A STRING of shady deals dating back to the early 1990s has come back to haunt a clique of 60 individuals and four banks that were conduit for the illicit transactions.At the end of an almost forgotten investigation that spanned many years, the Enforcement Directorate (ED) last month slapped a total penalty of around Rs 2,000 crore on these persons and the banks. The directorate had spotted that the group had parked hundreds of crores of cash in the banks only to remit the money to the US through irregular foreign exchange transactions. The modus operandi was simple: bank accounts were opened in the names of nonexistent as well as shell companies, cash was dumped in these accounts only to be funnelled abroad by presenting forged import bills to these banks later. Those were the days of slack rules when know-yourcustomer guidelines were yet to find their way into the banking lexicon. Indeed, few bank tellers questioned customers stepping into branches with bags of currency notes. But somewhere along the way, the sleuths at ED, then armed with the draconian Fera law, had traced a pattern. The probe began soon after and many long years later, the directorate last month slapped the hefty penalty. Sanjay Udeshi, one of the persons named in the ED order, has been asked to pay as much as Rs 660 crore while Dinesh Bhuva faces a Rs 63-crore penalty. Also named in the order are a few exporters and mid-sized companies, which are facing a penalty of over Rs 200 crore. The banks that were used to carry out the unauthorised remittances -South Indian Bank, Uco Bank, State Bank of Bikaner & Jaipur and State Bank of Hyderabad-have been slapped with fines of around Rs 100 crore. The fine on SIB is Rs 65 crore, followed by Rs 18 crore on Uco, while for the other banks, it's less than Rs 10 crore each. Some of the banks have partly provided for this in their annual accounts. "We are going on appeal and we strongly feel that there are enough grounds to counter this...We will pursue this with the law ministry," said the CEO of one bank. The ED, in its order, has alleged that the banks had not done proper due diligence while dealing with the individuals who had submitted the fake bills. However, bankers have refuted this on grounds that till the early '90s, importers directly received bills (from overseas exporters) and these were submitted to banks for remittances. AS A result, banks had little reason to suspect while clearing the remittance. Moreover, banks those days were not authorised to scrutinise papers submitted by importers. After the case came into the limelight in mid-90s, RBI revised the remittance rules. Now, an overseas exporter has to issue bills directly to the bank rather than to the importer. Indeed, the order, somewhat unexpected to most, has left the parties concerned scampering for legal protection. According to a senior lawyer, the penalties running into crores are perhaps unreasonable and certainly too harsh for anyone to cough up. "I'm surprised...I was under the impression that a few of these orders were technical in nature. For instance, one of the persons whose involvement was to the extent of writing the accounts is facing a penalty of Rs 15 crore," said a leading consultant on foreign exchange regulations. As per the rules, the affected party has to pay the penalty before it can appeal, and if the person or the entity is not in a position to pay, it has to move the appellate authority. The usual practice is to file a petition for the postponement of the penalty and simultaneously file a memorandum of appeal. In many cases, a writ petition is also filed at a high court, requesting the court to direct the tribunal.
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