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Economy Mar 15, 2013

CobraPost sting: RBI probes banks, BJP demands answers

By Sindhu Bhattacharya

New Delhi: As kids, we were never sure on what 'black' money really looked like. I remember once asking my mom if 'black' money actually meant currency notes which were painted black. By the time I grew up, another set of words could be heard: Number 1 ka paisa and Number 2 ka paisa.

After the CobraPost expose on money laundering, it becomes amply clear that, as far as the country's top private banks are concerned, there is really no stigma or any fear when their wealthy clients come to them seeking conversion of 'black' money into 'white'. ( Read they key takeouts of the expose here)

Unless the Government actually goes after the hoarders of black money, their claims of tackling money laundering would continue to sound hollow.

Unless the Government actually goes after the hoarders of black money, their claims of tackling money laundering would continue to sound hollow.

The sting operation, code named 'Operation Red Spider', alleges that the three banks, ICICI, HDFC and Axis Bank, offer easy ways of laundering black money and introducing it into the banking system as 'white' money and that this facility is being "openly offered to even walk in customers".

The Reserve Bank of India has launched an inquiry into the matter and has asked for preliminary reports. RBI is collecting information regarding the alleged acts of money laundering by the country's three largest private sector banks, its Deputy Governor Urjit Patel said yesterday. However, the central bank has not yet issued a show-cause notice to the banks.

Even , Finance Minister P Chidambaram said the Government will not jump to any conclusions in the matter, while the CBDT said it has taken cognisance of the sting operation and has begun a probe into it.

A report in the Economic Times said thatthat opposition party Bharatiya Janata Party has sought Prime Minister Manmohan Singh's attention to the matter while Communist leader Sitaram Yechury proposed cancelling the banks' licences if the allegations are found true.

A CobraPost press release makes several other allegations as well:
• That these money laundering practices are part of a standard set of procedures within these banks
• A variety of options for laundering ill-gotten cash is being offered brazenly
• These money laundering services are being offered practically as a standard product across the country

The most often used route to launder money appears to be investment of large amounts of unaccounted cash in insurance products or gold and the most brazen service offered by banks to launder money is collection of cash from home where bank officials even bring along a counting machine to help the client.

Comparing his bank to a 'johari bazar' or the jewellery market, N. Gupta, Portfolio Relationship Manager/Deputy Manager HDFC Bank, Jaipur, Rajasthan, tells the undercover reporter of CobraPost it is easy to slip huge amounts of black money into the system without tax authorities getting even a hint.

"That sure happens here. Sir, we won't divulge the names. When we are sitting in johari bazaar, then you can understand what it means. HDFC Bank and johari bazaar are like that only."

CobraPost's Aniruddha Bahal told Firstpost earlier today that the expose was not tough to conduct since banks were willing to offer laundering services even if someone were to just walk into a branch and speak of large amounts of cash. (Read the full interview here.)

Officials in different branches of these banks showed neither surprise nor fear in helping moneyed clients who wanted to legitimize cash, acting like real pros.

He said the CobraPost reporter was even offered snacks, tea/coffee while conducting money laundering transactions with these big banks. "It took a small organisation like us to do this".

The CobraPost press release says officials of these banks had several ready solutions available to facilitate laundering transactions such as opening multiple 'benami' accounts to route cash into various investment schemes of the bank, without the mandatory PAN card or adhering to the KYC norms laid down by RBI.

The eager-to-please officials themselves got demand drafts made for the client without it showing up in the client's account and kept the identity of the investor a complete secret. In some cases, lockers were allotted for the safekeeping of illegitimate cash, including special large size lockers to accommodate crores of hard cash.

Now that the expose reveals names of many high ranking officials of the three private banks, working in their branches across the country, does Bahal expect a rash of legal cases and defamation suits? "The evidence is too strong and it will be foolish if people file defamation cases". But the chairmen of these banks are hardly likely to take such damaging allegations lying down.

Till now, no one from the Finance Ministry or the law enforcement agencies has come forward to ask Bahal and his team for the footage of this sting operation or quiz them over the sordid details. Unless the Government actually goes after the hoarders of black money, their claims of tackling money laundering would continue to sound hollow.

by Sindhu Bhattacharya

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