Cobrapost, an investigative media house led by Aniruddha Bahal, carried out a sting operation recently exposing how senior executives of three leading private banks of the country, ICICI Bank, HDFC Bank and Axis Bank, were willing to accept and even encourage black money. The officials not only explained various ways in which banking norms could be bypassed and detection by the tax authorities avoided, they also boasted of having routinely accepted and channelised huge amounts of black money into legal products like insurance. The banks, on their part, have made it appear to be the work of some rogue elements in the system and promised to probe the matter. Shockingly, RBI deputy governor KC Chakrabarty has dismissed the sting saying that the system in place to prevent money laundering is perfect, though the central bank has ordered a probe.

Governance Now spoke with Aniruddha Bahal to find out what exactly is going on and how valid are the assertions of the banks and RBI.

This is the first time in nearly 20 years that the media has shown the courage to take on corruption in corporate India. When and how did you think of this sting operation?
We started this story about five-odd months back. We had information. But when we got into the story we were pretty shocked at how endemic and nationwide it was.

How did you zero in on black money as the instrument to expose corporate corruption?
Money is grease. Banks are the central pillar of any form of capitalism. If they are going to be the hub of illegal activities they would necessarily corrupt everything else. A few months back we had even done an expose of Bollywood and black money. That was with Network 18. So why should people act as if so surprised that banks happened next?

Were you at any time worried about the consequences? Did the fact that Cobrapost is a small media house help or hinder your plans?
If your heart is in the right place it would help you. Most of the time, a small media house means anonymity. That is not the case with us because we take up difficult stories and hence they become talking points.

Considering that these corporate entities are big advertisers and lenders to the big media, do you think only small media will have the gall to do such sting operations?
That is not true. The mainstream media too can and should do investigations. But perhaps they have too many check boxes to tick before they do a story. It's not that the journalists there don’t have ideas or don’t want to do good stories. It's just a culture that has developed where the media is generally used for other ends.

For all of your major sting operations in the past, you seemed to have had willing partners in the television media to telecast the sting. In this case, you had to hold a press conference to show your findings. Did you approach any major channel to partner for the sting and its telecast?
I was sure no national channel would run; it hence I never approached anybody. But I was confident that once I went ahead and released it in the public it would be easier for the channels to chase the story. That assumption was both right and wrong: some did cover it; others did not for whatever reason. Of course, the business channels and business papers were sparse in their coverage.

Were you refused by any channel after you explained the contours of the sting or was it the case that you simply did not approach any channel suspecting they would not be interested?
I did not want to waste time.

How do you see the media response to the sting?
The story did get space but perhaps not what it deserved. I was surprised that very few business journalists contacted me for interviews and those that did came with a mindset to support the banks!

Why have the opposition political parties, which have been campaigning against black money, shown little interest in your expose?
That is for them to answer.

As for the sting, why do you think the private banks were willing to accept, even encourage, black money? Though you have shown everything you wanted to in your sting, can you please elaborate various methods or the modus operandi through which such banks absorb black money and convert it into white for the benefit of those who haven't seen the sting?
There were many ways. They are listed below:

* Accept huge amounts of cash and invest it in insurance products and gold.
* Open an account to route the cash into various investment schemes of the bank.
* Do it even without the mandatory PAN card number or adhering to the KYC norms laid down by RBI.
* Split the money into tranches to get it into the banking system without being detected.
* Use ‘benami’ accounts to facilitate the conversion of black money.
* Use accounts of other customers to channelise black money into the system for a fee.
* Get demand drafts made for the client either from their own banks or from other banks to facilitate investment without it showing up in the client’s account.
* Keep the identity of the investor/depositor secret.
* Open multiple accounts and close them at will to facilitate investment of black money.
* Invest black money in multiple instruments in the names of different individuals, not necessarily drawn from among the family.
* Allot lockers for the safekeeping of the illegitimate cash, including special large lockers to accommodate crores of hard cash.
* Personally come to the residence of the client to take the black money deal forward and collect cash, even bring along a currency counting machine.
* Use provisions like Form 60 to deposit the illegitimate cash into the account to route it into investment.
* Help the client to transfer black money abroad through NRE (non-resident external)/NRO (non-resident ordinary) account; transfer the money telegraphically or through means other than regular banking procedures.

Other than these, officials suggested further innovative methods unique to their banks. For instance, HDFC Bank officials offer such convenient cash laundering services like the operation of lockers (with cash in them) outside regular banking hours to ensure secrecy of these customers' identities and to mask the nature of the transactions. To stay one step ahead, ICICI Bank officials were ready to make a suitable profile for the client, such as showing him as an agriculturist or engaged in some business, so as to make the investment unquestionable. On the other hand, Axis Bank officials proved to be a notch above in inventing fraudulent means. Use “sundry” accounts of the bank, they suggested, to deposit all the illegal cash from where it is to be routed into investment. Either use accounts of other customers, for a fee, to transfer money abroad, or use some shell company and take away a chunk of foreign currency as expenses toward business-cum-leisure trips. They would pamper you, offering you ‘privilege banking’ or ‘priority banking’, pulling out all stops to make the deal happen.

Is it due only to slack regulations or is there more to it? What does it say, for example, about the state of corporate governance in the country?
Please remember that our reporter was making "cold calls". And money laundering was virtually being sold as a product. What were our regulators doing? This is a question for them to answer. Bank managements have two choices. Either they plead gross negligence or connivance. They will never plead connivance or their necks will go. And they are trying to get out of gross negligence by going after their foot soldiers, the army that they use. They are going to take the plea that the individual banking officers did it to meet targets.
Let me tell you that branch level officers cannot do anything without the management's concurrence. That's a myth that the banks are now peddling – the myth about aberrations and rogue officers. There are officers saying that they take permission for "cash" through emails. The state seems to be conniving with the banks in spreading this myth. The other myth they are spreading is that because no so-called transaction happened the banks and their officers cannot be prosecuted. That's a barefaced lie. About two dozen violations are there. The banking personnel are also talking about transactions which they have done in the past. So past criminality is unambiguously established.

How do you foresee the situation when more private companies, including real estate players, open banks (after RBI invited fresh applications last month)? The real estate sector in particular is known to be generating and absorbing a substantial part of black money.
That would be tragic. They can't oversee the banks they have. Now they want new ones!

Do you think ICICI Bank, HDFC Bank and Axis Bank have done their job by suspending the accused employees or is it just that it was the most convenient step they could have taken to kill the buzz? The banks have issued formal statements and assured fair probe but none of the banks' heads have come out with a formal statement or reaction to allay fears of the customers.
At the minimum the banks need a management change. Their licences should be at stake. If you don't have an accountability system in place they will go scot-free and will do it again. And this time it will be more difficult to investigate it.

What are the measures you think should be taken to check the malaise?
I guess financial reporting should be made very strict, especially for insurance products. I would go so far as to say that one should reassess the use of drafts in the banking system. The regulators need to overhaul their system. There should be an agency singularly devoted to bank audits. And banks should be made to pay a price for their misadventures. They should not escape scot-free.