Search the Internet          Tips  Sites: Finance, Investment

ED unearths Rs 2 billion forex scam

Savio G Pinto & Rakesh P Sharma

The Enforcement Directorate in Bombay has unearthed an Rs 2 billion foreign exchange scam. The ED proposes to move the Central Bureau of Investigation as the case seeks to involve banks operating in apparent contravention of RBI instructions.

The ED has identified Oklahoma-based Skybiz International Ltd as the mastermind behind the alleged pyramid scheme. The company has representative offices in Bombay, Pune, New Delhi, Bangalore and Madras. The ED had conducted raids on all the offices last week.

According to sources in the directorate, the banks had remitted money to Skybiz in violation of a RBI circular issued in October 2000, which forbade banks from issuing any drafts in favour of such schemes.

The RBI instructions were reiterated in another circular in December 2000, which said banks should not make any remittances in cases of money spinning activities.

Typically, money-spinning activities refer to pyramid schemes wherein early entrants are paid a handsome sum for getting a specified additional number of new members into the scheme.

The sources said Centurion Bank (New Delhi branch), HDFC Bank (Pune branch), Union Bank of India (Pune branch) and State Bank of India (Bhandup branch in Bombay) figure among those, which had remitted money in Skybiz. About $900,000 had been remitted through these branches.

According to Centurion Bank officials, two remittances of $3,00,000 each were made on February 16 and 22, but in compliance with Fema guidelines.

"The remittances were made for software imports and the matter was also reported to the RBI. However, the accounts of the company were frozen on March 8 as there seemed to be a tussle between the Indian and foreign directors," the official added.

Union Bank of India officials said they would have to look into the matter. HDFC Bank said that Skybiz India Pvt Ltd had a current account but it was opened only in December 2000. The request for a transfer of funds came to the bank in late January 2001 but the bank refused to remit the money.

A State Bank of India official said it issued drafts worth $62,500 but they were issued before the RBI directive was circulated.

The directorate, which conducted nation-wide search and seizure operations on the Indian offices of the company, has estimated that about Rs 2 billion of foreign exchange has been illegally siphoned off through the banking system as well as the illegal hawala

The scheme formulated by Skybiz involved an individual remitting $125 in its favour against which he would be provided space on its website.

The individual was then supposed to rope in two more persons into the "money spinning" scheme for which he would be given a commission. This resulted in a chain whereby early entrants into the scheme would receive huge profit.

Skybiz has been conducting its operations in India through World Services Pvt Ltd and Blue Valley Trading Pvt Ltd. and the recently incorporated Skybiz India Pvt Ltd.

After the RBI issued instructions to curb remittance of funds through drafts, middlemen in the scheme used to lure investors and circumvent the system by having their funds remitted using international credit cards after taking the corresponding amount of money from them in cash, sources said.

This has been a misuse of international credit cards since they are supposed to be used for making payments only for expenditure incurred on self.

The middlemen have also collected cash from gullible investors and remitted a part of the proceedings through illegal hawala channels to keep the scheme going.

Powered by

YOU MAY ALSO WANT TO READ:
The Rediff-Business Standard Special
The Budget 2001-2002 Special
Money
Business News

Tell us what you think of this report