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Subbarao For Action Against Money Laundering

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Reserve Bank of India Governor Duvvuri Subbarao said on Friday, 22 March 2013 that there was a need for action to prevent money laundering in the country following recent allegations against three large private sector banks.

On March 14, online magazine Cobrapost had released the contents of a 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 report hit the banks' shares.

Following the allegations, the banks had also suspended some employees in question.

RBI has also initiated scrutiny of the three banks for alleged violation of KYC guidelines. It has said final reports will be completed by March 31 and thereafter further course of action as necessary will be initiated.

"I can't at this time say or make a broad sweeping statement that there are no transactions taking place at all, but I believe the system is largely safe," Subbarao said in response to an audience question at a banking industry gathering.

"However, there is need for some corrective action. We are going to the head offices of all those banks to check what the system is for detecting management-level control over these transactions."

The RBI is also conducting a study of the banking system on whether there are enough controls to prevent such incidents, Subbarao said.

A day earlier, on 20 March, RBI had sought to downplay the money-laundering allegations against three private sector banks, saying the country has a "perfect" system to prevent such offences and that not a single such transaction took place in the sting operation.

Read Also: No Money Laundering Involved In Cobrapost Expose: RBI

The country's three largest private banks -- ICICI bank, HDFC Bank and Axis Bank -- were last week accused of indulging in money laundering both within and outside with an online portal, Cobrapost, claiming that the sting operation conducted by it had revealed a scam.

"Allegations do not mean flouting norms. There is not a single transaction which has taken place. KYC violations will happen in any system. These are all transactional issues and have nothing to do with money laundering," Deputy Governor KC Chakrabarty told reporters after a meeting with bankers in Mumbai.

He was responding to a question on the issue.

The senior most Deputy Governor further said, "there is no scam (that) has no transaction has taken place."

"Let us not unnecessarily downgrade ourself. Our system to prevent money laundering is perfect, absolutely nothing (wrong with it)," he said.

Chakrabarty also said RBI will further tighten the anti-money laundering norms if needed. "If we find there is a need to further tighten any guidelines, we'll do that."