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Mar 20, 2024

Assignment Task

A client has asked for a due diligence report on ABC Bank. One part of due diligence reports involves identifying and summarizing adverse issues in relation to the subject through research of online media and other public sources.

Following the demonetization move by the Indian government in November 2016, ABC Bank was one of the worst hit in terms of money laundering and black money scams. Given below are 3 articles in relation to the same. Please provide a single concise but comprehensive summary of the issue using the articles below:

Articles

1. Two ABC Bank managers held in Delhi for laundering 40 cr.

The money was being laundered using the banking channel through entry operators, including a chartered accountant, and shell companies.

The Enforcement Directorate (ED) has busted a network of jewellers which was converting old Rs.500 and Rs.1000 notes into gold in connivance with bank officials. The money was being laundered using the banking channel through entry operators, including a chartered accountant, and shell companies.

The gold purchased by the accused jewellers in the name of a shell company was again sold to other cash hoarders at prices higher than the legal prevailing rate.

The ED has arrested Shashank Sinha and Vinit Gupta, managers of ABC Bank’s Kashmere Gate branch here, for allegedly helping the cash hoarders deposit close to Rs.40 crore in several bank accounts and transfer funds online. The ED has directed the banks concerned to freeze all transactions in 11 accounts for further scrutiny.

During interrogation, an alleged middleman disclosed that the bank officials had agreed to deposit cash on two per cent commission, in the form of gold bars. While one gold bar has been seized from Lucknow at the instance of one Shobhit Sinha, two gold bars, weighing two kg, were seized from a jeweller.

The managers revealed that bulk “change forms” and unverified identity documents – received from many customers for exchange of notes – were also used to facilitate further exchange of the demonetised currency.

In a press statement, ABC Bank said it had suspended the accused officials and was cooperating with the investigation.

The fraud was detected after the Delhi Police seized Rs.3.7 crore in old notes from three persons outside the Kashmere Gate branch on November 22. Subsequently, the Income-Tax Department conducted searches and on the suspicion of money laundering, the Enforcement Directorate was involved. Based on the police FIR, the ED registered a case under the Prevention of Money Laundering Act and busted the network.

The group of jewellers had collected advances in old currency against the sale of gold and laundered the cash using bank accounts, through entry operators chartered accountant Rajeev Kushwaha, Devendra Jha and Raj Kumar Sharma, said a senior ED official.

Several shell companies, including Sunrise trading firm, Himalaya International and R.D. Traders – which have their bank accounts with the Kashmere Gate branch were used to deposit cash between November 10 and 22, in connivance with the bank mangers, said the official.

Interestingly, the cash deposits were made in multiple installments of Rs.90 to Rs.99 lakh to evade detection by government agencies. On several occasions, more than one such cash deposit in a day was made in these accounts. The cash deposits were then transferred by way of RTGS to Beagle Marketing Pvt. Ltd. the same day, which is another shell company being managed and controlled by Mr. Kushwaha through dummy directors,” the official said.

The ED probe revealed that Ram Charan, one of the directors of Beagles Marketing, is a petty labourer working on daily wages. He lives in the Anna Nagar Jhuggi Camp area of Delhi. When contacted, he denied any association with the company. The other company “directors” also had nothing to do with its operations.

According to the ED, the funds were further transferred to several bullion traders for purchase of gold bars on the instructions of the jewellers and Mr. Kushwaha. Some of the bullion traders have been identified by the ED as Aadi Traders, Siddhi Vinayak Jewellers and Tushar Jewellers.

Though the invoices were raised by the bullion dealers in the name of Beagle Marketing, the physical delivery of gold was made to the jewellers in question. “This gold purchased by these Jewellers to various buyers at Rs. 45,000 to 50,000 per 10 gm, which is much higher than the legal rate,” said the official, adding that further arrests were likely soon.

2. Demonetisation: ABC Bank suspends 19 employees over ‘illegal practices’

ABC Bank has suspended 19 officials, including six from Delhi over alleged involvement in illegal practices, post demonetisation.

The bank suspended four employees on Tuesday from its Kashmere Gate branch while two others from the same branch were suspended four days ago.

The other suspended employees are from different parts of the country including Odisha, West Bangal, Tamil Nadu, among others

We have taken this step as we found these employees were not following the guidelines of our bank... No deviation from the guidelines will be allowed by any employee, Rajesh Dahiya, executive director, ABC Bank told Hindustan Times.

On Sunday, the Enforcement Directorate arrested two ABC Bank managers in Delhi and seized 3 kg gold bars in connection with its money laundering probe in a racket of illegally converting old notes in

connivance with banking authorities. The bank has now hired a private audit firm for a forensic audit.

The agency’s probe after it registered a criminal complaint under the Prevention of Money Laundering Act (PMLA) on November 30, revealed that huge monies were transferred through RTGS transfers to some shell companies, including a case in which the director of one such firm was a “petty labourer”.

As many as 125 senior level officials including people from the audit department and top management along with the private firm will ensure that such illegal practises do not happen. We have circulated the banks’ guidelines to our employees and anyone found not adhering to the rules should be ready to face action,” he said.

3. Set your house in order, govt tells ABC Bank

New Delhi: The government has asked ABC Bank to "set its house in order" after a series of irregularities linked to exchange of old notes were detected at the country`s third biggest private lender. "The message has been conveyed to them," said a government official, who did not wish to be identified.

Authorities are concerned over connivance of some bank executives with "racketeers" to launder cash. "This is a matter of serious concern," the official said. He said government agencies will now detect the trail left by cash deposited in some of the accounts. The government is also concerned over role of some bank officials in siphoning off a large number of new currency notes.

ABC Bank sources, however, denied receiving any message or advice from the government. "Like other banks, we are interacting with RBI, ED and the tax department almost on a daily basis and cooperating with them. We have not received any communication or there has been no conversation around this," said a senior bank executive. The executive added that the bank was "receiving guidance" from the RBI and it stepped up an internal system of alerts on suspicious transactions to detect any possible misuse of network.

The spate of action by government agencies against some ABC Bank branch staff had triggered rumours that its licence would be cancelled. However, the RBI stepped in to say that there is no such move. "The clarification comes in the background of rumours in a segment of the media that the bank was likely to lose its banking licence," the RBI said in a statement on Monday.

ABC Bank has also suspended accounts of several bullion dealers as a precautionary measure after authorities found that some employees had opened bogus accounts to deposit old notes and later funnelled into accounts of gold traders.

Last week, the bank had suspended 16 employees following action by ED that led to arrest of two managers of the bank. ABC Bank has also appointed consultancy firm KPMG to undertake a forensic audit of account-opening process.

Raids on jewellers after the government scrapped some high value currency notes revealed that they had collected old currency in advances against sale of gold and laundered cash using bank accounts. The shell accounts into which cash was deposited included Sunrise Trading, Himalaya International and RD Traders with New Delhi`s Kashmere Gate branch of ABC Bank. Close to Rs 40 crore of old notes were alleged to have been swapped using these accounts.

ABC Bank has said it has zero tolerance towards any deviation on part of any of its employees from the set model code of conduct. "Strict action will be taken against any employee found deviating from the guidelines. We would also like to add that we are cooperating with investigating agencies," ABC Bank said in a statement while responding to incidents at Kashmere Gate branch.

The Mumbai-based private bank has a large number of jeweller accounts as it is the largest Indian importer of gold on a consignment basis. The fraud was detected after Rs 3.7 crore old currency was seized from three people outside ABC Bank`s branch in the capital.

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