Enforcement Directorate conducts raid for illicit remittances sent overseas by online gaming companies registered in foreign countries.

Sheena Ogra , Apoorv Shishodia

June 2, 2023

Enforcement Directorate conducts raid for illicit remittances sent overseas by online gaming companies registered in foreign countries.

Under the provisions of the Foreign Exchange Management Act, 1999 (“FEMA”), the Enforcement Directorate (“ED”) conducted search and seizure operations throughout the country. These operations took place at 25 (twenty-five) locations including the states of Delhi, Gujarat, Maharashtra, Madhya Pradesh and Andhra Pradesh as part of the ED's investigation into foreign-registered online gaming companies/websites operating within India.

According to the press release from the ED dated May 24, 2023, a significant number of online gaming companies have been established by certain key individuals using their employees' names to engage in layering and sending remittances overseas to the tune of INR 4,000 Crore (Indian Rupees Four Thousand Crore). These remittances are disguised as payments for importing goods and services. As per the ED, these online gaming companies or websites are registered in small island nations such as Curacao, Malta, and Cyprus and are connected to Indian bank accounts opened in the names of proxy individuals who are not even remotely involved in online gaming activities. The funds collected from the general public through online gaming websites are then transferred outside India through multiple bank account channels by providing false information about the purpose of the remittances, claiming that they are meant for importing services or goods. It is important to note that the provisions of the FEMA, do not permit remittances from income earned through activities like racing, riding, or any other hobbies.

In light of the recent search and seizure operations conducted by the ED across various states in India, it is imperative for companies, especially those operating in the online gaming sector, to be aware of the ED's vigilant monitoring. These companies must ensure strict adherence to the incorporation process and compliance requirements for online gaming entities. It is crucial to establish and maintain transparency in their operations, avoiding any illicit practices or attempts to circumvent the regulations set forth by the authorities. By adhering to proper procedures and complying with all the requisite legal obligations, companies can mitigate the risk of attracting unwanted attention from ED and ensure that their operations are conducted within the framework of the applicable laws.

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