Sting Op Exposes Banks Laundering Money

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CobraPost catches Axis, HDFC and ICICI bank in the act

“Operation Red Spider” was the name Cobrapost gave to their sting operation, which ultimately ended up exposing money laundering practices in HDFC Bank, ICICI bank and Axis Bank. This expose truly questions the logic to give private banks licenses at a time of political pressure and also questions the feeble regulatory system.

The sting reveals that any person claiming to represent a politician with tonnes of black or illegal money is easily able to convince bank officials that he needs solutions for converting black money into white. The bank officials more than oblige; rather, they offer tea and masala dosas, and ignore basic requirements like Know Your Customer (KYC) norms or PAN card details.

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The banks launder money by accepting cash and investing it in gold, real estate and insurance schemes, without using Pan Card details, split the money into portions and deposit in different accounts, transfer the black money into the financial market and help the client convert the money into white/legal money. For a more detailed look, go to http://www.firstpost.com/business/here-is-how-cobrapost-alleges-private-banks-laundered-money-660547.html.

The black money holders sneakily invest their money in the banking market. With diversification in mind, they buy real estate, gold, stocks and even open fixed deposits in banks. The money paid for the insurance schemes gets invested into bonds, stocks and securities- government and financial. This spreads the black money into all areas of the banking market.

The deal with buying gold is this- a large amount of black money can be hidden by buying a very small amount of gold. Also, gold is a very liquid asset, meaning it can quickly be sold back at market price. It’s said that India has a lot of gold due to Indians’ love for the metal, but couldn’t it also mean that there’s a lot of black money floating around?

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When insurance policies are bought, they are converted into debt securities or shares of companies, thereby introducing the black money to the financial system. As more and more black money enters the system, the greater the chances of it being detected. It’s easier than finding black money in land and real estate.

In the year 2008, P. Chidambaram introduced The Banking Cash Transactions Tax (BCTT), which aimed at solely dis-incentivising cash transactions that were becoming channels for channelling and laundering—black money. It was obviously criticised by quite a few politicians. In the year 2009, he had to withdraw the tax before elections. Had the tax still been around, it could have made it tougher for banks to launder money.

After watching these videos, particularly the ones about HDFC and Axis bank, you’ll notice the ease with which the managers were willing to go out of their way, just to do such shady deals. It’s as if they were performing according to the standards and weren’t being cheating scoundrels.

Aniruddha Bahal, Editor-in-chief at Cobrapost told Firstpost in an exclusive chat that he used only a single reporter to uncover the unholy link between India’s top three private banks and politicians. When asked if he was anticipating any defamation cases, he said,” The evidence we have is too strong. It will be foolish if people file defamation cases against us with this kind of information”, and rightly so. After so much video evidence, the banks have no case.

The banks have announced that they will begin full-scale internal investigations. ICICI Banks has already suspended eighteen employees after this expose. How is it that the employees in the lower levels of the hierarchy are the only ones who pay for this?

They must’ve just been following orders, weren’t they? It’s quite hard to believe that the ones giving the orders had nothing to do with this. Still, the ones at the top walk free while the subordinates suffer.

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If personal bankers at the front desk can take such big decisions on helping people convert black cash into white investment, it means that the top managers of the bank cannot fake ignorance. When the absolute top may have credible deniability, such operations cannot be carried out without approval of top level management. To claim that they didn’t know malice was stirring or that it didn’t have even their implicit consent sounds suspicious. And if they really had no idea, then that is utter, unbelievable negligence.

Although it’s not official yet, the RBI is expected to take a closer look at the guidelines on transfer of funds and know your customers (KYC). It may seek detail reports from private banks involved on the big-ticket cash transactions. But after this sting, the RBI’s role as a regulator has come into question and it seems like it lacks the know-how to police banks. “Banking Supervision” should be invested in a fully independent and qualified organization.

Predictably, share prices of the three banks under question fell, creating losses. But that may be the least of their problems as the government will be taking action against persons found guilty in the alleged money laundering scam.  And with their books and information being looked through, their licenses could be re-examined and if found guilty, be revoked.

All-in-all, these banks are making the rest of the income-tax-paying citizens look like complete idiots. They are going out of their way- again, by offering chai, dosas and even personally coming to people’s houses- just to collect that black money. With so much damning evidence, it’ll be interesting to see what the Banks’ CEOs say and the government does about it.

Akhil Thakur

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