India: Trader arrested on laundering charges

Officers from India’s Enforcement Directorate have arrested a man on suspicion of laundering INR190m (USD3m).  Ajit Jain, a trader from Mumbai, faces charges under the Prevention of Money Laundering Act (PMLA).Mumbai

The funds, according to reports, stem from a large scale fraud.

The case dates back to a 2013 report made by Canara Bank about a similar sum of money defrauded from some of its clients. The accused allegedly helped to channel funds to the unknown person behind the fraud, using both the banking system and hawala.

Read the story in the Economic Times.


How much do APAC’s regulators earn?

Regulators’ salaries across Asia Pacific vary enormously:some supervisors earn fortunes and others hit the pay scale at the average to low end.APAC REGULATORs - SALARIES

Some governments believe that paying politicians and civil servants high salaries should reduce the likelihood of them accepting a bribe, offered in cash or disguised as a gift. Others argue that financial regulators will be less likely to jump ship and work for a bank if they are paid competitively by the government. Some countries pay their banking regulators on the same modest scale as other government employees , pitting them against some of the highest paid people in the country – bankers.

Last April, we found out how much the head of the Hong Kong Monetary Authority brings home; Norman Chan Tak-lam was set to earn HKD$9.41m(USD1.2m), making him the highest paid central bank chief in the world.  As the HKMA is also the banking regulator, this makes Chan Tak-lam the biggest earning regulator in the world. Chan Tak-lam’s counterpart in Beijing, Shang Fulin, the head of China Banking Regulatory Commission, earns an estimated  CNY11,271 (USD1,800) per month.

The accompanying infographic details more of APAC banking regulators’ earnings.

Comparing regulators salaries with those of bankers reveals a stark difference. Since the global financial crisis took hold in 2008, we have seen a distinct change of attitude towards financial institutions. Blatant rule breaking by banks – whether money laundering, sanctions busting or tax evasion – is being punished in high-profile cases as regulators finally start to show their teeth. However, the impact on the individuals responsible have been unremarkable; a move to a less high-profile role in the bank, or early retirement as opposed to job loss or, as some have called for, criminal prosecution.

Rather than going after the bankers who allowed criminality to go unchecked at banks, or those who made good from the financial crisis, there is an element of maintaining the status quo vis a vis bankers’ salaries that is out of step with the movement to make change for the better in the financial sector.

In the post global financial crisis and post public bailout economy, can banks justify paying million dollar bonuses?

In February 2015, Ross McEwen, the head of RBS, went on record to defend bonuses for bankers in spite of government bailouts and losses:

“I need to be fair paying for our people so I can actually keep them onboard.”

Although McEwen has opted to hand back his personal GBP1m (USD1.5m) share award to the bank he will still take home an expected GBP2.7m (USD4m) in 2015. Peter Sands, the outgoing boss of Standard Chartered also waived his bonus in 2015.

Looking at Asia Pacific, four of China’s largest five banks made the Banker’s Almanac list of top ten biggest financial institutions. This includes Industrial and Commercial Bank of China, China Construction Bank Corporation, Agricultural Bank of China Limited and Bank of China. China Development Bank Corporation languished at no. 21 on the list.

“According to the half-year annual reports of the listed commercial banks, the average annual payment before deductions for the chairmen of the five biggest Chinese commercial banks was around 2 million yuan ($325,600).”Source:The Global Times 2014.

Piyush Gupta, CEO of DBS bank, Singapore’s largest, made SGD9.2m (USD 6.6m)
The CEOs of United Overseas Bank and Oversea Chinese Banking Corporation were not far behind.

Chief regulators salaries fall far short of those earned by their peers at regulated entities.
It’s unlikely they will ever be measured on the same scale. Regulators, in an ideal world, would be motivated by doing the right thing for the right reasons. That is certainly the message that some regulators are putting across. But banking is all about money, and the more you earn, the higher your status.

First published on the International Compliance Association blog in March 2015. 

Big banks can aid financial inclusion and raise their social kudos

Last week, India’s Prime Minister Narendra Modi hit the headlines with his promise of bank accounts for every household in the country, a bid to offer help to the country’s poor. The initiative is part of a movement towards financial inclusion, which means making financial services accessible by people who do not have formal identification documents, fixed abodes or even known dates of birth. Financial inclusion can be a sticky wicket for large financial institutions, however, as this same group of people can be defined, albeit unfairly, as high-risk and the costs of compliance with anti-money laundering rules can render financially inclusive products  uneconomical. FCA - aadhaar

PM Modi’s  Jan Dhan Yojana (Scheme for People’s Wealth) would rely on the biometric data obtained for the Aadhaar Unique Identification Number (UID) programme to remove some of the account opening requirements which have caused financial inclusion in the past.

The scheme is targeting 75m Indians who receive welfare payments and subsidies for grain, fuel and fertiliser, offering ‘account holders a debit card and accident insurance cover.’The aim is to reduce poverty by safeguarding salaries in banks and to stem corruption around cash hand-outs. With fewer people in the chain, there will be fewer hands on the rupees and reduced attempts at syphoning some of it off.

The large scale financial inclusion plan looks good from this perspective, although it is facing a few setbacks.

Another grand scheme designed to protect the integrity of the financial system is putting up one of the main obstacles to financial inclusion. Anti-money laundering (AML) rules globally recommend  proof of identification backed by proof of address provides the ‘one plus one’ basic requirement for opening a bank account, applying for a loan, credit card and other financial products. Many people in India have neither. The financially excluded create a risk/reward scenario which is often viewed unfavourably by financial institutions. The amount of work required to ID them and monitor their accounts, which contain relatively small balances, makes developing inclusion focused products cost expensive and not viable.

In poorly supervised markets, when the better regulated firms do not step in, the less scrupulous take centre stage. Financial inclusion as a movement is ripe for the plucking. The movement is about providing appropriate, ‘smart’ financial services to safeguard the funds and livelihoods of the poor, to keep money-lenders and loan sharks at bay.

One Indian pre-paid card provider I approached during research for a training course on financial inclusion had no idea what AML meant; but he was keen to learn and asked for guidance on where to find information on the subject. He is a businessman who sees an opportunity to make money, albeit from the backs of the low salaried. Modi’s scheme is not without its detractors. New money payment providers and services look beyond and operate outside of banking, and are championed by non-banking institutions. New players include on-line platform providers, (think Paypal and Transferwise), mobile money (M-Pesa in Kenya, Afghanistan, India and South Africa) and digital or crypto-currency (Bitcoin, Mazacoin, Auroracoin) can be attuned to focus on financial inclusion.

Nonetheless, ‘Big Banking’ has a part to play here. Larger financial institutions have a social responsibility to step up and create, or at least endorse, products offering fair and transparent financially inclusive solutions. They might not make a mint from it, but their social kudos will reap the benefits.

First published on the International Compliance Association blog.

Sanctions: talking Turkish banks with the US Fed

A Turkish bank is about to hand over the details of dollar transactions made in the second half of 2012 to the US Federal Reserve.

Ziraat Bank signed an agreement with the Fed in June 2014 to allow an independent consultant to review all US dollar clearing activity carried out between July 1 2012 and December 31 2012. This will give the US a clear view of who the bank was doing business with and for during that period.

US Federal Reserve

US Federal Reserve

The agreement published on the Fed’s website also requires the bank to submit a written compliance plan to enhance anti-money laundering (AML) requirements under the Bank Secrecy Act, an enhanced customer due diligence (CDD) program and a revised suspicious activity monitoring and reporting system.

This is an extremely powerful statement from the Fed, showing the extent of its reach beyond US borders and into the transactions made by a bank in Turkey with only a branch office in the US.

Although the scrutiny is limited to US dollar clearance transactions, this information alone could reveal the identities of any dealings the bank may have had with sanctioned individuals or entities. As suggested by one Turkish politician, the Fed could be looking for information on transfers connected to Iranian businessman Reza Zarrab from Turkey to Iran.

Zarrab was named in a report from Reuters in April, connecting him to a criminal organisation that allegedly allowed Turkey to bust US sanctions in Iran.

EU sanctions on Iran and the cost of sanctions to the US

Turkey has a history of supporting Iran. A Turkish bank was used as an intermediary for oil payments from India to Iran up to February 2013, when EU sanctions prevented Euro transactions with Iran. Several nations forged an agreement in November 2013, to ease sanctions on Iran. This gives some leeway to India who is seeking to resume using the payment channel as soon as sanctions are lifted.

Man looks at Iranian Oil Tanker

Man looks at Iranian Oil Tanker – Nat Geo image

Meanwhile, a court in Luxembourg has annulled sanctions placed on the Iranian National Iranian Tanker Company (NITC). The firm contested the EU’s 2012 sanctions, claiming the firm is privately owned by Iranian pension funds. In July, a court in Luxembourg decided there was no evidence that NITC was owned by the Iranian government and that the sanctions on NITC represented a ‘manifest error of assessment‘ by the EU. This is a great boost for NITC, who now has to wait another two months for an appeals to come forward before it can resume trading with Europe.

Sanctions on Iran have cost the US government USD$175bn, according to a study made by the National Iranian-American Council published in Time. The losses since the US started sanctioning Iran in the mid 1990s are apparent in US employment rates, particularly in California and Texas. The report comes at a time when western nations are working on a deal with Iran to scale back nuclear operations in return for reduced sanctions.

Source: Today’s Zaman

India: Centre gets tough on terror funds

The new BJP government is set to crack down on terror financing from across the border, holding it as one of the key steps towards beefing up the internal security mechanisms in view of impending terror threats from cross-border as well as home-grown terror outfits.

For the first time since the new government has taken charge, India has had its first detailed discussion in the multi-lateral forum over terror-financing.

Notably, India has sought cooperation of member countries to crack the financial network and fund-raising activities of Pakistan-based terror outfits and individual terrorists associated with these organisations.

The move is expected to get a boost during the fresh round of meetings where India will be assuming the chairmanship of the Eurasia Group of the Financial Action Task Force (FATF), the premier global Task Force on Counter-terror Funding Operations.

A delegation from the MHA was in Russia last week on the first leg of a two-legged tour of Russia and Europe over the issue of terror-finances.

Notably, new national security adviser Ajit Doval has regularly spoken tough on the issue of countering terror financing and the security agencies have been asked to crack down on such activities to bolster the counter-terror efforts, sources said. Combating money laundering an terror financing have remained key challenges for the security establishment in the last few years.

India has told the multilateral forum that its own customs and border guarding agencies have found that the largest source from where fake Indian currency notes are pushed into the country is Pakistan. It has also raised key concerns about extensive flow of hawala funds coming in from abroad for terrorist outfits, even as cross-border fund transfers are taking place for tax frauds.

Source: Asian Age

India: ML through trade, now real estate

It looks like India is trying to catch up with the rest of the world on money laundering methods. Last week we saw the emergence of news stories linking trade to money laundering; the anti-money laundering (AML) sector globally and International Chamber of Commerce have been talking about trade based money laundering for years, so much so that the phrase is now abbreviated to TBML.

This week, we read news that the Indian Enforcement Directorate has come around to the idea that construction projects are also a great way to launder and hide the proceeds of crime from prying eyes. A headline in the Financial Express drew attention to the massive potential for laundering cash through the real estate sector in India.

DDA flats next to a slum, New Delhi

DDA flats next to a slum, New Delhi

Public construction works take years to complete in India, as seen prior to the Commonwealth Games 2010, when unfinished projects were hidden behind temporary hoardings as the money to complete them had mysteriously dried up. Some of the temporary hoarding was still there when I left in 2012. A project to concrete over an  open storm drain-cum-open sewer which runs through Defence Colony, one of South Delhi’s fanciest neighbourhoods, was started in the mid 2000s. By 2012, it was still under construction. I saw a group of 20 or so workers at any one time hanging around or working on the project. Most of them lived under blue tarpaulin sheets strung from fences bordering the drain.

But life in India is not always thus for the wealthier residents. Buying property in the political capital – New Delhi – and financial centre – Bombay – is a privilege that only the wealthy can afford. In Delhi, the city government started to build blocks of affordable housing through the Delhi Development Authority (DDA) in the mid 1960s and many middle class families live in these apartments. The DDA plans to launch a new housing scheme in 2014.

Other housing options, New Delhi

Other housing options, New Delhi

Private housing prices are, pardon the pun, through the roof with many transactions being made privately, directly between buyer and seller. Property is often bought for cash which is not banked. Architects are regularly asked to build false walls into properties for hiding cash at home. Building regulations, illegal construction and legal disputes often mean housing stands empty, while the courts process the cases which often take years to settle. A lot of real estate is also built on disputed land in India. In New Delhi, some of the cities most salubrious and extravagant properties are in fact built on disputed land, which will never be challenged as the residents have enough power to ensure it will never be investigated.


Enhanced by Zemanta

Indian trade based money laundering worth USD302m

More than INR18bn (USD302m) in the proceeds of crime was laundered via trade based activities in India FCA - container shipduring 2013, a report from the revenue intelligence agency claims.

The Directorate of Revenue Intelligence registered 296 cases of suspected trade-based money laundering (TBML) during the same period.

Eleven persons were arrested in 2013 for their role TBML schemes which included the misuse of various government-run schemes, such as foreign or preferential trade agreements

False invoicing – over or under valuing the worth of goods in invoices, or issuing an invoice for goods that were never traded – was a popular method of laundering cash, the report continued.

Source: Economic Times

Enhanced by Zemanta

If a tree didn’t fall in the woods, could a laundryman still make money?

Bangladesh’s Anti-Corruption Commission (ACC) has charged 51 people, FCA - TIMBERincluding the Managing Director and President of a tree planting co-operative in connection with laundering BDT4,000cr – a staggering USD515m in funds embezzled from a tree planting scheme.

The story in the Daily Star alleges links to a number of illegal activities which would contribute to the money laundering charges, including:

They funds were generated by an investment scam. The group allegedly conned BDT2,433cr (USD312m) from 1.75m investors by selling 6.18bn tree saplings under the tree plantation project. In reality, the group planted only 3.2m trees. It looks like the investors, rather than being eco-warriors striving to create a green and airy Bangladesh, were lured by the promise of unrealistically high returns on investments. 

Once the money was paid to the a tree plantation cooperative, the accused allegedly syphoned it out of the books and records under the guise of paying salaries, undisclosed fees for services rendered, commissions and other staff related costs. They transferred the funds to employee’s bank accounts and to accounts of 20 other companies within the group.

The group was was already under investigation for illegal banking, according to the press, and this could mean they were using hawala. The hawala informal banking network is alive and well in South Asia and is used by businesses to send and receive funds domestically and internationally.

The funds were laundered outside of Bangladesh, according to charge sheets quoted in the press. BDT100cr (USD12m) was allegedly sent to Hong Kong to pay for the import of electrical and electronic goods, cosmetics and agro products, and leasing an aircraft. investigators claim the goods were never bought and no aircraft were leased in connection with this transaction. 

So far, five of the group are behind bars and the other 46 are reportedly on the lam.

Source: The Daily Star

Bulk cash smuggling: India to Nepal with Euros, Dollars and Baht

Three UP men arrested with huge foreign currency cache in Nepal FCA - Cash smuggling

Thank you  for the update.

Enhanced by Zemanta

Indian regulator homes in on round-tripping


Yachts in a tax haven quayside

Yachts in a tax haven quayside

Round tripping: routing money back into the country as foreign funds using investment vehicles, such as stocks and bonds, across jurisdictions  

The Securities and Exchange Board of India is reportedly looking into a money movement scheme which allows investors to bring money back into India without paying the correct amount of tax.

According to this report on, SEBI is “looking at the possible use of Protected Cell Companies (PCCs) from Mauritius, British Virgin Islands, Cayman Islands and Seychelles for alleged round-tripping of funds back into the capital market in the form of foreign institutional investor and overseas venture capital money.”

Several entities are under investigation, including some well known companies and industrialists, although no names have been confirmed. It also looks like bank employees may have been acting without the knowledge of the institutions to arrange ’round-trips’ for clients: “..while the banks may not have been directly involved, their employees may have dealt with the clients without keeping the banks in the loop.”

The problem is not jsut limited to India, unsurprisingly. A study carried out by professors at Massachusetts Institute of Technology (MIT) int he US revealed that the practice is costing the US billions in unpaid revenue.


Enhanced by Zemanta