HDFC, ICICI and Axis asked to produce documents.
By R. Chandrasekaran
CHENNAI: Finally, the Cobrapost sting operations, conducted by an online magazine exposing money-laundering activities of three major private sector banks, seem to be having its effect on the regulators as well as tax collectors. This is evident from the notices issued by the Income Tax department to the banks, HDFC Bank, ICICI Bank and Axis Bank.
The tax department notice comes close on the heels of the Reserve Bank of India’s conclusion that the Cobrapost sting operations are examples of tax dodging rather than of money laundering.
In the online portal’s expose, some officials of the three banks are seen detailing various ways in which one can launder money, without the scrutiny of Reserve Bank of India.
The tax department is likely to go into the details of suspected tax avoidance by these three banks and also a potential loss of revenue as fallout of the alleged unlawful actions by the individuals in question.
The taxmen have asked these three banks to produce documents, such as deposit logs of over one year, books of account and the findings of their in-house inquiries conducted after the Cobrapost sting operations were publicized.
The central bank has found instances of irregularities in accepting cash of over Rs.50,000 ($889) without the depositor providing a permanent account number (PAN) issued by the income tax department.
To avoid providing income tax permanent account number, cash depositors split the money to smaller amounts and deposit it multiple times. Most banks reportedly resort to this practice to avoid providing PAN number and to attract more cash deposits.
Even as the central bank was inquiring into its initial sting operations, Cobrapost has followed it up with a similar sting operation of 23 more banks that included public sector banks such as State Bank of India, Federal Bank, Punjab National Bank and insurance companies such as Life Insurance Corporation of India, Tata AIG and Birla Sunlife.
So far the RBI’s position has been that there was no money laundering involved, and, on the other hand, there were some issues on the procedures adopted in the Know Your Clients (KYC) due diligence activities, which financial institutions must perform. Its inquiry seems to have found instances of clients and banks not disclosing PAN when depositing more than Rs. 50,000, which is a legal requirement.
To contact the author, email to : rchandrasekaran@americanbazaaronline.com