The Central Bureau of Investigation (CBI) is conducting a preliminary enquiry into the alleged misuse of up to $3.2 billion in export advances paid out by state-owned UCO Bank against bogus exports to Iran, said sources familiar with the development. “The agency is examining the case and is likely to register a formal case very soon in the Indo-Iran trade scam,” an official who did not wish to be named told The Indian Express.
This move comes after the Enforcement Directorate (ED) wrote to the government to look into a case where the agency has found that nine foreign nationals — mostly from Iran and Azerbaijan — entered the country on student visas and set up multiple shell companies to gain access to funds held by Iran’s UCO Bank account.
In 2012, UCO Bank began a rupee payment mechanism under which a few Iranian banks opened Indian rupee accounts with the Indian lender. Payment for crude oil imports from Iran were paid by Indian oil firms to this account. Apart from this, payments received by Indian companies for exports to Iran was also settled through this account.
So far, ED has found that the shell companies took advance payments of at least Rs 946 crore from UCO Bank against future exports to Iran and then diverted it to certain entities in Dubai and Iran. Some of these advances were taken to purchase diamonds for re-export to Iran. This and other export shipments were never made, according to ED sources. 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.
ED sources claimed that the fraud could be several times bigger. According to ED officials, the agency has found that some of the money diverted by the shell companies were received by companies run by Surat-based alleged hawala operator, Afroz Hasan Fatta. Fatta was arrested by the ED in January and is accused in the hawala transaction, which is said to be over Rs 5,000 crore in just two months (January and February this year), from the purported diamond trading firms run by him.
UCO Bank in its response to a questionnaire from The Indian Express said that the Directorate of Enforcement (DoE) and CBI had earlier sought certain information related to a few accounts of the Bank’s Mumbai branch relating to cases of advance payments received from Iran for future exports. The necessary information/papers/reports have already been provided by the bank to the DoE /CBI from time to time. “ It should be noted that in the entire process our bank has not given any sort of credit facilities to the Exporters who are under investigation. Since the bank has not lent funds to them and also not suffered any financial loss in the matter, our bank has not considered filing of any FIR and also do not contemplate any such action in this case. We do not have any information/ knowledge with reference to the diversion of money to Dubai and Iran referred in your email. We reiterate that all payments handled by our Bank related to Iran were through proper Banking Channels and in Indian Rupees only and no foreign currency is involved. Emails and phone calls to CBI did not elicit any response.
The shell firms which are currently being investigated by ED for their involvement in the fraud include A&H General Exports, True Exports Services, Connect Export Traders, Centroid Exports, Genius Exporters, New Age Export Services, Star Elite Exports and Elite World Trading.
“Currently, ED is currently investigating the case under FEMA which is a civil offense, but once the CBI registers a case we will launch a money laundering probe against the perpetrators,” said an ED official.
Following the ED probe, RBI in February told commercial banks to efficiently follow up with exporters to ensure performance of orders, including shipment in case of goods, within a stipulated period. “Banks should exercise proper due diligence and ensure compliance with KYC (know your customer) and AML (anti-money laundering) guidelines so that only bona fides export advances flow into India,” said RBI. RBI also suggested that doubtful cases and defaulting clients should be referred to ED.