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Banks Order Probe Into Reports Of Money Laundering

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Top private sector banks, ICICI Bank, HDFC Bank and Axis Bank on Thursday, 14 March, 2013 ordered high level inquiries into allegations of facilitating a nation-wide money laundering racket.  A sting operation by Cobrapost, an online magazine, showed employees of private sector banks accepting black money to convert it into white money.  Finance Minister P Chidambaram said government would not jump to conclusion.

CBDT (Centeral Board of Direct Taxes) Member (Investigations) K V Chowdary in Mumbai said the department has "taken cognisance of the Cobrapost story and have begun a probe in the matter."

The portal Cobrapost played the contents of purported video recording of officials of HDFC, ICICI and Axis bank allegedly agreeing to receive unverified sums of cash and put them in their investment schemes and benami accounts in violation of anti-money laundering laws.

The footage taken in 'Operation Red Spider', purportedly shows a number of senior executives of the three banks verbally agreeing to take huge amounts of cash from the undercover reporter and putting them into a variety of long-term investment plans so that the black money ultimately is converted into white.

However, no account was opened nor any cash deposited in these banks.

In a press release, ICICI Bank, the largest private sector lender in India said: "ICICI Group conducts its business with the highest level of compliance to legal and regulatory requirements. We are deeply concerned with the media reports. We have constituted a high level inquiry committee to investigate into the matter and submit its findings in 2 weeks."

In a separate press release, HDFC Bank, the second largest private sector lender in the country, said: "We are concerned at the allegations that have appeared in the media. The matter is being investigated on top priority. The bank has a well-defined Know Your Customer (KYC) and Anti Money Laundering (AML) policy which contains procedures and controls to identify and prevent the types of transactions mentioned in the Cobrapost press release."

"Segregation of frontline sales activities and back office operations and post transaction monitoring processes are in place to ensure independent checks and balances and adherence to all the laid down policies and procedures of the bank. Any deviation is viewed very seriously and stringent action is taken both at an organisational and employee level. We would like to assure our customers and other stakeholders that the bank has always adhered to the highest standards of compliance and corporate governance and will continue to do so," it added.

We would like to assure our customers and other stakeholders that the bank has always adhered to the highest standards of compliance and corporate governance and will continue to do so."

The Axis Bank statement said: "Axis Bank has systems and processes that are robust and fully compliant with extant regulations. We will examine whatever information that is brought to our notice and investigate thoroughly. The Bank has built a strong customer franchise over the years and maintains high corporate governance standards.

Any deviations to such standards are viewed very seriously. Best practices across businesses are followed by the Bank and we are confident that all our businesses will live up to the high standards we have set for ourselves as a Bank."

The sting alleges that banks and their managements systematically and deliberately violate several provisions of the Income Tax Act, FEMA, RBI regulations, 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.

Axis Bank shares ended up 0.45 per cent after earlier dropping as much as 3.5 per cent.

ICICI Bank shares closed 2.3 per cent higher after earlier falling 2.4 per cent, while HDFC Bank ended up 2.3 per cent, also recovering from earlier declines of 3 per cent.

The shares recovered after government data showed core inflation rose less than anticipated, reinforcing expectations that the RBI will deliver an interest rate cut next week to boost the economy.

Market regulator Securities and Exchange Board of India had no comment on the matter, according to a spokesman.