What does a ‘crony’ actually do?
JIA stock: a name for a company that uses shell companies and other legal means to shield its true ownership of a company article Cronyism is a term for the practice of paying large sums of money to help a person or company conceal the true ownership, location, or sources of its assets.
It’s not uncommon for large corporations to use shell companies to hide the true owners or locations of their businesses, and it’s a common practice among political and business leaders.
In fact, the term “cronies” has been around for years, but its popularity has exploded over the past few years as it has been used to describe those in positions of power.
According to the Financial Industry Regulatory Authority (FINRA), the number of individuals with their own shell companies has more than tripled since 2011.
The most recent numbers from the U.S. Federal Trade Commission show that nearly 7 million shell companies were registered in 2016.
The number of people with shell companies registered in India is estimated at about 10 million, which is less than a third of the total number of companies registered worldwide.
The largest number of shell companies in India, however, are registered in the United Kingdom.
This number is estimated to be around 200 million.
“The number of those in this category of shell corporations is growing exponentially,” said Vikas Gupta, a member of the Financial Services Research Council, an advisory body to the Indian Parliament.
“As a result of this trend, a lot of people are getting involved in shell companies, and they are getting in some ways rewarded.
But it’s not always fair,” Gupta said.
While there is a strong legal and regulatory framework in place to curb such practices, Gupta said the biggest hurdle to cracking down on cronyism is the stigma surrounding the word.
“This is the biggest challenge in the field of governance, and this is the big issue we are facing,” he said.
Gupta believes that cronyyism has a big impact on the perception of transparency in business.
“A lot of times, companies are perceived to be greedy, and people don’t believe that these companies are actually doing their best,” he added.
“In fact, people believe that the person in charge of the company is just doing his job.”
For example, in a case against a pharmaceutical company in New Delhi, the Supreme Court had to decide whether or not the company was a shell company.
“They were saying it was a private company, so it couldn’t be a shell,” Gupta noted.
The Supreme Court decision, however he said, didn’t take into account that the company had been operating for at least seven years and was one of the largest pharma companies in the country.
According the FRA, India has the third highest number of corporations registered in 2017 with an estimated number of about 1.5 million.
The average size of the shell companies is around 50 million rupees (about $600,000).
“So, it’s definitely a problem, but it’s also not that big of a problem,” Gupta added.
For some, cronyization is an issue of personal freedom.
“There is an increasing awareness that there is no such thing as ‘right and wrong’ in the corporate world.
It is very much a personal issue and this can lead to people feeling that it is a personal obligation to be on the right side of things,” Gupta remarked.
Gupta’s organization is trying to encourage people to take a step back from corporate governance in India.
“It’s about time that people start questioning the system and looking for ways of making their own lives better,” he noted.
“Companies need to stop acting like a big business,” Gupta concluded.