PNB fraud fallout: RBI tells banks to link SWIFT with CBS by 30 April

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The PNB fraud, which happened via SWIFT, went undetected since it was not linked to core banking solutions (CBS) and because checks failed at several levels
RBI has announced the setting up of a panel under the chairmanship of Y.H. Malegam to study rising cases of bank fraud and set out a blueprint to curb them.

The Reserve Bank of India (RBI) has set 30 April as the deadline for banks to integrate SWIFT (Society for Worldwide Interbank Financial Telecommunication) with core banking solutions (CBS) as it looks to strengthen internal controls in banks following the Rs11,400 crore PNB fraud.

“That (30 April) could be a deadline but it is an outer limit. Today, the urgency is such that everyone wants this project to be on fast track,” Usha Ananthasubramanian, managing director and chief executive officer of Allahabad Bank, and chairman of the Indian Banks’ Association (IBA), said on the sidelines of an IBA event on Friday.

“There is already a mandate from RBI that you need to comply with this straight through processing and combining SWIFT with CBS… Everybody has started…” she added.

The PNB fraud revolves around SWIFT. Branch officials of the lender fraudulently issued letters of undertaking, basically guarantees, to jeweller Nirav Modi-linked companies without getting proper approvals and without making entries in CBS, the software used to support a bank’s most common transactions.

The scam that happened via SWIFT went undetected since it was not linked to CBS and because checks failed at several levels, say experts.

RBI announced the setting up of a panel under the chairmanship of Y.H. Malegam, a former member of its central board of directors, to study rising cases of bank fraud and set out a blueprint to curb them.

In a letter to banks, RBI also reiterated that they must strictly comply with the principle of “four eyes”—that each SWIFT message must be processed by four bank officials: a maker, a checker, a verifier and an authorizer—two people who have seen the letter said on condition of anonymity.

“Apart from talking about maker-checker concept, RBI has asked banks to maintain a Chinese wall between officials dealing with SWIFT and CBS,” said a senior official at Mumbai-based bank, one of the two people cited above.

Source:  The Economic Times

I-T department goes after defunct companies for tax frauds

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It’s well within the law and powers of the tax office to review an old tax assessment if there is suspicion of tax fraud.

The tax office is reopening old records of many companies that have wound up and no longer exist in the books of the government — something the revenue department has rarely done in the past.

Former directors of such closely-held private companies, which have received tax notices along with the official liquidators, fear they could be suddenly saddled with unforeseen liabilities. While opening new private companies and shutting down old ones have often been a ploy to move unaccounted money, some of the companies set up to carry out bona fide businesses which subsequently failed have also come under the glare of the income tax department.

Till now, the department has typically stayed away from companies to which it had issued non-objection certificate prior to the winding process. But, it’s well within the law and powers of the tax office to review an old tax assessment if there is suspicion of tax fraud.”In case of private limited companies, the liability of directors continues even after liquidation. Here, these ex directors have to prove that any non-recovery of tax is not due to any gross neglect, malfeasance, or breach of duty on their part in relation to the affairs of the company,” said senior chartered accountant Dilip Lakhani.

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“But such reopening in case of companies which have been liquidated or struck off from the RoC (Registrar of Companies) records should be done very selectively — may be only in situations of tax fraud and not situations of plain vanilla income having escaped assessment,” said Mitil Chokshi, senior partner at Chokshi & Chokshi LLP.

The liquidator of a company going for ‘voluntary liquidation’ can approach the tax office to ascertain the outstanding tax liability, and set aside the amount before distributing the proceeds from asset sale to creditors and shareholders.

But even in such cases the department can (though rarely done) reopen old assessments if it later suspects fraud or fund diversion. The no-objection certificate, according to a senior tax official, is simply based on the outstanding tax claim on that date. According to him, if the department has to look into serious irregularities, then no NoC can be issued. “The provisions do provide powers to assessing officers to re-open and issue such notices,” said Chokshi.

“But is it really fair to re-assess based on some possible income having escaped assessment, especially when the companies are no longer in existence?” One of the closed companies to have received notice for reopening assessment was an outsourcing arm of a US bank. Some of the liquidated entities were engaged in marketing, realty and infrastructure development.

Significantly, even if the tax amount (approved by the I-T department) is set aside in the course of liquidation, former directors can be questioned if the company is ‘private limited’ in character. The companies have received reopening notices for assessment years 2011-12 and 2012-13.

The taxman can go back up to six years in reopening of old assessments. However, in covering undisclosed foreign assets — overseas bank accounts, properties etc — the I-T department can rake up 16-year old transactions in probing tax evasion. In the US, no-objection certificate from the Internal Revenue Service (the national tax collection agency) is required before final liquidation.

There are no provisions for reopening unless a tax fraud has been identified. According to another tax practitioner, while such a notice may be stayed by moving the high courts, the question is who will do it?”Liquidators were appointed for a limited period; erstwhile Indian directors may not have the authority, while foreign promoters and directors are least interested,” said the person.

SEBI crackdown on trading in 331 shell companies blocks investors’ Rs 9,000 cr

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The government crackdown against 331 “suspected shell companies” has hit several investors, including mutual funds and small investors, who hold shares worth nearly Rs 9,000 crore in these companies.

 

In a late circular on Monday, market regulator Securities and Exchange Board of India (Sebi) directed stock exchanges to immediately restrict trading in 331 companies identified as “shell companies” by the Ministry of Corporate Affairs in consultation with the Serious Fraud Investigation Office (SFIO) and the income-tax (I-T) department.

 

While, by definition, a shell company is one without any business operations or assets, several companies with active business dealings too were part of the  list with 331 names. At least five companies in the list have market capitalisation (m-cap) of over Rs 500 crore each, with diverse shareholding from institutional as well as retail investors.

 

These companies have been placed in the so-called graded surveillance measure (GSM) stage VI, where trading in the security is allowed only once a month with “surveillance deposit” of three times the trade value.

 

Companies, including J Kumar Infraprojects (m-cap of Rs 2,150 crore), Prakash Industries (Rs 2,124 crore), Parsvnath Developers (Rs 1,036 crore), and multinational company SQS India BFSI (Rs 535 crore), termed the “shell company” classification as wrongful and urged Sebi and exchanges to reconsider the directions.

 

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“It is hereby clarified J Kumar is not a shell company and the suspicion of the regulator is uncalled for. Our company’s compliance track record, both with the exchanges and Registrar of Companies, has been impeccable,” said the Mumbai-based infra developer, highlighting the various projects it currently working on, including some government contracts.

 

Sebi sources said over three dozen companies in the list technically don’t fall under the definition of a shell company and the circular maybe revised to correct the nomenclature.  “The regulator is verifying the companies who have raised grievances. However, a rectification may take some time as the exchange needs to conduct an audit and submit a report to Sebi. If there is an all-clear given by the auditors and the regulatory authorities involved, Sebi can lift the ban,” said a source.
Another source said the Ministry of Corporate Affairs has widened the scope of shell companies. Those with cases against them in the SFIO or those that have evaded taxes are part of the list. A finance ministry official said concerns of investors in these companies will be looked into.
Several companies made detailed representations to Sebi and corporate affairs ministry, stating they can’t be termed as shell companies. “There could be a possibility that companies who are listed in the shell categories are genuine. In that case, they can always approach Sebi and stock exchanges to remove the ban. This is more of a preventive action and could be rectified if an entity is not found guilty,” said J N Gupta, managing director at Stakeholders Empowerment Services (SES).

 

Experts said the while all companies may not be shell companies, it is possible that the enforcement agencies may have found some dubious links and decided to take action.

 

“This is in continuation of strong messages being sent to corporate entities that frauds of any nature will face strong action. Greater vigil and networking of several databases would throw up more malpractices and stricter action,” said Prithvi Haldea, founder-chairman at Prime Database.

 

Government’s fight against market manipulation to evade LTCG

 

Several probes by the I-T department and Sebi have shown that listed shell companies were being used to launder money by using the stock exchange route. The typical modus operandi has been to buy shares of shell firms, jack up the prices and sell shares after a year to claim long-term capital gains (LTCG) exemption.

 

The government decided to crack down on such sham transactions after the Special investigation teams (SIT) on black money suggested a mechanism to detect shell companies and put in place checks and balances to curb stock market abuse.

 

In the last three years, the I-T department has identified over 1,155 shell companies which were used as conduits by over 22,000 beneficiaries. The amount involved in non-genuine transactions of such beneficiaries was over Rs 13,300 crore.  So far, the I-T department has launched criminal prosecution complaints against 47 persons. The SFIO, too, has undertaken the exercise of preparing comprehensive digital database of shell companies and their associates. Based on the SFIO report, the MCA has removed 162,618 companies from the Registrar of Companies.

IMF: Global corruption costs trillions in bribes, lost growth

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Public sector corruption siphons $1.5 trillion to $2 trillion annually from the global economy in bribes and costs far more in stunted economic growth, lost tax revenues and sustained poverty, the International Monetary Fund said on Wednesday.

In a new research paper, the IMF said that tackling corruption is critical for the achievement of macroeconomic stability, one of the institution´s core mandates.

The Fund argues that strategies to fight corruption require transparency, a clear legal framework, a credible threat of prosecution and a strong drive to deregulate economies.

“While the direct economic costs of corruption are well known, the indirect costs may be even more substantial and debilitating,” IMF Managing Director Christine Lagarde wrote in an essay accompanying the paper. “Corruption also has a broader corrosive impact on society.

It undermines trust in government and erodes the ethical standards of private citizens,” Lagarde added.

The paper, titled “Corruption: Costs and Mitigating Strategies,” follows Lagarde´s warning to Ukraine in February that the IMF would halt its $17.5-billion bailout for the strife-torn eastern European country unless it takes stronger action to fight corruption, including new governance reforms.

Lagarde is due to participate in a British government-sponsored anti-corruption summit in London on Thursday that will include U.S. Secretary of State John Kerry and other senior officials including the presidents of Nigeria and Afghanistan.

Extrapolating from 2005 World Bank research, the paper estimated that around 2 percent of global gross domestic product is now paid in bribes annually.

But it said corruption´s indirect costs are substantially higher, reducing government revenues by encouraging tax evasion and reducing incentives to pay taxes, leaving less money available for public investments in infrastructure, health care and education.

Source: http://www.thenews.com.pk/latest/119186-IMF-Global-corruption-costs-trillions-in-bribes-lost-growth

World’s largest IT storage company EMC in race to develop smart cities in India

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EMC is offering its services to the central and state governments, according to senior officials of the company.

The world’s largest IT storage company is in the race for developing smart cities in India, offering their services to the central and state governments, according to senior officials of the company.

“We have already completed a health project for a state government to make hospitals smart and to provide real time information to the government for taking appropriate decision,” Rajesh Janey, President, EMC India and Saarc, told visiting Indian journalists to the EMC world annual conference here.

The project was done for Telengana, the newest state in India. “We are talking to the central governments as well as state authorities to offer the hardware and software to make cities smart,” Janey said.

The Narendra Modi government had announced an initiative to develop 100 smart cities in India, with initial funds of Rs.7,000 crore being allocated for the project by the central government, though very little was actually spent. The project would be implemented by state governments or city councils.

EMC and Dell had announced a $67 billion merger in October, making it the largest tech marriage in history. The EMC World conference at the casino capital of the world was told by Michael Dell, Chairman and CEO of Dell, on Monday that the merged entity would be called Dell Technologies while the enterprise company would be named Dell-EMC.

The merger is awaiting some regulatory approvals and is likely to be completed between June and October, according to the team set up to work out the logistics of two tech giants coming together.

EMC has over 5,000 employees in India, largely in the engineering section, with offices in Bengaluru, Hyderbad, Delhi NCR and some tier-two towns. It provides storage hardware and software to companies and did about $350 million (Rs.2,400 crore) business last year. The $25 billion EMC employs around 70,000 employees globally.

EMC has set up a division on smart cities, whereby they are offering services for collating all data from health services, traffic, police, power infrastructure, municipalities, weather division, transport and government services collating all data from health services, traffic, police, power infrastructure, municipalities, weather division, transport and government services collating data and bringing forth significant information which needed decisions. Also, the interface with citizens and those who seek services would become much easier, officials say.

According to Rob Silverberg, Director and Chief Technology Officer, Enterprise Application Architecture for State, Local Government and Education at EMC California, the company is focusing on smart cities because it’s the world of future.

“We are talking to several cities and towns across the US to adopt what we have to offer,” said Silverberg, adding it would help city officials do their job more effectively and efficiently. He said the Indian section of EMC was following up on the smart cities in India. EMC is competing in smart cities business in the US and other countries with IBM.

Silverberg said that already a huge amount of data was being collected every day and every minute whether in crime tackling, traffic regulation or policing and other activities. “The data has to be stored and made intelligible for everyone so that right decisions are made fast.”

Silverberg said the EMC smart cities project could even help track crimes and prepare evidence for courts whether it’s through video monitoring data already been collected across the country or other methods. “Essential everything is data, and we are the experts who can help store and make sense of it,” he said.

According to Janey, the basic modules which the global company is now projecting to cities in various parts of the world, including Dubai, was made in Bengaluru by Indian software engineers. Janey said that EMC International had thrown up demand and the engineers in India came up with an effective solution which was adopted by the multinational.

Source:  http://economictimes.indiatimes.com/articleshow/52185960.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

Mallya default singes top auditing companies

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Some of world’s top auditing firms, including Price Waterhouse, Grant Thornton, Deloitte LLP and Walker Chandiok & Co, are under scrutiny with a slew of regulators seeking answers on their valuation, auditing and due diligence of UB Group companies over the last few years.

Deloitte LLP conducted the financial and tax due diligence for Diageo of United Spirits Ltd (USL) which led to the $2.1 billion acquisition of the company, but could not detect the problems in annual accounts. These accounts, in turn, were prepared by PW, which was the auditor for USL between 2010 and 2011, and later by Walker & Chandiok & Co.

The accounts were disputed by Diageo in April 2015 after it found a Rs 2,100 crore hole and sought Vijay Mallya’s ouster from the USL board. Questions have also been raised by lenders on what basis Grant Thornton valued the Kingfisher brand at Rs 4,100 crore. This is now being probed by the Serious Fraud Investigation office (SFIO).

When contacted, a Grant Thornton spokesperson said the firm fully stood by its brand valuation report on Kingfisher. “We believe it was appropriate in the context of when it was done and the purpose for which it was done,” the spokesperson said.

PW declined comment but an external spokesperson said the firm had not received any communication from either the Securities and Exchange Board of India or the Enforcement Directorate. “Deloitte does not comment on client confidential matters,” its spokesperson said.

Diageo had invested in USL after the British company was given express representations that all of the receivables from Mallya entities were recoverable in full. The fund diversion worth Rs 2,100 crore from USL was later raised when KPMG, the new auditor appointed by Diageo, discovered discrepancies when it was finalising USL’s 2014 accounts. All the three years’ accounts will now have to be re-stated, according to listing norms.

In the same year, the new USL management called in PW UK for a forensic audit of the previous three years (which included auditing by its own India unit) and passed on the reports to the regulators including the Sebi, the ministry of corporate affairs and the Institute of Chartered Accountants of India.

The ICAI, sources said, had asked both PW and Walker Chandiok to explain the discrepancy. An ED official said it was surprising that none of the auditors or valuers for Diageo raised flags over the accounts manipulation or the Rs 4,000 crore diversion by USL to the British Virgin Islands in 2007.

While the auditors of USL are in the dock for cooking accounts, another marquee auditing firm — Grant Thornton is under investigation by the SFIO for its Rs 4,100 crore brand valuation of Kingfisher Airlines. It was based on this brand valuation in 2011 that Mallya raised Rs 9,100 crore from government-owned banks by offering the brand as collateral. The lenders are now holding a dud Kingfisher brand, which is finding no takers.

Sources in the ICAI said it was a redux of the Satyam scam, when some of the world’s top auditors overvalued assets before the Maytas and Satyam merger, which led to the unravelling of the scam. In the Satyam case, the ICAI had debarred two auditors from Price Waterhouse who were found guilty of professional misconduct. S Gopalakrishnan and T Srinivas were struck off the ICAI’s rolls and fined Rs 5 lakh each. A Central Bureau of Investigation court later convicted them of fraud.

Source: http://www.business-standard.com/article/current-affairs/mallya-default-singes-top-auditing-companies-116031900495_1.html

India’s ranking on global corruption index improves

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India has showed some improvement in addressing corruption this year, ranking 85th among 175 countries as against 94th last year, graft watchdog Transparency International India (TII) said on Wednesday.
Denmark retained its position as the least corrupt country in 2014 with a score of 92 while North Korea and Somalia shared the last place, scoring just 8, it said.In India’s neighbourhood, China moved to 100th place, down from 80th last year, while Pakistan and Nepal were at 126th position. Bangladesh was 145th and Bhutan 30th in the ranking. Sri Lanka was ranked 85th with India. Afghanistan was at a bleak 172.According to the Corruption Perception Index (CPI) report by TII, “the CPI score for India increased by 2 points in 2014 from its 2013 score, helping India’s rank move up to 85 in 2014 from 94 in 2013”. India’s score stood at 38 as compared to 36 last year.

The improvement in CPI for India was driven primarily by two data sources — from the World Economic Forum and World Justice Project’s (WJP) index.

“A score increase on WEF suggested businesses in India were viewing the environment favourably with regards to their perception of corruption and bribery in the country”.

The WJP score also went up reflecting the perceptions of public sector corruption coming down slightly in India, the report said.

The report noted that in terms of the new government, the CPI possibly captured the anti-corruption mandate on which the new government was elected and the possibility of some new reforms in this area.

“However, the data used for CPI mostly was collected prior to the change of government and therefore this will not reflect directly into any of the CPI sources,” it said.

To calculate India’s position this year, 9 out of 12 independent data sources specialising in governance and business climate analysis were also used.
These included Bertelsmann Foundation, World Bank and World Economic Forum. They helped in measuring perceptions of corruption in public sector and cross country comparability.

In his reaction, chairman of TII S K Agarwal, said the “new Government has got fully majority on agenda of good governance and now it’s high time to act and pass all pending anti corruption bills including the right of citizens for time bound delivery of goods and services and Redressal of their Grievances Bill”.

Source: http://timesofindia.indiatimes.com/india/Indias-ranking-on-global-corruption-index-improves/articleshow/45358144.cms