Banks are using insurers to launder money

Saturday, 16 March 2013 - 10:30am IST | Place: Mumbai | Agency: DNA
A closer look at online magazine Cobrapost's money laundering expose highlights how it is actually the insurance industry that's being used to convert black money into white due to easier regulations.

A closer look at online magazine Cobrapost’s money laundering expose highlights how it is actually the insurance industry that’s being used to convert black money into white due to easier regulations.

The sting operation at three top private banks is a case study in insurance misselling by bank officials promising guaranteed tax-free returns, accepting money in cash, not asking for a PAN card or doing KYC (know your client) procedure.

In one of the video transcripts posted by Cobrapost, Ganesh, an investment manager with ICICI Bank at Hyderabad, suggested GSIP, an insurance plan of ICICI Prudential, in which his visitor could invest Rs10 lakh every year for seven years with a guaranteed return of Rs1.75 crore after 15 years.

“There will be a life cover 10 times the premium paid by default.100% is secure here,” Ganesh said.

In another sting, N Sharma, manager at HDFC Bank, Jaipur, mentions that insurance is the safest investment option and that they will provide “in writing on a bond paper” the sum they will get after certain years.

Similarly S Kaur, branch head at Axis Bank, Noida, Uttar Pradesh tells that the PAN number is not required while investing in an insurance product.

“There is no record either, stating from where has money come. This is the thing... return you earn on it will not be credited to your account... it comes by cheque becoming white,” said Kaur.

Experts say that if the sale is through bancassurance (banks selling insurance) channel, the customer need not to comply with a separate set of KYC requirement.

“Banks usually certify the account holder as a genuine customer,” the managing director of an insurance firm told DNA.

Experts believe the stringent norms adopted by the Securities and Exchange Board of India makes money laundering through mutual funds very difficult, if at all.

That’s why probably the exposed bank officials were hesitant to advise routing money into mutual funds.

“Its unsafe investing in mutual funds in which a PAN number is mandatory as per Sebi norms, the returns are unsure and then all returns are account linked,” Kaur of Axis Bank said in the sting video.

A financial advisor based out of Mumbai too believes money laundering in insurance is comparatively easier.

“In mutual funds, it is hardly possible as fund houses insist on cheque payments. Also, they mandate a third-party declaration if the payment is done by anyone other than the fund holder,” he said.

A senior official of the Association of Mutual Funds of India believes that the KYC norms adopted by mutual funds are quite stringent.

“You need to compulsorily invest through cheque or through electronic clearing service. One cannot invest in mutual funds in cash except for investing small amount of up to Rs20,000 allowed by regulator recently for rural investors,” he said.

@nitinpshri & @Aswathy_100


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