The Indian banking sector has been caught sleeping on the job, again. The Enforcement Directorate (ED) arrested one of Mumbai's biggest hawala operators on Tuesday in a Rs 2,253 crore fake import remittances case. According to the Times of India, Mohammad Farooq alias Farooq Shaikh used 13 companies, including Stelkon Infratel Pvt Ltd, to remit this huge sum to overseas destinations by using forged import documents. This case just pertains to the Rs 2,253 crore remitted in 2015-16. The ED estimates that the fraud could cross Rs 10,000 crore.
Who is Mohammad Farooq?
The 39-year-old hawala operator, believed to be associated with underworld elements, had set up over 160 dummy companies at fictitious addresses with dummy directors, including an auto driver. For instance, one flat in Katta Bazaar was the address of four of his companies, all of which were all floated using the Importer Exporter Code.
According to the daily, he offered 'services' like helping to undervalue imports to escape duty, facilitating cash transfers within India and abroad illegally for a fee, and arranging cash for corporate houses, i.e. accepting cheques and returning cash to them. This entire empire was run from a one-room office in Mumbai's Zaveri Bazaar.
Farooq has long been under the scanner of multiple authorities. The Navi Mumbai police was reportedly looking for him for smuggling 20,000 pieces of prohibited 13-inch swords and an 8-inch automatic knife. And JNPT Customs has cases against him for smuggling copper in scrap metals.
His modus operandi
Importers in the country have been known to evade customs duty or at least deliberately reduce the liability by undervaluing their goods. But in such cases the actual value has to be paid to the supplier. According to the report, Farooq took care of this through illegal channels for a 2 per cent commission.
He used his accounts with co-operative banks to deposit the cash collected from his 'clients'. After routing the money through several layers of transactions using his dummy companies, he would bring the money into his accounts, mainly in nationalized banks. Farooq was reportedly operating over 130 bank accounts in various banks across Mumbai. The final step was to make the remittances after submitting forged documents - a fake bill of entry would be submitted to the bank to clear outward payment to the exporter through RTGS or NEFT.
Damningly, Stelkon and the other 12 dummy companies managed to remit over Rs 2,200 crore amount against actual bills of entry amounting to just Rs 24.64 crore.
What tipped off the authorities?
Citing ED officials, the daily claimed that Farooq was on the radar of various probe agencies since 2014. The Directorate of Revenue Intelligence had investigated the case of inflated outward remittances and submitted a report to the ED in 2016 for action under the Prevention of Money Laundering Act. Last May, the CBI also registered a case as it suspected the role of bank officials in the scam. Subsequently, ED entered the fray against the same set of the accused.
Though the scam was busted last May by the CBI - it had been dubbed the "foreign exchange scandal" - Farooq's involvement was discovered more recently. He was arrested because the ED believes he was using three mobile numbers thrown up while scrutinising 149 bank accounts for this case. Actually, after being intercepted at Mumbai International Airport by the Bureau of Immigration, he was taken for an interrogation. But due to his non-cooperative attitude during the recording of his statement, the agency decided to arrest him.
He has reportedly refused to cooperate with the authorities and has, so far, denied any links with the 13 companies under the scanner.
The role of the banks
The report adds that the CBI FIR said that banks apparently did not exercise any due diligence in verifying the genuineness of the importers or the documents submitted. "There appears to be no cross-checking regarding the veracity of the bill of entry before permitting the amount to be remitted," it added. For instance, the same bill of entry had been presented to Punjab National Bank by Stelkon on eight occasions, and was reportedly cleared without any verification every single time. Incidentally, this same bill of entry was also submitted to Canara Bank and Corporation Bank.
No wonder Farooq managed to use just 25 bills of entry with a declared value of Rs 3.1 crore with the customs to remit over Rs 680 crore. The rest of the remittance fraud happened using forged documents that inflated the value of the imports.
The daily has previously reported that the CBI's FIR named unknown officials of several banks including Canara Bank, State Bank of Hyderabad, Corporation Bank, Central Bank of India and Axis Bank.