Money laundering in BoB ghotala. NaMo, nationalise kaalaadhan.

Tue, Oct 13 2015. 02 56 AM IST

Bank of Baroda black money transfer case gets murkier

The transfer took place under a rule that allows up to $100,000 in transfers as prepayment for imports, says a senior official at the bank

Over the weekend, the CBI conducted raids at over 50 locations of the bank in connection with the illegal transfers. Photo: Pradeep Gaur/Mint
Mumbai: State-owned Bank of Baroda said on Monday that it had suffered no financial loss, or at the most an “insignificant” one, over irregularities that saw it transfer alleged black money to entities based in Hong Kong and the United Arab Emirates (UAE).
Over the weekend, the Central Bureau of Investigation (CBI) raided 50 locations over the controversy involving the bank’s Ashok Vihar branch in New Delhi that saw foreign exchange business increase from `44.98 crore in 2013-14 to `21,528.52 crore in 2014-15, according to an internal audit report of the bank that has been shared with CBI, which is using it as the basis for its probe.
In total, between 1 August 2014, when the irregular remittances to foreign accounts first began, till 31 July this year, an amount of`6,172.92 crore was transferred, the report shows.
In its statement to the stock exchanges, the bank claimed that around`3,500 crore was remitted through 38 accounts to nearly 400 entities in Hong Kong and the UAE. It admitted that the Ashok Vihar branch did not follow Foreign Exchange Management Act rules.
In all, according to the internal report, 8,667 transactions took place.
“The bank had detected these illegal transfers and alerted the authorities, which then led to the so-called raids over the weekend,” said an official at the bank, speaking on condition of anonymity.
According to the bank’s statements, it first noticed the problem in July.
Still, it is not clear how there could have been no losses.
According to the audit report, a copy of which has been reviewed by Mint, some of the transactions were made at a conversion rate as low as .00001, which meant that a debit of `1 was transferred as $90,450 in one case.
In such cases, the bank would have made a loss unless the low debits were mentioned to escape attention and the bank’s forex trading books were ultimately balanced through a series of transactions culminating in an actual debit on the suspicious accounts.
If that is indeed the case, it would point to a money laundering fraud.
If it isn’t, it would point to a fraud on the bank.
Bank of Baroda’s statement on the bank suffering no losses seems to indicate it is likely to be the first, lending credence to the theory that the Ashok Vihar branch helped funnel black money abroad.
Details of such transactions were first reported by The New Indian Express on Saturday.
All transactions were kept below the $100,000 limit so as to not attract attention, although, according to the internal report, the same entity made four or five remittances to the same exporter in a single day.
The amounts transferred were supposedly advance payments for imports.
Interestingly, almost all the accounts were opened just before the transactions began.
And, the internal report mentions that “heavy cash receipts were observed” in these.
The beneficiary accounts overseas were in the names of Victoroxx International Ltd, Great Asian Exports, King Winner International Ltd and Star Exim Ltd, among others.
The Indian companies that made the remittances include AK Enterprises, Vandana Impex, Seagull Traders, Dabang Marketing and Trading and Bankey Bihari Tradelinks, among others.
A CBI official, who spoke on condition of anonymity, said that the agency was questioning some bank officials. “Our initial investigation shows that individuals and companies in whose names remittances were done are mostly untraceable as the address provided are fake,” added the CBI official.
Under Reserve Bank of India (RBI) rules, an entity can transfer up to $100,000 as pre-payment for imports without a so-called “bill of entry”.
“The advance payment provision is generally a privilege given to importers to make advance payments and is used on a case-by-case basis. The authorized dealer is bound by rules to ensure that adequate documents are received within a stipulated period of time to ensure that the actual import has taken place,” said K.N. Dey, executive director at Mecklai Financial. Dey added that the provision is not something that is commonly or loosely used.
A former Bank of Baroda official pointed out that the bank is still required to seek documentation to show that the imports have indeed taken place. A bank can also seek information from the bank receiving the payments if required.
“There appear to be lapses at the bank’s end on many counts including on account of due diligence required under know-your-customer (KYC) norms, the generation of exceptional transaction reports (ETR) and suspicious transaction reports (STRs),” said the former official, adding that he has no access to direct information on this case.
Some of the other irregularities that were observed in the report include not generating docket numbers for each remittance, not obtaining credit reports of the suppliers despite heavy advance payment for imports being made to the same entity, bill of entry of imports not being obtained before making further remittances to the same supplier and no effort being made by the branch to obtain it; in many cases, mode, date and place of shipment were not mentioned.
The report also mentioned that the office account of a branch should be nil at the end of the day through system-generated transactions. But the Ashok Vihar branch’s account was “never nil with transactions of system-generated entries and there was debit/credit balance at the end of the day”, the report said. These amounts were then manually transferred to various general ledger accounts to close the day’s business.
Under the Prevention of Money Laundering Act, 2002, an entity is required to report all cash transactions of more than `10 lakh to the financial intelligence unit which functions under the ministry of finance.
The rules also require banks to report cash transactions that are “integrally connected to each other which have been individually valued below `10 lakh or its equivalent in foreign currency where such series of transactions have taken place within a month and the monthly aggregate exceeds an amount of `10 lakh or its equivalent in foreign currency”.
In addition, banks are required to file STRs if they notice suspicious levels of activity at an account level or a branch level.
However, the internal report mentions that the branch has not adhered to due diligence norms while remitting advance payments for import.
“The branch did not generate exceptional transaction report and did not monitor the high value transactions in the newly opened current accounts,” said the report.
“This could point to collusion of some officials at the branch,” said the former official.
On Monday, PTI reported that CBI had filed a case against unknown bank officials along with the account holders.
“CBI has registered a case under section 120-B (criminal conspiracy) read with 420 (cheating) of the Indian Penal Code (IPC) and Section 13(2) read with 13(1)(d) of the Prevention of Corruption Act, 1988 against 59 current account holders and unknown bank officials and private persons on a complaint from Bank of Baroda,” PTI reported, quoting a CBI spokesperson.
Bank of Baroda, the second-largest state-owned bank in India, has been functioning without a chief for more than a year since S.S. Mundra left the bank to move to RBI as deputy governor.
Earlier this year, the government appointed P.S. Jayakumar as managing director and chief executive office of Bank of Baroda. He takes over on Tuesday. Ravi Venkatesan, former chairman of Microsoft India, has taken over as chairman of the bank.
The bank is also currently functioning with just one executive director.
“To have a bank of this size running without a CEO and just one executive director for so long is unacceptable,” said the former Bank of Baroda official quoted above, adding that apparent systemic lapses should be investigated thoroughly.
Shares of Bank of Baroda fell 3.02% to close at `176.80 apiece on the BSE, while the benchmark Sensex shed 0.65% to end at 26,904.11 points.

http://www.livemint.com/Companies/5RTuIN8Opm9qayotBOq1iK/Bank-of-Baroda-black-money-transfers-case-gets-murkier.html

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