India: Russian bank under AML investigation, hit with million dollar fine

NEW DELHI: The finance ministry is investigating Russian state-owned bank Vnesheconombank for alleged money laundering and violation of Foreign Exchange Management Act, according to officials.

India Gate, January

India Gate, January

The bank, which is responsible for trust management of Russian citizens’ pension savings funds, has also been slapped with a near $50 million penalty by the Indian government, they said, requesting anonymity.

In India, Vnesheconombank functions through its representative office and, thus, under Reserve Bank of India (RBI) guidelines, is prohibited from undertaking any business activity.

“There were some violations which were observed by the Enforcement Directorate. A penalty has been imposed and further investigations are ongoing,” said one of the officials quoted earlier.

Vnesheconombank has been operating in India since 1983 with representative offices in Delhi and Mumbai.

A detailed questionnaire sent by ET to the bank did not elicit any response till the time of filing this story. The bank’s deputy representative in India said he is not authorized to comment.

According to another Indian official, there is pressure from Moscow to resolve the issue amicably. “There is pressure from the Russian government to resolve this issue. Both the finance ministry and Reserve Bank of India are looking at the issue jointly,” the official said, adding that there have been hints that Indian banks inRussia could face heat if the matter remains unresolved.

Two Indian banks, ICICI Bank and Commercial Bank of India LLC—a joint venture between State Bank of India and Canara Bank—operate in Russia.

A senior State Bank of India executive, however, said he was unaware of any retaliatory move. “We are not aware of the issue or of any retaliation by the Russian government,” the banker said, requesting anonymity.

According to Vnesheconombank’s website, it performs functions of the Bank for Development. It also acts as an agent for the Government of the Russian Federation in accounting-settlement and information-analytical servicing of government debt and government foreign financial assets.

“We are in discussion with the finance ministry over the issue. The bank’s operations have not been suspended,” an RBI official said. Under RBI guidelines, the bank can undertake only liaison activities and its role is limited to collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers.

“They cannot earn any income in India,” the RBI official said.

Banking links between India and Russia have not seen much advancement despite strong political and economic ties. In the past, India’s attempts to make oil payments to Iran through Russian banks have been unsuccessful.

The other banking structure where both nations have collaborated is the BRICS Development Bank. In September 2013, the BRICS nations decided to capitalise the bank with $50 billion. This is a part of the $100 billion forex reserve pool, where Russia, Brazil and India will contribute $18 billion, while South Africa will put $5 billion and China, the largest amount at $41 billion.

Source: Economic Times

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