Cobrapost's sting on banks, insurance: All you need to know

Cobrapost on Monday released secret recordings of conversations with senior officials of 23 banks and insurance firms, including SBI, Central Bank and LIC, which allegedly show these financial institutions 'facilitating' money laundering.

Cobrapost is skeptical if the RBI will take any tough action against the banks and insurance companies alleged to be part of the money laundering racket

Cobrapost is not hopeful of the Reserve Bank of India taking a tough stand on money laundering, even after the latest expose which showed leading state-owned banks , Life Insurance Corporation and private insurers being party to the racket.

"Although the RBI has announced action, both at the systemic level and at the individual bank level, one can only hope they are not cosmetic, and the latest expose would spur both the RBI and the IRDA to address the malaise, for all times to come," says the Cobrapost release.

"However, looking at the RBI's rather suspicious, Protector-instead-of-Regulator conduct, it looks highly unlikely that any worthwhile cleansing of the system will happen. We are sure the RBI top brass will again go about town touting the expose as something of a non-issue since no transaction of cash has taken place," the release said.

Offering help to launder money is also punishable, says Bahal

Aniruddha Bahal also drew attention to clauses in the Indian Penal Code (IPC) and Prevention of Money Laundering Act (PMLA) which say that offering to support an offence, even if that is not committed, is also punishable by law.

In March this year, after the money laundering expose on Axis Bank , HDFC Bank and ICICI Bank , Deputy RBI Governor KC Chakrabarty had been quoted as saying that "Allegations do not mean flouting norms," and that not a single transaction had taken place.

This is what Section 120 of The Indian Penal Code, 1860 says, as mentioned in the Cobrapost release:

"Whoever, intending to facilitate or knowing it to be likely that he will thereby facilitate the commission of an offence punishable with imprisonment, voluntarily conceals, by any act or illegal omission, the existence of a design to commit such offence, or makes any representation which he knows to be false respecting such design, if offence be commited-if offence be not committed.

Shall, if the offence be committed, be punished with imprisonment of the description provided for the offence, for a term which may extend to one- fourth, and, if the offence be not committed, to one- eight, of the longest term of such imprisonment, or with such fine as is provided for the offence, or with both."

And, according to Section 3 of Prevention of Money Laundering Act 2002, "Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of offence of money laundering."

11:30 am How Cobrapost carried out its sting operation

Taking an alias, Cobrapost Associate Editor Syed Masroor Hasan, posed as a relative of a fictitious politician. He made cold calls at dozens of bank branches and insurance companies. And the proposition was the same: A politician of stature wants to convert black money into white. Could the officials help?

"It didn't take much effort to pull the lid off the murky world of money laundering as the officials of these companies rolled out a red carpet for our Masroor Hasan who visited dozens and dozens of branches across the length and breadth of the country, including many major cities and state capitals, across all five zones," said Aniruddha Bahal, editor of digital magazine Cobrapost.

According to the press release, Hasan was never disappointed as no bank turned him down and almost every banker and insurer he met with was willing to help launder huge unaccounted cash the fictitious politician Masroor Hasan was representing.

Cobrapost alleges LIC facilitated money laundering, also alleges nexus between banks and insurance companies

He has accused 23 private and public financial institutions of aiding money laundering. Life Insurance Corporation, State Bank of India, Bank of Baroda, Punjab National Bank, Canara Bank, Indian Bank, IDBI Bank, Yes Bank, Federal Bank, Reliance Capital, Birla Sunlife are among the few that have been named.

Revealing the nexus between banks and insurance companies, Bahal said, " If banks don't have their own insurance companies, they have joint ventures with other private insurers where they invest the money. Yes Bank, for instance, has a tie-up with Bajaj Allianz, which would question an investor only when the investment crosses Rs 1 crore.. and such investments can be done in cash. Whenever we went about proposing to bankers, public or private, that we wanted to invest our black money in insurance, they immediately called the managers of the their insurance associates to our presence or sought their advice on phone, making it amply clear that banks and insurance companies are hand in glove."

The gem to fall from grace is the iconic Life Insurance Corporation of India, the largest financial institution in the country, Bahal explained.

With 30 crore policies under its belt, the insurance giant manages assets worth Rs 1474 lakh crore, about 15 per cent of India's GDP. LIC underwrites about a-fourth of government bonds and securities.

"It also acts as a bulwark against unprecedented upheavals on Dalal Street, at the behest of the government, so that investors' confidence in Brand India and in its amazing growth story does not dwindle,'' said the Cobrapost release.

"Investigation puts a big question mark on the legitimacy of the business these institutions garner & profits they make," he added.

According to Firstpost's editor-in-chief R Jagannathan, if everyone is guilty, the real question is not about corrupt individuals and institutions alone, but rather a systematic problem.

Here is the list of all public banks named in Cobrapost's latest expose:

SBI, Bank of Baroda, Punjab National Bank, Canara Bank, Indian Bank, IDBI, Indian Overseas Bank, Dena Bank Corporation Bank, Allahabad Bank, Orient Bank of Commerce, Central Bank of India.

Private bankers named in the expose:

Yes Bank, Dhanlaxmi Bank, Federal Bank, DCB Bank, HDFC Bank, ICICI Bank Axis Bank .

Insurance companies named in expose:

Life Insurance Corporation of India, Reliance Insurance, Birla Sublife, Tata AIG

"Operation Red Spider 2 establishes beyond doubt that money laundering is not confined to private banks, and is not an aberration, as is being made out in certain quarters in the wake of the first expose on March 14 in which HDFC Bank, ICICI Bank and Axis Bank were shown involved in money laundering; it is rather endemic overarching the entire banking system and insurance sector, without exception, however shocking it might be," the Cobrapost release said.

Watch the expose on LIC below:

Arvind Kejriwal raises doubt whether banks and instance companies are laundering terror money

Aam Aadmi Party's supremo Arvind Kejriwal said the expose revealed that the government of India is directly allowing and encouraging money laundering. He also raised doubt whether banks and insurance companies are laundering terror money.

According to the expose, banks provide facilities to customers such as multiple lockers and machines to count money. For money laundering, banks enable creation of forged pan cards and multiple accounts, said Bahal, adding that they advise investors to maintain fictitious accounts for seven years saying that all details vanish after this period.

Cobrapost has named Andhra politician Sailijanath Saake in money laundering expose and also alleged that senior bank executives personally go to collect cash to help customers launder black money.

The Cobrapost sting revealed that laundering transactions were not confined to a few low-level front-office staff members as is being made out in all the bank 'inquiries'.

"Bank officials holding the ranks of divisional managers, territory manager, assistant general manager and vice presidents say they are all party to such money laundering transaction, said Aniruddha Bahal.

10: 00 am Bank Nifty recovers post Cobrapost expose

Bank Nifty recovered over 100 points from its intraday low after Cobrapost press conference began this morning.

In its continuing expose on the involvement of leading financial institutions in money laundering, media website Cobrapost on Monday said that 23 major banks and insurance companies were part of the racket. However, immediately after the press conference began, banking stocks recovered from the morning's losses. The bank Nifty is down just 0.8 percent.

Bahal alleges money laundering by 23 fin institutions

10am: In his second expose on irregularities in the Indian financial system, Aniruddha Bahal today accused 23 public and private financial institutions for facilitating money laundering. Cobrapost has named public banks including State Bank of India, Canara Bank IDBI, Punjab National Bank, Oriental Bank of Commerce and Central Bank.

The Cobrapost investigations were conducted fore more than half a year in many states including Uttar Pradesh, Rajasthan, Delhi, Haryana, Andhra Pradesh & Karnataka

The second round of secret videos have revealed violation of several provisions of the Income Tax Act, FEMA, RBI regulations, KYC norms, the Banking Act, said Bahal in a press conference today. "The revelations amounts to crystal clear offenses under IPC as well as the PMLA (Prevention of Money laundering Act)."

"Money laundering services are being offered openly as a standard product across the board. Even a walk-in customer can avail of such services that help him launder all his unaccounted cash. Money laundering practices are part & parcel of banking & insurance business across the board," added Bahal.

Watch the clips of the sting operation below:

View the full Cobrapost press release below:

Cobrapost II- Expose on Banks full text

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Updated Date: Dec 20, 2014 19:48:18 IST

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