document is punishable with imprisonment from six (6) months to five (5) years. Moreover, a fine is also charged up to 10% of the property’s fair market value.

In the UAE, we can find Federal Law Number 17 of 2004 concerning Anti-Fronting Law that prohibits the practice of side contracts or nominee agreements with the UAE nationals. The fronting is defined as allowing a foreigner (a natural person or body corporate) to exercise any commercial or professional activity that the related laws and decisions in the UAE do not permit him to practice whether for his own account or in partnership with other parties or enabling him to avoid meeting his obligations. As per Anti-fronting law, the front shall be punished by paying a fine of no more than UAE Dirhams one hundred thousand (AED 100,000), and in case of repetition, the punishment will be imprisonment of the front maximum of two(2) years plus the fine of UAE Dirhams one hundred thousand (AED 100,000), additionally, after sentence, the deportation will be done with the deletion of the name of the front from the commercial register concerning the activity subject to fronting.

According to Federal Law on Commercial Companies Number 8 of 1984 (amended by the Federal Law Number 2 of 2015), under Nominee Shareholder Agreements (NSAs), a UAE national may become a 51% shareholder in an onshore UAE Limited Liability Company (LLC). In the NSA, a UAE national agrees to waive all rights to receive dividends, exercise votes in general meetings, and obtain any proceeds of the sale of the share nominally held by the LLC. The Anti-fronting Law and the Federal Law Number 2 of 2015 (the Commercial Companies Law) prohibited the NSAs with UAE nationals.

The Comercial Companies Law stipulates a range of criminal offenses about NSAs:

• Article 353: lays down the breach of the percentage of contributions by UAE nationals: fines between AED 20,000 to AED 200,000.
• Article 361: providing declarations in violation of the law. The punishment will be imprisonment of 6 -12 months plus a fine between AED 200,000 to AED 1,000,000.
• Article 363: disposition of profits or interests in violation of the law: imprisonment of 6 months- 3 years plus fines between AED 50,000 to 500,000.
• Article 372: Criminal responsibility of the company must be addressed to the legal representative.

Federal Decree-Law Number 20 (2018) on Anti-money laundering and combating the financing of terrorism and funding of illegal organizations is related to Benami contracts because sometimes an individual uses this type of contract to hide the origin of these monies. According to article 2 of the anti-money laundering law, any person, knowing that the funds are the earnings of a felony or a misdemeanor, and who willfully commits any of the following acts, must be considered a perpetrator of the crime of money laundering:

• Transferring or moving proceeds or conducting any transaction with the purpose of hiding or disguising their Unlawful source.
• Covering or disguising the true nature, source, or location of the profits and the method involving their disposition, movement, ownership of, or rights concerning said proceeds.
• Obtaining, possessing, or using proceeds upon receipt.
• Helping the committer of the predicate offense to escape the penalty.

Any person who commits the acts mentioned before, he/she must be sentenced to imprisonment of a maximum of ten(10) years plus a fine between UAE Dirhams one hundred thousand (AED 100,000) and UAE Dirhams five million (AED 5,000,000). Suppose the perpetrator of a money laundering crime commits any of the following acts. In that case, He/she will be sentenced to temporary imprisonment plus a fine between UAE Dirhams three hundred thousand (AED 300,000) and UAE Dirhams ten million (AED 10,000,000):

• If he/she abuses his/her influence by his/her profession or professional activities.
• If the crime is committed through an NPO or an organized crime group.
• In the case of Redicivism.