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ICICI Bank Suspends 18 In Money Laundering Probe

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Private sector lender Axis Bank said it has asked 16 concerned officials to report to administrative offices, pending investigation which has been initiated with regard to alleged money laundering activities. ICICI Bank Ltd, India's No. 2 lender, meanwhile has suspended 18 employees as it investigates an alleged money laundering case

"The bank has initiated an internal enquiry. Pending outcome of the enquiry, we have asked 16 concerned employees to report to administrative offices," sources in the Axis Bank said.

The move comes after a report by an independent journalist who said on Thursday he had video footage of some branch employees of ICICI Bank, HDFC Bank Ltd and Axis Bank Ltd suggesting to an undercover reporter methods of laundering money.

The finance ministry's Financial Intelligence Unit (FIU) and RBI are investigating allegations of money laundering practices at top private sector lenders ICICI Bank, HDFC Bank and Axis Bank. Goldman Sachs, meanwhile, said the allegations, if proven, could slow growth for private sector lenders in India.

Top private sector banks, ICICI Bank, HDFC Bank and Axis Bank on Thursday, 14 March, 2013 had 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.

Banks Order Probe Into Reports Of Money Laundering

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.

FIU, RBI Probing Money Laundering Accusations

The FIU will provide information in this regard to the Income Tax department which has already begun a probe into the contents of the sting operation, a senior I-T official said on 15 March. The I-T department, sources said, would also approach online portal Cobrapost to obtain the unedited footage of the sting operation. The FIU, an enforcement agency, is empowered to undertake investigations under the provisions of the Prevention of Money Laundering Act (PMLA).

Banks are mandated to submit three types of reports to the FIU under the Know Your Customer (KYC) provisions framed by the RBI and as required under the PMLA. The FIU receives Suspicious Transaction Reports (STRs), Cash Transaction Reports (CTRs) and Counterfeit Currency Reports (CCRs) from banks-- both private and public-- and from a variety of financial intermediaries. The FIU subsequently dispatches them to the concerned enforcement and investigation agencies for action.

"All government agencies and regulators are working together to probe charges," Rajiv Takru, secretary of financial services, told a television business news channel on Friday.

All the three banks claimed they conduct their business in compliance with legal and regulatory requirements of the highest standards but said they will investigate the charges. However, no account was opened nor any cash deposited in these banks.

"The RBI is collecting information, and the RBI has been in touch with the banks. At the moment, that's all I can say," Urjit Patel, deputy governor of the RBI, told reporters late on Thursday. When asked if any of the three banks in question--ICICI Bank, Axis Bank or HDFC Bank-- have been issued a show-cause notice in the aftermath of the expose, Patel said "No".

Finance Minister P Chidambaram said the Government will not jump to any conclusions in the matter, while the CBDT said it has taken cognisance of the sting operation and has begun a probe into it.

Shares of the three lenders fell on Friday, with ICICI Bank down 1.3 per cent, HDFC Bank down 0.24 per cent, and Axis Bank up 0.2 per cent as of 9:56 a.m., under-performing the 0.23 per cent gain in the Nifty. Shares of the three lenders fell briefly on Thursday but recovered to end the session with gains following lower-than-expected core inflation data.

"We think these developments, if they were to be true, could potentially lead to slower growth across private banks' deposits and businesses as RBI may then direct banks to focus on improving risk management rather than expanding," Goldman Sachs wrote in a note late on Thursday. "It is difficult to ascertain the extent of the slowdown till more clarity on these developments is provided by the banks," it added.

(Agencies)