Aniruddha Bahal's Cobrapost has made stunning allegations against three private sector banks: HDFC Bank, ICICI Bank and Axis Bank. The investigative news portal has alleged that the banks are "running a huge nationwide money laundering racket".
In a press release, Cobrapost said the money laundering racket has been captured on videotape running into hundreds of hours. "The evidence is graphic, crystal clear and clinching. The investigation finds the banks and their managements systematically and deliberately violating several provisions of the Income Tax Act, FEMA, RBI regulations, KYC (know your customer) norms, the Banking Act and Prevention of Money laundering Act (PMLA) with utter disregard to consequences, driven by their desire to boost cheap deposits and thereby increasing their profits," the release said.
ICICI Bank was quick to respond to the allegations. It has constituted a high-level inquiry committee to investigate the matter and submit its findings within two weeks. "ICICI Group conducts its business with the highest level of compliance to legal and regulatory requirements," says a release from the bank.
It further says that all group employees are trained and required to adhere strictly to the Group Code of Conduct, including AML (anti-money laundering) and KYC norms. "We have demonstrated our commitment to this by following a zero tolerance policy towards any violation. We want to assure our customers and all stakeholders that we are committed towards adherence to the high standards of business conduct, which is expected of us," says the release.
A little later, Axis Bank, too, issued a release. It stated that the bank had robust systems and processes in place that were fully compliant with regulations. "We will examine whatever information is brought to our notice and investigate thoroughly," it promised.
HDFC Bank has also ordered a probe. In a release, the bank stated: "We are concerned at the allegations that have appeared in the media. The matter is being investigated on top priority. The bank has a well-defined Know Your Customer and Anti Money Laundering policy which contains procedures and controls to identify and prevent the types of transactions mentioned in the Cobrapost press release."
The release added: "Segregation of frontline sales activities and back office operations and post transaction monitoring processes are in place to ensure independent checks and balances and adherence to all the laid down policies and procedures of the bank. Any deviation is viewed very seriously and stringent action is taken both at an organizational and employee level."
Cobrapost's allegations are very serious. The sting operation claims to have captured many bank officials on camera. Judging from some of the footage, it appears some over-aggressive branch managers and relationship managers in the private banks offered to put away money through dubious means, avoiding the scrutiny of regulators. These practices are often resorted to by managers to garner more business and move higher up in the hierarchy.
However, blaming the top management of these banks would be an exaggeration. These are listed entities running a business in a highly regulated field, with the regulator, the RBI, also conducting inspections regularly.
While the banks are certain to take action against employees featured in the video, there is also a need for them to take a fresh look at their internal control systems to ascertain how a branch manager or any other official accommodates customers without a proper KYC (know your customer) check. It is not clear from the Cobrapost expose whether the reporters involved actually invested money or converted black money into white.