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Enforcement Directorate on high alert as trade-based money laundering bleeds economy; asks banks to plug loopholes

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Faced with a surge in trade-based money laundering cases and hawala scams, especially in Mumbai, Delhi and Gujarat, the Enforcement Directorate (ED) has alerted banks, and asked them to be more vigilant while transferring large funds.

In a meeting of top compliance officers and Money Laundering Reporting Officers (MLROs) of banks called by ED recently, the directorate has asked banks to plug loopholes and check the growing menace.

"Several banks such as ING Vysya, Bank of India, IndusInd and Citi were called in. Just a week ago, we have found that three banks separately encashed three similar-looking fake import bills – each over Rs 500 crore, carrying the same bill number issued by the same party," a senior official attached to ED in Mumbai told dna. Investigation is under way.

He said ED is currently pursuing more than 1,000 cases filed under Foreign Exchange Management Act (FEMA) violation.

"A lot of scamsters are using official banking channels like National Electronic Funds Transfer (NEFT) and Real Time Gross Settlement (RTGS)," he said.

The recent surge in such cases points to the lack of checks and balances in the banking system to curb large funds being siphoned off from the country.

A senior MLRO with a foreign bank, who is an expert on anti-money laundering, said: "Assessment is being done on trade-based money-laundering by regulators as well as banks. It is not just India, but other countries are also worried about this menace."

"What we find is that the people involved in siphoning off funds have become more smarter. So banks need to be more alert," he said.

The Reserve Bank of India (RBI), which raised a red flag over money- laundering activities three years ago, has periodically come out with guidelines for anti-money laundering and Know Your Customer (KYC) norms. The fresh developments will now force the central bank to introduce stricter rules.

Among the recent high-profile cases on ED's radar is the Sahara group's possible fund diversion to foreign countries. The directorate is now investigating whether the group took funds abroad to create illegal assets.

The ED has registered a money-laundering case against the group in connection with non-payment of crores of rupees to depositors. "A case under the Prevention of Money Laundering Act has been registered against the group, and investigations are in progress."

In another case, the ED in Gujarat filed a second charge sheet in the over Rs 5,300-crore hawala scam allegedly involving a Surat-based trader before the special Prevention of Money Laundering Act court. The ED has named eight traders from Mumbai, Surat and Ahmedabad.

As per the charge sheet, one trader allegedly sent hawala money of Rs 750 crore to his nephew through online RTGS, which was later sent through angadias (private couriers) to the main accused.

The money was then transferred to various banks in Dubai and Hong Kong, where it was received by their counterparts, according to ED.
The multi-crore hawala racket was busted in March during searches at Surat-based offices of some leading diamond traders. They allegedly made bogus import bills to show that they had purchased diamonds from foreign traders and sent money abroad, without a single diamond having imported, according to the directorate.

"In the Surat case, first it was the customs department which confirmed that the bills of entries were all fake. More than Rs 5,000 crore had been fraudulently siphoned off by Surat-based companies based on fake import bills," said the ED official.

Last week, ED issued a show-cause notice to Videocon Industries, its chairman and managing director Venugopal Dhoot and six group companies for FEMA contravention of Rs 660 crore.

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