Cobrapost |
July 26, 2011

A nationwide, undercover investigation across dozens of branches by Cobrapost reveals HDFC Bank is involved in extensive money laundering

A nationwide, undercover investigation across dozens of branches by Cobrapost reveals HDFC Bank is involved in extensive money laundering. The bank is blatantly violating various sections of the Income Tax Act, FEMA, RBI regulations and the Anti-Money Laundering Act, making the legitimacy of its deposits and its phenomenal profits and growth suspect.

It was a simple visit by a journalist, posing as a frontman of a politician, to the bank. So was its stated purpose: A huge amount of black money of the politician was to be invested with the bank. Would the officials help make it white? The rider: Under no circumstances should the politician be identified.

A six-month long undercover investigation by Cobrapost, codenamed Operation Red Spider, found dozens of officials of HDFC Bank, one of the oldest and most prestigious private banks in India, willing to help convert black money into “white”. Bankers across dozens of branches spread across the states of Rajasthan, Haryana, Delhi, Uttar Pradesh, West Bengal, Tamil Nadu and Karnataka, were willing to help our reporter (posing as a frontman for an imaginary politician) launder huge sums of illegitimate cash.

At almost all branches, the Cobrapost journalist got a red carpet welcome, with officials going out of way to suggest myriad ways of converting the black money into white, with the Income Tax Department never coming to know about it: invest the black money in insurance and gold; split the money in smaller lots to avoid attention; open multiple accounts with the bank and withdraw the money after maturity. Almost all the officials claimed they were old hands in helping customers turn black money into white.

Cumulatively, the modus operandi suggested by HDFC Bank officials to help launder a huge sum of the imaginary politician’s black money (source obviously criminal) was

* accept cash and invest it in the Bank’s menu of insurance products and gold;
* do it even without PAN card;
* keep the identity of the client secret;
* help the client to transfer black money abroad through remittance using “legal” methods;
* transfer the money telegraphically;
* open multiple accounts and close them at will to facilitate the investment of black money and withdrawal;
* get Demand Drafts made for the client from their own bank and other banks;
* allot lockers to the client to ensure the safe keeping for their illegitimate, scam-tainted cash;
personally collect the cash from the politician’s house.

All these acts constitute violations under various sections of the Income Tax Act, FEMA, RBI regulation and the Prevention of Money Laundering Act (PMLA) of 2002 which was promulgated to prevent the flow of money to groups or individuals who are a threat to the Indian state, its economy and social fabric.

Coming in handy for such acts are certain provisions, such as Section 10-10(D), which bankers and insurers use to help their customers to launder money. HDFC officials were so confident that they threw discretion to the winds while talking business with potential customers. As one official claimed: “HDFC baitha hi hua hai black money khane ke liye (HDFC has been set up to eat up all the black money).”

HDFC Bank began operations in 1995. In the 17 years of its existence, the bank has emerged as one the leading financial institutions in the private sector with interests in securities, mutual funds, realty, life insurance and financial services. According to information available on its websites, its deposits totaled Rs. 246,706 crore as of March, 2012. The bank has registered a more than threefold increase in its net profits – from Rs. 1590.12 crore in the fiscal ending March 2008 to Rs. 5164.96 crore in the fiscal ending March 2012. However, the information unearthed by Operation Red Spider throws doubt on the legitimacy of this growth story because it points to an illegitimacy of its deposits and therefore profits. In an ideal world where banks followed regulation and where regulators did their jobs, the story would have been different.

True to its dictum, We Know Your World, nobody knows the world of black money better than HDFC.

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