The one-room office from where the multi-crore hawala racket was being operated is no longer occupied by Stelkon. “Stelkon staff moved out of the premises a month ago,” a staff member of the building contract firm told The Hindu . “The office was managed by a woman named Hanifa Sheikh. We don’t know where the firm operates from now.”
Another branch of Canara Bank in south Mumbai remitted Rs. 340 crore, while most of the alleged forged bills were provided by Disney International operating out of Nagpada (also in south Mumbai), according to the investigation.
Officials said that, prima facie, the names of the unscrupulous companies in whose name goods were invoiced sound bogus, and indulging in trade-based money laundering (TBML) allegedly on behalf of unknown jewellers and diamond merchants of south Mumbai. “We suspect that a circuit of jewellers and diamond merchants have connived with bank officials to carry out this forgery, with officials allowing submission of forged bills of entry into IceGate, the e-payment gateway,” said sources in investigating agencyDRI.
A.K. Das, general manager, Canara Bank, Mumbai, said the bank was not aware of any foreign exchange or foreign remittances fraud being investigated by the DRI. “We have no reported cases in Mumbai of this nature. The bank is doing its due diligence in checking mechanisms for such incidents,” he told The Hindu .
Usha Ananthasubramanian, managing director and chief executive officer of Punjab National Bank, did not immediately respond to queries seeking comment from the bank, when contacted via text message.
Suveer Khanna, a partner at KPMG said: “While public sector banks are speeding up to improve their monitoring mechanisms, the private banks have an early advantage in that they are invested into improving risk management systems. While banking regulations are in place to prevent such frauds, the onus is also on the banks to take responsibility for building stronger monitoring mechanisms.”
The DRI is said to have finished its probe and is in the process of submitting a report to the Central Bureau of Investigation (CBI) and Enforcement Directorate (ED). It has recommended a case under the Prevention of Money Laundering Act (PMLA).
The investigation report alleged that the banks did not verify the identity of their clients, nor did they maintain records and diligently report the suspicious transactions to the financial intelligence unit. The reporting of suspicious transactions is mandatory for banks under Section 12 of the PMLA.
The report recommended that the Directorate General of Foreign Trade cancel the Import-Export Code of the accused firms named in the report. It also recommended that action should be initiated against the banks.
“Section 4 of the PMLA makes any evasion of custom duty a predicate offence. We are pressing other agencies to probe those charges as well,” said sources in DRI.
According to the investigation report, a section of employees of the six banks allowed a fraud trade circuit to mushroom. The fraud was carried out in two ways: through the ‘advance remittance for imports’ paid by importer, and by exploiting the duty drawback scheme.
This is how it worked. In the first fraud, the funds were sent through several current accounts to overseas parties on forged import documentation. Part of the remittance was paid by importers as advance. Technically, the banks would then have to check if the goods had landed before allowing the remaining payment. This never happened.
According to rules, banks allow the remittance of $1 lakh without supporting documents for importers. This rule was used to remit illicit money without banks checking whether the shipment had actually landed.
Similarly, to exploit the duty drawback scheme, exporters claimed a duty drawback based on non-existent imports by possibly floating shell companies abroad. As the foreign exchange business of the six bank branches started to increase, the overseas shell companies forged imported bills to claim duty drawback.
This difference in the bill value and the actual value was then moved via banking channels.
“It is the job of ED and CBI now to find out if and where shell companies were set up and to what extent bank officials were involved in the scam,” a DRI official said.
This is the second such fraud detected by the DRI after the Bank of Baroda (BoB) foreign exchange scam in 2015. Investigations by CBI and ED into the BoB case had revealed illegal remittances of Rs.6,172 crore to Hong Kong between August 1, 2014 and August 12, 2015.
The CBI last year arrested a BoB branch head in New Delhi and its head of foreign exchange for criminal conspiracy and cheating.
The incidence of TBML cases is reportedly on the rise in public sector banks, and forensic experts believe these banks are yet to put in place preventive mechanisms. The DRI alone has registered 546 small and big cases of trade-linked money laundering since 2012.
The onus is also on banks to take responsibility for building stronger monitoring mechanisms
Suveer KhannaPartner, KPMG