Bank of Baroda case: ED, CBI arrest six

New Delhi: The Enforcement Directorate (ED), which investigates foreign exchange violations, on Tuesday arrested four people in connection with the suspected transfer of black money from Bank of Baroda accounts to entities based in Hong Kong and the United Arab Emirates (UAE).

Separately, the Central Bureau of Investigation (CBI) arrested an assistant general manager and another official dealing with foreign exchange at the bank’s Ashok Vihar branch in New Delhi.

The arrests were made in a case in which, between 1 August 2014, when the irregular remittances to foreign accounts first began, till 31 July this year, an amount of Rs.6,172.92 crore was transferred, as Mint reported on Monday.

The CBI arrested assistant general manager S.K. Garg and Jainish Dubey, who headed the foreign exchange division at the Ashok Vihar branch, under various provisions of the Indian Penal Code and the Prevention of Corruption Act. The alleged irregularities came to notice recently, prompting raids by the CBI on the bank’s premises and residences over the weekend.

The ED arrested Kamal Kalra, employed with the foreign exchange division of HDFC Bank Ltd, and traders Chandan Bhatia, Gurucharan Singh Dhawan and Sanjay Aggarwal under the Prevention of Money Laundering Act.

The ED, in a statement, described the case as one of “trade-based money laundering” and said the traders were overvaluing export goods that attract duty drawback and under-invoicing imports to save on custom duty.

Duty drawback provides relief through refunds of duties paid on inputs and tax paid on services utilized in the manufacture of some export goods.

Bank of Baroda’s Ashok Vihar branch saw its foreign exchange business increase from Rs.44.98 crore in 2013-14 to Rs.21,528.52 crore in 2014-15, according to an internal audit report of the bank that has been shared with the CBI, which is using it as the basis for its probe. Mint has reviewed the audit report.

The beneficiary accounts overseas were in the names of Victoroxx International Ltd, Great Asian Exports, King Winner International Ltd and Star Exim Ltd, among others.

The Indian companies that made the remittances include AK Enterprises, Vandana Impex, Seagull Traders, Dabang Marketing and Trading and Bankey Bihari Tradelinks.

The ED, in its statement, said that traders, with the help of Kalra, who earned a commission of 30-50 paise per dollar remitted abroad, opened shell companies in India, Hong Kong and Dubai in order to make the irregular transactions.

In a statement to the stock exchanges on Monday, Bank of Baroda confirmed that the bank’s Ashok Vihar branch in New Delhi had opened 59 current accounts between May 2014 and June 2015 through which large foreign exchange transactions were conducted.

Around Rs.3,500 crore was remitted through 38 accounts to nearly 400 entities based in Hong Kong and the UAE, it said, adding that the branch did not adhere to Foreign Exchange Management Act guidelines in executing these transactions.

The bank added that of the amount involved, only about 10% was by way of cash deposits, while the rest was transferred from nearly 30 other banks through electronic transfers.

The bank claims that it has not incurred any losses because of the transactions.

P.S. Jayakumar, who took over as managing director and chief executive officer of Bank of Baroda on Tuesday, said the bank will hire an external agency to check if there were any lapses in the know-your-customer procedures followed at the bank and suggest ways to fix them.

“The issues which are in the news recently are on top of my agenda. Everyone including me and the other top officials at the bank are extremely distressed by the developments,” said Jayakumar, referring to alleged instances of money laundering.

The bank will be taking appropriate steps to change processes, structure and training to avoid a repeat of such instances, he added.

Jayakumar is one of the two professionals from the private sector who were chosen to lead public sector banks by the government. Prior to this, he served as the co-founder and chief executive of VBHC Value Homes Pvt. Ltd, a company that deals with housing for lower and middle income groups.

He was also co-founder and non-executive promoter director for Home First Finance Co., a housing finance institution focused on financing customers who are not able to access mortgage loans from the banking sector. Jayakumar spent 23 years working with Citibank in India and Singapore, largely on the retail lending side.

“There are so many things for which I will have to reorient myself and understand. I am not an expert on NPAs (non-performing assets) but I hope to be that soon. A fresh pair of eyes is always useful when dealing with problems,” Jayakumar said.

Two new executive directors will also join the bank sometime next month, Jayakumar said.

Ranjan Dhawan, the bank’s interim managing director and chief executive, retired on 30 September, after which the bank was being managed by B.B. Joshi, who is presently the only executive director at the bank.

On Tuesday, Bank of Baroda stock closed at Rs.176.10 on BSE, down 0.4%, while the benchmark Sensex fell 0.21% to close at 26,846.53 points.