HDFC Bank, ICICI Bank and Axis Bank named facilitator in money laundering

According a sting operation conducted by online magazine Cobrapost, HDFC Bank, ICICI Bank and Axis Bank, three of India's top private sector lenders, are running a nationwidemoney laundering racket. Moneylife has been constantly pointing out the mis-selling and overcharging by banks. Earlier, this week we published a story Now, penalty for paying credit card dues by cheque! that shows how an under-secretary in the finance ministry by using HDFC Bank as a model asking chairmen of all public sector banks (PSBs) to levy charges on credit card dues paid through cash or cheque.

Cobrapost said its investigation conducted in five zones across several branches of these banks and their affiliates like insurance companies revealed following facts...

1. These money laundering practices are part of a standard set of procedures within these banks;
2. These money laundering services are being openly offered to even walk-in customers who wish to launder their illicit money;
3. A variety of options for laundering ill-gotten cash are being offered brazenly;
4. These money laundering services are being offered practically as a standard product across the country.

Cobrapost said its investigation found that banks and their managements systematically and deliberately violate several provisions of the Income Tax (I-T) Act, Foreign Exchange Management Act (FEMA), regulations of Reserve Bank of India (RBI), know your customer (KYC) norms, the Banking Act and Prevention of Money laundering Act (PMLA) with utter disregard to consequences, driven by their desire to boost cheap deposits and thereby increasing their profits.

It took just a cold call by the Cobrapost reporter to the branches of the banks, mentioned above, to put a grossly illegal proposition on the table:  A politician wants to launder a huge sum of black money. The purpose: make it white. Would the bank officials help? And the lid came off the murky world of money laundering in the Indian banking sector, as the officials of these banks rolled out the red carpet for Cobrapost's associate editor Syed Masroor Hasan.

Taking an alias of Rajeev Sharma, Masroor visited dozens and dozens of branches across the length and breadth of the country, including many major cities and state capitals, across all five zones. Nowhere was he disappointed. Nowhere was he turned away. Almost every banker that he came across was willing to help launder the black money of the fictitious politician Masroor was supposedly working for. The discussions on how to launder the money went up the management hierarchy.

How these banks launder black money

The ways HDFC Bank, ICICI Bank and Axis Bank suggested to transform the black money into white were both imaginative in their range and brazen in their approach, saysCobrapost. This brought to the fore a modus operandi that is tailored to rake in vast amounts of black money in the form of illegal deposits, insurance and investment products, sold by these banks. All these creative methods are used to convert the dirty money into squeaky clean without the regulatory authorities ever getting a whiff of what they are doing.

Here is a gist of what the various bankers suggested to help the politician launder his illegitimate money:

* Accept huge amounts of cash and invest it in insurance products and gold.

* Open an account to route the cash into various investment schemes of the bank.

* Do it even without the mandatory PAN card or adhering to the KYC norms laid down by the RBI.

* Split the money into tranches to get it into the banking system without being detected.

* Use ‘benami’ accounts to facilitate the conversion of black money.

* Use accounts of other customers to channelize the black money into the system for a fee.

* Get demand drafts made for the client either from their own banks or from other banks to facilitate investment without it showing up in the client’s account.

* Keep the identity of the investor/depositor secret.

* Open multiple accounts and close them at will to facilitate the investment of black money.

* Invest black money in multiple instruments in the names of different individuals, not necessarily drawn from among the family.

* Allot lockers for the safekeeping of the illegitimate cash, including special large size lockers to accommodate crores of hard cash.

* Personally come to the residence of the client to take the black money deal forward and collect the cash, even bring along counting machine.

* Use provisions like Form 60 to deposit the illegitimate cash into the account to route it into investment.

* Help the client to transfer black money abroad through NRE (Non-Resident External)/NRO (Non-Resident Ordinary) account; transfer the money telegraphically or through means other than regular banking procedures.

Cobrapost said, other than these ways, bank officials suggested further innovative methods unique to their banks. For instance, HDFC Bank’s officials offer such convenient cash laundering services like the operation of lockers (with cash in them) outside regular banking hours to ensure the secrecy of these customers’ identities and to mask the nature of the transactions, the report said.

“To stay one step ahead, ICICI Bank officials were ready to make a suitable profile for the client, such as showing him as an agriculturist or engaged in some business, so as to make the investment unquestionable,” the report said.

On the other hand, Axis Bank officials proved to be a notch above in inventing fraudulent means, Cobrapost said. “Use ‘sundry’ accounts of the bank, they (Axis Bank) suggested, to deposit all the illegal cash from where it is to be routed into investment. Either use accounts of other customers, for a fee, to transfer money abroad, or use some shell company and take away a chunk of foreign currency as expenses toward business-cum-leisure trips,” the report said.

In a statement, Axis Bank said, "We will examine whatever information that is brought to our notice and investigate thoroughly".

Cobrapost said they (these banks) would pamper you, offering you privilege banking or priority banking, pulling out all stops to make the deal happen. At least, after this expose, the ministry of finance should stop using private banks as models of efficiency.