UCO Bank under ED scanner over Rs 20,000 crore hawala scam

MUMBAI,Shrimi Choudhary(DNA): The Enforcement Directorate (ED) has narrowed down on a big bullion trader based in Mumbai, suspected to be involved in a multi-layered multi-crore hawala scam. While investigations so far pegged the scam at Rs 2,000 crore, ED now suspects it to be a much bigger scam at Rs 20,000 crore.

“In the third layer of this multi-layer scam, we have found that certain significant transactions has been made to companies related to a big bullion trader. Investigations are under way,” said an ED source.

ED has been probing the scam under the Foreign Exchange Management Act, for three months now. Their focus is on some export houses doing business with central Asian nations — especially Iran and Azerbaijan. It has turned out to be one of the biggest hawala scams in the country.

How did exporters benefit?
They received funds in their UCO Bank accounts in Chandigarh and Mumbai, and 90% of the advance payment documents were fictitious, ED sources said. Recently, ED visited the regional branch offices of UCO Bank in Mumbai and Chandigarh and recorded statements of at least 5-6 bank officials.

How is UCO Bank involved?
Eight foreign nationals (seven Iranians and one from Azerbaijan) visited India on student visas, created bogus companies in Chandigarh and opened accounts with UCO Bank in probable collusion with lower-rung officials. Their sole purpose was to divert funds to Dubai and Iran, said sources.

What did the foreign nationals do?
They acquired companies in India with the help of an accountancy firm, Agarwal Raman & Associates, with the help of one UK Nair. They have their corporate office in Chandigarh. The accounting firm has since shut shop, post the transactions early last year. None of the key people from the firm nor the eight foreigners are traceable.

What’s UCO Bank saying?
Arun Kaul, chairman and managing director, acknowledged the ED visits. “We have a limited role to play in this matter. We have co-operated with them and submitted relevant documents demanded by ED officials,” he said. When asked whether the bank had failed in its mandatory know-your-customer norms, Kaul said no. He said UCO Bank was the only bank facilitating transactions with Iran, which were mostly oil-related. “When other banks did not come forward to finance Indo-Iran transactions, ours was the only bank to open up the banking channel for Iran,” he said.

Did any other bank official speak?
In response to dna’s email query, Sankara Narayanan V, deputy general manager (treasury & international), said, “ED has sought certain information about a few accounts and some trade statistics. This was provided to the ED. We are yet to hear from ED in this matter. We do not have any information/ knowledge with reference to the hawala trade/ diversion of money to Dubai etc. We reiterate that all payments handled by our bank related to Iran were through banking channel and in Indian rupees only.”

Why was a forensic audit conducted?
In the wake of the bribes-for-loans scandal in August 2014, the finance ministry ordered a forensic audit on UCO Bank. Kaul, however, claimed that there has been no such audit at his bank. “We will seek a forensic audit report on UCO as part of our investigations,” said an ED official.

What’s the ED assessment?
Prima facie, there is a clear act of negligence by bank officials while dealing with suspicious companies, and the ED suspects collusion with fraudsters as well. “It is too early, but the agency suspects a system failure within UCO Bank,” said a source.

How many companies did the foreigners create?
The foreign nationals had created close to 70-80 companies under their network. At least 3-4 layers were created to divert the entire export proceeds from one layer to another, said ED sources. The exporters under ED lens are A&H general exports, True Exports Services, Connect Export traders, Centroid Exports (P) Ltd, Genius Exporters P Ltd, New Age Export Services, Star Elite Exports (P) Ltd and Elite World Trading. “We are investigating all these companies which are actually bogus ones created for fake exports,” an ED official said.

How did the scamsters operate?
Most documents deposited with the bank for receiving money in bank accounts (invoices for domestic purchase as well as for exports) appeared to have been generated from the same system and hence raise suspicion, prima facie. Once they received money, it will be transferred to various individuals and firms through real time gross settlement (RTGS), where funds get transferred immediately. The main parties in whose names money has been transferred by RTGS are Easy Go Trip, Arzoo Trading, Shivam, Gia-Veer- Mox and Dynamic sales.

What are the other points of suspicion?
ED sources say these activities were illegal and done with the sole purpose of money-laundering as there were no genuine transactions. All companies had the same address and there is apparently no business rationale for incorporating a large number of companies. “Money trail up to 3-4 layers have been traced. Further beneficiaries are being identified, said an ED source.

What was the Indo-Iran trade mechanism?
Indo-Iran trade was settled through a payment mechanism called Asian Clearing Mechanism until December 2010, when it was suspended on account of sanctions by Western nations. Because of sanctions, the banking channel to settle payments to Iran came to a standstill. Without a payment mechanism in place, India was under the risk of supply disruption of crude oil from Iran. Further, Indians who had exported to Iran suffered financial losses as their payments were held in Iran.

When did UCO Bank step in?
UCO Bank started the rupee payment mechanism through which part-payment of oil imports were settled. The mechanism became operational in February 2012. Under the mechanism, a few Iranian banks opened Indian rupee accounts with UCO Bank. The payments for crude oil imports were paid by Indian oil companies to this account. The payments for exports of goods to Iran were paid from this account.

Was UCO Bank acting as an agent of Iranian banks?
Yes. UCO Bank was acting as an agent of Iranian banks while making payments and acted at the instruction of the Iranian banks holding accounts with them. To increase bilateral trade, in April, the government also waived the value-addition norms for exporters shipping imported items like food and pharmaceuticals to Iran. Besides food products, India mainly exported drugs, machinery, transport equipment, chemicals, man-made yarns and fabrics and steel. The bilateral trade between the two countries stood at $15.25 billion in 2013-14.