CBI launches money-laundering probe against UCO Bank employee

A former UCO Bank employee, eight exporters and Reserve Bank of India (RBI) officials are under the scanner of the Central Bureau of Investigations (CBI) for alleged misuse of up to $3.2 billion in export advances paid by the bank against "bogus exports" to Iran.

This move comes after the Enforcement Directorate (ED) wrote to the government to look into the case where nine foreign nationals - eight from Iran and one from Azerbaijan - were found to have entered India on student visas and set up multiple shell companies to gain access to funds held by Iran's UCO Bank account.
 

The shell firms and officials are named in CBI's preliminary enquiry include a former assistant general manager at UCO Bank, unknown officials of RBI, True Export Services, A&H General Exports Trades, Star Elite Export Trading, New Age Export Services, Connect Traders, Elite World General Trading, Genius Exports and Centroid Exporters.

Business Standard has viewed the copy of the preliminary enquiry (PE) registered by the CBI.

According to it, the respective shell companies received advance payments of at least Rs 902 crore against future exports to Iran and then diverted funds to certain private entities. "Considering the huge remittance received by the eight companies, money laundering by private persons in connivance with the bank officials is also suspected in this case."

"The matter has to be reported to RBI for necessary action and in the said matter it is alleged that UCO Bank has not followed procedure according to FEMA provisions. The concerned RBI officials who undertake monitoring of foreign exchange transactions of public sector banks have failed to detect the illegal transactions," it said.

"ED is investigating the case under FEMA which is a civil offence, but when CBI registers a case we will launch a money-laundering probe against the accused," said a senior ED official.

The probe agency claimed that the fraud could be several times bigger and could go up to Rs 20,000 crore.

In an email response, a UCO bank spokesperson said, "The matter is presently under investigation, whose outcome is awaited."

An RBI spokesperson said, "RBI has no information about any FIR filed by the CBI in the alleged Indo-Iran remittance scam. The issue apparently relates to alleged remittances to Iran in violation of the sanctions prevailing at that time and the involvement of the banking system in India. ED has been investigating into any possible irregularity or contravention in the said remittances. RBI has rendered assistance to the Directorate of Enforcement (DoE) in their investigation by providing the information available with it. The outcome of investigation by DoE is awaited."

"The entire process of remittances including pre-remittance due diligence and post-remittance follow up is the responsibility of the authorised dealer bank and RBI is not involved in such operational matters,” added RBI spokesperson.

In the PE, CBI alleged that no genuine export had taken place against the advance payment received and the concerned parties would have siphoned off funds illegally. The ultimate objective of opening accounts was to park money in shell companies so that it could be siphoned off conveniently.

Although there was no financial loss for UCO Bank, officials had abused their official position and committed gross irregularities in opening accounts by not verifying the export of goods against which advance payment was received from foreign buyers, thereby facilitating the alleged money-laundering by private parties, it added.

Between July 2013 and December 2013, the UCO Bank official had abused his official position and allowed the opening of as many as eight current accounts in the bank's Fort branch in Mumbai without following the Know Your Customer (KYC) norms. These companies were created to receive funds to the tune of Rs 902 crore as advance payment for future exports.

CBI found transaction details and the amount credited in the current account of UCO Bank. In a single day, nearly Rs 1,191 crore was credited and Rs 1,189 crore was debited.

CBI further alleged the UCO Bank official had approved the opening of the said accounts having promoters/directors/partners of foreign nationality on the basis of local addresses provided by them.

In 2012, UCO Bank began a rupee payment mechanism under which a few Iranian banks opened Indian rupee accounts with the Indian lender. Payments for crude oil imports from Iran were paid by Indian oil firms through this account. Apart from this, payments received by Indian companies for exports to Iran were also settled under this facility.

Under current norms, advances for exports, or for re-export of goods imported into India, should be covered within a year by proof that an actual delivery is made.