CBI studies 53 financial frauds to identify preventive measures

Apart from cases involving Harshad Mehta, Mehul Choksi and Nirav Modi, the agency studied bank frauds involving former liquor baron Vijay Mallya, diamond merchant Jatin Mehta

The Central Bureau of Investigation (CBI) has carried out a detailed analysis of 53 financial crimes including bank frauds and Ponzi schemes starting from Harshad Mehta’s manipulation of the stock market using funds obtained from banks in the 90s to the use of fraudulent Letters of Undertaking (LoUs) and Letters of Credit (LCs) by fugitive diamantaires Nirav Modi and Mehul Choksi, to understand the modus operandi of white-collar criminals, systemic lacunae and to identify preventive measures needed to prevent such crimes.

The “findings” and “lessons learnt from past mistakes”, published in the form of an almanac and released by Prime Minister Narendra Modi on Monday, have been shared with the Reserve Bank of India (RBI), stock market regulator Sebi. (AFP)

The “findings” and “lessons learnt from past mistakes”, published in the form of an almanac and released by Prime Minister Narendra Modi on Monday, have been shared with the Reserve Bank of India (RBI), stock market regulator Sebi (Securities and Exchange Board of India), banks, the agency’s own investigators and law enforcement agencies across the country, people familiar with the development said.

“A gist of the outcome of 53 major financial crimes investigated by CBI since early 90s was shared during a Chintan Shivir (brainstorming session) on Monday, which was attended by senior functionaries of RBI, Sebi, Indian Banking Association (IBA), Central Vigilance Commission (CVC), and various banks and agencies,” said an office, who didn’t want to be named.

He added that CBI special director Praveen Sinha and joint director of CBI’s banking and securities fraud branch, Anurag (he goes by one name only) , focused on reasons why banks are repeatedly cheated into giving credit to individuals or entities based on unverified documents such as fraudulent LoUs/LCs, how white collar criminals divert funds taken from banks and investors to a third country, the use of delay tactics in courts to stall proceedings, the steps needed to be taken at the policy level to prevent these, investigation techniques, and issues related to extradition.

Apart from cases involving Harshad Mehta, Mehul Choksi and Nirav Modi, the agency studied bank frauds involving former liquor baron Vijay Mallya, diamond merchant Jatin Mehta, the owners of Sterling Biotech Ltd , Chetan and Nitin Sandesara, former ICICI Bank managing director Chanda Kochhar, Rishi Agrawal of ABG Shipyard Ltd, Kapil and Dheeraj Wadhawan of Dewan Housing and Finance Ltd (DHFL), Rana Kapoor (Yes Bank founder) and Sanjay Singal of Bhushan Power and Steel Ltd as well cases related to Saradha chit fund and the Rose Valley Ponzi scheme involving thousands of crores, the second officer added.

“No other organization except CBI has the experience of investigating large bank fraud cases. Prepared after two years of research, this almanac will be a gamechanger for the banking industry and the law enforcement,” said a third officer, who also requested anonymity.

According to RBI’s annual report, the banking sector recorded 9,103 cases of frauds involving ₹60,414 crore in 2021-22, a significant drop from ₹1,38,211 crore involved in 7,359 cases of fraud in 2020-21. This amount was ₹1,85,468 crore (8,703 cases) in 2019-20. To be sure, not all these frauds are investigated by the CBI or other law enforcement agencies.

Between 2018 and 2020 alone, CBI registered cases in bank frauds involving in excess of ₹1 lakh crore. In 2020, it filed over 200 cases, involving bank frauds of ₹70,000 crore,the highest ever in a year.

To expedite its probe in bank frauds, the federal anti-corruption agency has also hired over 50 bank officials on deputation in last four to five years.

The federal agency claimed last year that its probe in at least 100 high-value bank frauds was hit due to withdrawal of general consent under section 6 of the Delhi Special Police Establishment (DSPE) act by several states including West Bengal, Rajasthan, Mizoram, Jharkhand, Punjab, Kerala and Chhattisgarh.

Besides an almanac on bank frauds, CBI has also published its updated administration manual, a handbook on 101 Supreme Court judgements in CBI cases, and a manual on international police cooperation .