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CobraPost Exposes Wily Tricks of Bankers

Cobrapost has an “expose” on how employees of ICICI Bank, HDFC Bank and Axis Bank have been revealed as “blatantly running a huge Nation-Wide Money Laundering Racket”.

They have a number of videos taken by a spy-camera, with the modus operandi being:

  • Reporter goes to a bank branch
  • Says that he represents a politician who has a lot of black money
  • Wants to convert that money to white
  • In nearly all cases, bank executives offered to invest the money in insurance products (whoa) and have the money converted to white as the returns of insurance products are tax-free.

The things they say banks will do:

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

Why is this not surprising? Look at any example – one of them below:

 

A bank RM will do anything to satisfy a customer. And if there are legal loopholes to the system, you can bet a banker will know. For instance, some of the really old accounts don’t have KYC requirements, so they can be used to temporarily hold and transfer black money to a legit account. Other ways are to invest into a product from one account, but have the redemption done into another account. Mutual funds plug some of these issues (with their “no third party cheque” and “bank account change” regulations) but insurance still leaves some open. And even today the proceeds of insurance are tax free.

Is there a way to fix this? The answer does not lie in getting more stringent KYC norms. In fact, in all the above cases, KYC was the least of all the concerns. You can now get a fake identity in very little time – including a fake pan Number. A person in the possession of crores of rupees will not hesitate to spend a little on this. However the onerous KYC requirements only stifle regular investors.

The answer is to monitor behaviour. The lesson learnt has to be that there are standard patterns that can be used to recognize money laundering. Such as many small cash transactions into an account that are then transferred to another account. Or money that is routed into insurance products but with no regular debits of the kind you would expect from a normal user. Any unused non-KYC account being used suddenly with cash loaded in, or fairly large quantities. Detection is one thing – acting on the information is another – none of the above behaviour is evidence, but it can be used to investigate and frame a case. Unfortunately the only agencies that can do this are the CBI or the income tax department, and a little birdie tells me they aren’t interested or are just as corruptible.

Another thing to do immediately is to make the proceeds of insurance taxable. You don’t find such tricks happening in many other asset classes. Insurance proceeds are non taxable – but there’s no reason why they should be! I believe we should tax insurance proceeds if it is just an investment, but not any proceeds of insurance on death (or disability). It will then not be as much of a black-money laundering avenue.

 

You can point your finger at all the “bankers” (who are nothing but glorified sales agents) in the videos, and you should. But the better thing to do would have been to get actual evidence – like transferring Rs. 10 lakh in cash and actually making them do the benami thing, and having them arrested. Nothing that people “say” is usable as evidence – you can tell people that you intend to commit a crime, but it will not hold in court unless you actually commit the crime. As far as I know, none of the transactions that were mentioned above actually happened – so all these “criminals” (so to speak) will walk away scot free.

This is what we’ve become. A country of no-holds-barred-outrage. We decide a crime. We don’t care that there should be a proper case built so a judge in an actual court can pass judgement. That people should be arrested for a real crime, instead of glorifying some statements. On the basis of mere statements, you would have to arrest half of Delhi for hoarding black money, going from my personal experience.

The other thing this author decides is that this is only done by “private” bankers. I can assure you this kind of behaviour persists with all banks, public or private. In fact, public sector banks have much more under the carpet, and with incentives they will do exactly the same thing.

We passed our judgement on some rape accused before the courts did. We got outraged that Norway held some Indian children away from their parents because they force fed their children, based on some flimsy statements (I’m guilty too) and eventually it turned out the Norwegians were probably right. We get outraged that someone actually defended Kasab in court – when he could be convicted no other way than a court trial.

Often, I get asked about how one can convert black money to white. I don’t know the answer but I know it can potentially be done – through agricultural income (tax free) or insurance, or simply by asking most accountants. I would laugh if someone “exposed” me for knowing such loopholes.

It’s yet another failure – our failure – that while we get outraged by the above, the perpetrators will get away with as little as a loss of a job or a loss of face. However, this will grab media attention for a few days, giving Cobrapost what they potentially want – viewership without actually needing to do the hard work of bringing a crime to the required conclusion. Having said all this, it is better that these malpractices are out here and known to us, than otherwise – now we know the tricks of the biggest conmen of the game, the so-called bankers.

  • Alok says:

    I will take outrage anyday over cynical indifference. Let’s not bash outrage. It has its uses. Of course we should be careful over what we outrage over but let’s not forget that the outrage has led to a long delayed, but very necessary discussion on rape laws and the safety of women in the country.
    I think we should be glad that Cobrapost has brought this into the public domain. Ideally this is the work of our investigative agencies/regulators. However, we shouldn’t so readily disparage citizens who are trying to bring this into the public domain.
    How is it different from a bystander calling the cops when he sees a crime and being thanked for it? Can you say she did it only to be thanked?

  • arvind says:

    I agree that both ‘mens rea’ -Guilty intention & ‘actus reaus’-actual act need to be present simultaneously to constitute a crime.In this case as stated by you, only the intention has been expressed ,the actual act has not been committed..therefore in legal terms the crime has not been committed.Since this money laundering practices seems so rampant,I am sure there will be real cases of these acts/crimes having been committed.All it will take the competent authority under the Finance ministry/RBI to investigate these banks to find hard evidence. to prosecute the guilty.
    I agree,the top brass of these banks will issue some ‘holier than thou’ statements about being 100% compliant & some poor branch folks will get the axe as a demonstration of action being taken.Fact is these money laundering practices cannot be committed without the explicit or tacit permission of senior people in the bank.
    And if the senior guys were not aware of these practices,all the more reason to worry

  • bhupesh says:

    Even if these practices get detected penalties are so minuscule ..
    http://www.business-standard.com/article/finance/irda-slaps-rs-1-47-cr-fine-on-hdfc-life-for-norm-violation-112062902021_1.html
    “Under the guise of utilising network of marketing and advertising campaigns, sums ranging from Rs 6 lakh to Rs 286.92 crore were paid to HDFC (Housing Develop-ment Finance Corp), HDFC Bank, HDFC Securities and HDB Financial Services, which are the corporate agents of the insurer,”

  • Asmita says:

    Banks are audited 3 times by different set of auditors every year. The CA’s of these banks should be charged with negligence.

  • fubar says:

    The new term used for bankers is banksters!

  • Murty says:

    Deepak,
    Isn’t it time to change the law? Which is more than 50 years old? It has enough loopholes to come out of any situation!
    Let us begin with UNIFORM CIVIL CODE
    Let us think of re-writing the CONSTITUTION
    Let us change the POLITICAL SYSTEM.
    Let us hink about the way we BANK upon BANKING!
    In my country, only 42000 are SUPER RICH, as per Government’s boasting(They say the actual figures are not revealed and insisted INFOSYS to do the task.(Bubble Sort I believe).
    I knew a politician , who has no POWER, but had 27 benami accounts in a branch of a popular bank, every month he draws not more than 10000 INR from each of these accounts. No one can caught this, but only the BM knows it!
    In my city, a jeweller gets more than 300Cr. INR loans on simply mortgaging a property worth 25Cr.
    In my Country, the biggest bank has a NPA worth 10000Cr. INR, but it is NOTHING for them.
    In my country, a person enjoys bikini clad girls with 2000 Cr. of the above NPA and no one can do anything.
    In my city, a CA works for 4 generations with a family and minted lakhs of crores, but still can go scotfree!
    In my country, a politician with hundreds of acres gets ZERO TAX, but a small employee gets the NOTICE from the FM for VIOLATING the rules
    In my state, liquor is flowing more than water, but it is the Government that made it official.
    In my country, we all sympathize with the rape victims, but no law can be brought to punish the culprits. Sometimes I think it is safer for a girl to stay in Pakistan than in India.
    In my counrty, FM upon FM will come and go, every one is excellent speaker, but they can not beat the SYSTEM of BLACK MONEY. Take the case of property registrations today. You get it registered for one-third of the amount you pay!
    In my country, the BIGGER DENOMINATIONS are being exchanged like CHANGE!
    In my country, you have to bribe and it is official. Poor analysts say that as far as corruption is concerned, we are still better than 37 countries including RUSSIA.
    In my state, the GOVERNMENT LIES for a Project of national status! It even gone to the extent of not heeding to the HIGH COURT! Even the fake certificates are becoming authentic!
    In my state, the highest poiltical power is looting the public money, but we can’t do anything about it
    MERA BHARAT MAHAAN!

    • Global Citizen says:

      Holy Cow! So much of outrage. This outrage is worth every word of it and it needs to be channelized so that it reaches the hallowed corridors of people drunk in power and colluded in black money crime. The politicians! If we can say that this cannot happen without the Branch Manager knowing, I can say that it can not also happen without the Finance Minister knowing. Had he been honest, or had all the politicians been honest, this hole would have been plugged. Could it be that politicians want insurance products returns to be tax free and agricultural income to be tax free to leave it there for themselves. I mean is it their own self-architected back door entry?
      We need a trojan horse to tackle this arrogance.

      • Murty says:

        I hope the last statement of arrogance is not in my direction!
        Ya, you need something bigger than the trojan horse.
        When the beurocracy is filled with garbage filled minds that give suggestions to the FM of India, and who blindly follows them, why you need educated politicians? Let them all be thumb impressionists. This educated parliament looted 1000 times more than what the earlier Un-educated leaders.
        Do we need an example?
        The recent SOPS on the housing sector is one such. Does the FM encouraging the Black money or discouraging it?
        A first time buyer gets 1 lakh additional exemption! That too out of the house worth 40Lakhs, for a loan of 25Lakhs. WHich means the FM is making the rest of 15 Lakhs un-official. I do not know where you will get a 40L house, and how much you have to travel, between the home and the office. If you buy a property worth more than 50L, you are subjected to 1% TDS…….But this is all pittance!
        In my state, coming April First, this 2013, the property rates are going to be skyrocketing, as the revenue department enhanced their collections. Soon, you need a MINTING MACHINE to buy any property……

  • Murty says:

    ya,
    let us write about inflation…..
    8.75% now?
    6.987%? wow , it is reduced.
    8.7601%???? Oh my god! my Aloo costs more!

  • Bhushan says:

    I complement the bankers. They punished the black money holders by selling them ULIPS !!!