Bank of Baroda forex scam: No FIRs hinder probe in Rs 50,000 crore scam

Rampant abuse of formal banking channels to illegally remit large sums of foreign exchange outside India is not just limited to Bank of Baroda (BoB) forex scam. The perpetrators have been using the banking channel for the past one-and-a-half year and the amount is well over Rs 50,000 crore, investigating officers from Enforcement Directorate (ED) told dna. According to the ED sleuths, banks are reluctant to lodge First Information Reports (FIRs) on the ground that the money laundering has not caused any loss to them. "Ten banks have led to a loss of Rs 50,000 crore in foreign exchange to the exchequer and we cannot probe the case under the Prevention of Money Laundering Act (PMLA) without an FIR," said an official.

Remittance in terms of import/export means transfer of funds usually from buyer to a distant seller through banking channels under the provisions of Foreign Exchange Management Act (Fema) norms prescribed by the Reserve Bank of India (RBI). The investigating agency -- ED in this case -- is probing the case under Fema, which gets diluted as the culprits can be nailed only for foreign exchange violation, a civil offence, and not for money laundering, which is a major crime. Two mega remittances frauds have been unearthed by ED in the last one year -- one, which involved importers depositing fake import bills in six banks against which remittances were made to unknown overseas entities. These banks are ICICI Bank, Bank of India, YES Bank, IndusInd Bank, ING Vysya Bank and Kotak Mahindra Bank.

Despite emails and reminders sent by dna, banks did not give any response. In the second fraud, eight foreign nationals (seven Iranians and one from Azerbaijan) on student visas created bogus companies in Chandigarh with the help of UCO Bank to divert funds to Dubai and Iran. An email query sent to UCO Bank did not elicit any response. In the two cases, the amounts involved -- that was remitted outside -- were Rs 15,000 crore and Rs 20,000 crore, respectively. "A detailed report of the investigation has been sent to Special Investigation Team (SIT) two week back. Despite several communications and reminders to banks, they have failed to act against importers involved in the scam," a senior ED official told dna.

Custom officials who control the flow of import-export of goods view this a loophole in the law, connivance of bank officials and the regulatory failure. A senior custom official told dna, "There are loopholes in the system. Add to that the connivance of bank officials. From the bank's point of view, there is no loss. They have rather made profit." "The fault squarely lies with the bank regulator for not designing an information technology-based system to verification of authenticity of documents and to reconcile advance remittance with actual import in time. RBI cannot just frame policy without putting in place system to ensure its implementation," said the official. "While rules permit advance remittance for import, the proof of actual import is to be submitted within the prescribed limit, which no one checks. Another is faking documents. Banks have no system to verify or check. Given the volume of business it is humanely not possible," said a customs sleuth.

The recent BoB scam, where the hawala operator split the money into several small amounts and finally transferred it abroad through banking channels, has opened a Pandora's Box of such transaction happening in almost all banks. BoB has claimed that 90% of the remittance funds were routed through 30 other banks currently under probe. Apparently, HDFC Bank, in its internal probe, found that about 20 of the 59 account holders had accounts in its bank too. The modus operandi in this case has been designed in a way that had manage to escape the norms and the Financial Intelligence Unit (FIU) which automatically raised alarm on any remittance made beyond $100,000. They also manage to open 59 bank accounts in India and remit above Rs 6,000 crore to Hong Kong through 399 accounts.

However, in this scam, the bank itself registered a complaint against its own employees, which prompted the central agencies to take action against the accused. A senior bank official on the condition of anonymity told dna, "Banks have its own limitations when it comes to third parties (importers/exporters). After all, it is an intermediary that creates credit by lending money to borrowers. However, we always follow the guidelines prescribed by law."

An ED official said in most cases, there are evidences of connivance of bank employees at different levels. "It is a serious concern over the lack of due diligence and a KYC check on several suspicious transactions," said an ED official. According to the data released by Global Financial Integrity early 2015, an average $43.96 billion of black money was sent out of India every year between 2003 and 2012. Out of this, 40% went through banking routes.