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dna impact: Tighten norms in export deals, RBI tells banks

The Reserve Bank of India (RBI) has directed banks to plug loopholes in export finance deals, especially when it comes to advance payments for yet-to-be-undertaken exports. The directive follows the Enforcement Directorate (ED) probe into the suspected misuse of up to Rs 20,000 crore in export advances paid out by a bank. It, however, made no mention of the UCO Bank, the only nationalised bank that deals with Indo-Iran trade.

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The Reserve Bank of India (RBI) has directed banks to plug loopholes in export finance deals, especially when it comes to advance payments for yet-to-be-undertaken exports. The directive follows the Enforcement Directorate (ED) probe into the suspected misuse of up to Rs 20,000 crore in export advances paid out by a bank. It, however, made no mention of the UCO Bank, the only nationalised bank that deals with Indo-Iran trade.

"Banks should exercise due diligence and ensure compliance with KYC (know your customer) and AML (anti-money laundering) guidelines so that only bonafide export advances flow into India," the RBI said in a circular to banks on Monday.

It was first reported by dna on January 23 that the ED has been probing the multi-layered hawala scam under the Foreign Exchange Management Act, for three months now. While investigations so far pegged the scam at Rs 2,000 crore, ED now suspects it to be a much bigger scam at Rs 20,000 crore.

Recently, ED has taken details of accounts and transactions worth about Rs 800 crore from UCO bank. They also visited the regional branch offices of UCO Bank in Mumbai and Chandigarh and recorded statements of at least 5-6 bank officials a couple of months back.

As per the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000 the advances for exports, or for the re-export of goods imported into India, should be covered within 12 months by proof that an actual delivery is made.

"But the shipments, which included the purchase of textile or textile kind of goods for re-exports to Iran, were never made," said an ED source familiar with the investigation.

"Clearly, the activities were illegal and done with the sole purpose of money-laundering as there were no genuine transactions. All companies had the same address and there is apparently no business rationale for incorporating a large number of companies. Money trail up to 3-4 layers have been traced. Further beneficiaries are being identified," added the ED source.

According to sources, eight foreign nationals (seven Iranians and one from Azerbaijan) visited India on student visas, created bogus companies in Chandigarh and opened accounts with UCO Bank in probable collusion with lower-rung officials. Their sole purpose was to divert funds to Dubai and Iran.

They acquired companies in India with the help of an accountancy firm, Agarwal Raman & Associates, with the help of one UK Nair. They have their corporate office in Chandigarh. The accounting firm has since shut shop, post the transactions early last year. None of the key people from the firm nor the eight foreigners are traceable.

The exporters under ED lens are A&H general exports, True Exports Services, Connect Export traders, Centroid Exports (P) Ltd, Genius Exporters P Ltd, New Age Export Services, Star Elite Exports (P) Ltd and Elite World Trading.

"We are investigating all these companies which are actually bogus ones created for fake exports. They received funds in their UCO Bank accounts in Chandigarh and Mumbai, and 90 percent of the advance payment documents were fictitious," ED sources said.

India had expected exports to Iran to hit $6 billion in the fiscal, but in the first seven months of the year, they reached just $2.4 billion.

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