How Cobrapost exposed top banks' money laundering

Online media firm Cobrapost on Thursday alleged managers of the country's top-three private banks by market capitalisation - ICICI Bank, HDFC Bank and Axis Bank - had been offering 'money laundering' as products to people looking to park black money.

"They are offering it as a product - one without brochure," said Cobrapost Founder & Chief Editor Aniruddha Bahal.

Even as Bahal was unveiling a 150-minute documentary film of sorts, based on the multi-centre covert investigation that used spy-cams, stocks of the three banks were slipping into the red - falling by up to two per cent each.

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However, with banks swiftly offering statements announcing internal investigations, the market shed its fears and lifted the stocks.

HDFC Bank gained 2.28 per cent over its previous close to end the day at Rs 649.60, while ICICI Bank gained 2.29 per cent to Rs 1,110.75 and Axis Bank 0.5 per cent to Rs 1,354.25.

Later in the day, Finance Minister P Chidambaram said he'd spoken to chiefs of two of the three banks and had assured the allegations were not correct.

Reserve Bank of India (RBI) Deputy Governor Urjit Patel said the banks had been asked to provide details, but denied that any showcause notice had been sent.

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The Cobrapost film, titled 'Operation Red Spider', showed several mid-level staffers, such as relationship managers, branch managers and territory managers, offering to convert black money worth crores of rupees into white. Some even offered to deliver handsome returns, "all in white".

One of the most common methods offered by the staff across banks at different centres around the country, such as Faridabad, Delhi, Vellore and Hyderabad, was to invest the money in long-term insurance products.

The managers usually offered insurance products of sister concerns, such as HDFC Life, ICICI Prudential Life Insurance, etc.

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Citing the video evidence, Cobrapost alleged the banks and their managements systematically and deliberately violated provisions of the Income-Tax Act, Fema, RBI regulations, Know-Your-Customer (KYC) norms, the Banking Act and the Prevention of Money laundering Act, with "disregard to consequences, driven by desire to boost cheap deposits and increase profits".

The media firm also questioned the credentials of the insurance industry's assets.

While the banks responded by saying they were initiating internal inquiries, Bahal said there should be an independent investigation by an external agency.

According to him, lower-level staff would not have offered their services so openly without the knowledge of the senior management.

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"If I am running a bank. I would know what is happening where. Our investigation showed these money-laundering practices are part of a standard set of procedures within these banks," Bahal said.

Cobrapost alleged these money laundering services were openly offered to even walk-in customers.

Syed Masroor Hasan, an associate editor of Cobrapost, under the alias of Rajesh Sharma, visited the private banking divisions of these banks across the country.

He told the staff he was fronting a minister and his imaginary wives, Nita and Vandana, and that he wanted to deposit a few crores of rupees as black money. He also said he wanted to send some of this money abroad, making the banks offer various solutions.

One of those even offered to get two PAN cards issued in his name, the Cobrapost video showed.

Cobrapost's crowded press conference also had some high-profile visitors, including author Arundhati Roy and Aam Aadmi Party member and senior advocate Prashant Bhushan.

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How Cobrapost worked

Associate Editor Syed Masroor Hasan, under the alias of Rajesh Sharma, tells unsuspecting bank officials he is fronting a minister

He says the minister's imaginary wives - Nita and Vandana - want to deposit black money

Several officials of the three banks, at some 40 centres across the country, readily buy the story

They offer solutions ranging from opening multiple bank accounts to investment plans and remittances

They promise to create 'channels' through which Sharma will get back his money - in white

They also offer lockers, where up to a few crores in cash can be stashed

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What banks are saying

ICICI Bank

"ICICI conducts its business with the highest level of compliance to legal and regulatory requirements. All employees are trained and required to adhere to the group's code of conduct. We are deeply concerned with the media reports. We want to assure our customers we are committed to adherence to the high standards of business conduct. We have constituted a high-level inquiry committee to investigate into the matter and submit its findings in two weeks."

HDFC Bank

"We are concerned at the allegations that have appeared in the media. The matter is being investigated. The bank has a well-defined KYC and AML policy, which contains procedures to identify and prevent the transactions mentioned in the Cobrapost press release. Segregation of frontline sales, back-office operations and post-transaction monitoring processes is in place to ensure independent checks & balances. We would assure our customers the bank will continue to adhere to the highest standards of compliance and corporate governance."

Axis Bank

"The bank will investigate thoroughly the allegation that it is involved in money laundering. Axis Bank has systems and processes that are robust and compliant with regulations. We will examine information brought to our notice. The bank has built a strong customer franchise and maintains high corporate governance standards. Best practices across businesses are followed and we are confident all our businesses will live up to the high standards we have set for ourselves."