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Part 2 Out: Cobrapost Stings Again

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Online magazine on Monday, 6 May 2013, came out with its second round of expose against 23 major Indian banks -- both public and private -- as well as insurance companies. charged the banks and financial insitutions with running a nation-wide money laundering racket and alleged that the coverup has been a bigger scandal.

The exposed this time included  State Bank of India, Bank of Baroda, Punjab National Bank, Canara Bank, Indian Bank, Indian Overseas Bank, IDBI Bank, Oriental Bank of Commerce, Dena Bank, Corporation Bank, Allahabad Bank, Central Bank of India, all public sector banks, and their insurance associates; Yes Bank, Dhanlaxmi Bank, Federal Bank, DCB Bank, HDFC Bank, ICICI Bank and Axis Bank, all private banks, and their insurance allies; besides the state-owned LIC of India, Reliance Life Insurance and Birla Sunlife, and Tata AIG, among private sector insurers.

Unveiling the video footage that had over a dozen public sector banks, four private sector in addition to the three named earlier and four life insurance firms, some of which are banking licence aspirants, Cobrapost editor Aniruddha Bahal said: “operation Red Spider 2 establishes beyond doubt that money laundering is not confined to private banks and is not an aberration as is being made out.”

An LIC agent is shown as willing to accept Rs 25 lakh cash.

Read Also: RBI Audit Finds Aberrations in ICICI, HDFC, Axis
Read Also: Cobrapost Sting: Full Coverage

The undercover investigation conducted for more than half a year, and spanning many states including Uttar Pradesh, Rajasthan, Delhi, Haryana, Andhra Pradesh and Karnataka, brought forth the following facts:
  • Money laundering practices are part and parcel of banking and insurance business across the board;
  • Even a walk-in customer can avail of such services that help him launder all his unaccounted cash;
  •  Money laundering services are being offered openly as a standard product across the board.
The portal also took on the Reserve Bank of India for declaring that the March expose was the result of “only violation of KYC norms” and as such “no money laundering took place because no transaction took place”.

Further, Cobrapost also alleged that these transactions were not confined to a few low-level front office staff as was being made out by the banks in the “so-called inquiries.”

“Our interactions with all officials some with the ranks of divisional manager, territory manager, assistant general manager and vice presidents with scores of branches under their charge, bear it out clearly that they are parties to and facilitators of these transactions,” Bahal said.

IBA Asked To Look Into Accusations
Taking note of the development, Financial Services Secretary Rajiv Takru said, "I have asked Indian Banks Association (IBA) to look into Cobrapost allegations...there is a need to examine allegations." He said three senior officials have been asked to look into the issue.

Talking to reporters, State Bank of India (SBI) Chairman Pratip Chaudhuri said the bank would investigate the allegations and take severe action against those found guilty.

"So far, it does not indicate if KYC violations have been done. But if they have been done, the people would be severely punished," he said. "We are very clear that there is zero tolerance for any money laundering or working around the KYC."

On misuse of lockers to store black money, Chaudhuri said banks do not keep a check on what customers keep in their lockers.

"I cannot have content (of the locker). I don't know what is there in your locker...We are under no obligation to check," he said, adding that as most banks can try to find out whether the items stored are not explosives or drugs.

Denying the Cobrapost allegations, Reliance Life said: "As part of its ongoing compliance efforts, Reliance Life will continue to examine any specific instances that come to light for appropriate remedial action, if any."

Bank of Baroda General Manager D D Singla said: "We are in the process of investigating the whole event...instances of deviation will be sternly dealt with as per our established procedure."

"We are reviewing the contents and making our internal inquiries. The bank does not allow or accept any breach of rules and regulations," a DCB Bank official said.

Cobrapost in its press release said, "Operation Red Spider 2 establishes beyond doubt that money laundering is not confined to private banks, and is not an aberration.

"It is rather endemic overarching the entire banking system and insurance sector, without exception, however shocking it might be. The scale is vast and unfathomable," the portal added.

After the first expose in March, the Reserve Bank had initiated an inquiry into the allegations against ICICI Bank, HDFC Bank and Axis Bank.

"The RBI recently undertook investigations in the light of reported allegations that certain banks were involved in structuring transactions to aid tax evasion and fraudulent transfer of funds. The investigations revealed the need for better regulatory compliance by banks," the central bank had said while unveiling its monetary policy for the current fiscal last week.

(With input from PTI)