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Banking Frauds

CA .KRANTHI KUMAR KEDARI-FCA .DISA(ICAI)


Certified in FAFP

CA KRANTHIKUMAR -DISA ,FAFP, Insolvency


Proessional-Hyderabad
I. BANKING FRAUDS
.1. •HOUSING LOANS

2. •JEWEL LOANS

3 •WORKING CAPITAL FRAUDS

4. •TRADE FINANCE

5. •DEPOSIT FRAUDS

6 •BANK STAFF FRAUDS


CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
Proessional-Hyderabad
HOUSING LOANS-Frauds
1. Over valuation of the property
2. Multiple Mortgage of Assets for Same assets
3. Collusion of Valueres with Borrowers
4. Wrong Legal Scrutiny Reports or Incorrect land records
or Chain documents
5. Double mortgage: Project loan and Housing loan
6. Incorrect Employment Details or Fake employer
7. Fraudulent Income tax returns
8. Duplicate Pan cards
9. Disbursing loans without taking search
10.Fabrication of Income Certificate, Balance Sheets,etc
11.Escalation of overall cost of the property to obtain
higher loan amount. Proessional-Hyderabad
CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
HOUSING LOANS-Frauds
1. Bankers hand over the Bankers Pay Order while
disbursing loan in the hands of the borrower himself,
2. Borrower resorted to frauds by opening a false Bank
Account in the name of the Payee of the Pay Order
3. Multiple Financing
The borrower make one genuine document and pay
the stamp duty, Register the same with Sub-Registrar,
etc. Thereafter, take a colour zerox of the same and
make some changes in the documents and submit to
various Banks for the same property
4. Title Deeds are forged
There are instances of borrower producing false
title certificates by printing Advocate’s Letter Heads
and submitting the same to the Bank,
CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
Proessional-Hyderabad
Jewel Loan frauds
1. Passing on fake gold ornaments as genuine by
Appraisers( Fake Gold)
2. Opening accounts, by obtained signatures of account
holders along with loan documents for pledging gold
Jewelry. Without the any knowledge of the
accountholders, pledging spurious gold in the bank
and obtained gold loans.
3. Bank Employees Pledge the gold of Customers which
the customers had kept in the bank
4. Depositing Stolen gold in the bank and obtaining loans
CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
Proessional-Hyderabad
Jewel Loan frauds

S.no Fake customer FAKE Gold

1 NO YES
2 YES NO
3 YES YES

CA KRANTHIKUMAR -DISA ,FAFP, Insolvency


Proessional-Hyderabad
CC/OD ACCOUNT FRAUDS
1. Over valuation of Stock
2. Over valuation of Debtors
3. Showing Holding Period of stock as Less
4. Showing Holding Period of Debtors Less
5. Not Deducting Unpaid stock
6. Fake sales
7. Fund Diversion
8. Use of short-term working capital funds for long-term
commitments
9. Transferring funds to group companies
10.Loan Repayments
CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
Proessional-Hyderabad
FRAUDS-TRADE
FINANCE

CA KRANTHIKUMAR -DISA ,FAFP, Insolvency


Proessional-Hyderabad
LC FRAUDS
1. Fake Suppliers/Here banks issue LC’s on behalf of their
customers favoring so called suppliers who exist only on
paper. In turn they raise bills for non-existent transactions
and get them discounted with other banks under the
strength of the LC. When the bill falls due, it gets paid by
raising a fresh one.
2. Wrong certification of Shipment(Empty cartons,stones, Ice
etc)
3. Dishonor of FLC issued by Foreign Banks by Indian suppliers
4. Discounting Forged LC(Centurion Bank, reportedly incurred
losses running to around Rs 40 crore)
5. Kite flying transaction
6. over-invoicing of export bills resulting in concessional bank
finance, exemptions from various duties,
7. Submission of forged documents including letters of credit
CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
Proessional-Hyderabad
Kite flying transactions-100 Crore
1. Kite flying case was happened in Kolkata, involving State
Bank of India.
2. One of the bank's branches in that city reportedly opened
LCs for purchase of seafood by its customer in favour of a
supplier situated in Kolkata.
3. No goods were sold or bought — the buyer and the seller
belonged to the same group — and the group enjoyed bank
credit on an unsecured basis.
4. When the bank woke up the total value of bills drawn under
the LCs and unpaid amounted to a staggering Rs 100 crore.
5. The bank reportedly refused to pay the bills already
accepted by its customer under the bank's LCs and all those
banks that had discounted the bills on the strength of LCs
had gone to court to make the opening bank pay.
CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
Proessional-Hyderabad
LOU -Frauds
• Who gets an LoU
• LoUs are used by a bank’s customer to avail short-term
credit in a foreign country. These transactions are not
retail in nature and are mostly used by businesses for
import of goods.
• The borrower uses her existing credit relationship with
a bank in India to avail the required credit outside the
country.
• “An authorised dealer may give a guarantee, letter of
undertaking or letter of comfort in respect of any debt,
obligation or other liability incurred by a person
resident in India and owned to a person resident
outside India (being an overseas supplier of goods,
bank or a financial institution), for import of goods,
CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
Proessional-Hyderabad
How does it work
If the bank is convinced, it will issue an LoU, which when given to an
overseas branch of another Indian bank would result in release of the
amount in foreign currency.
This amount does not come in to Customer account directly; it goes
to Nostro account.
Customer can then decide in whose favour the payment needs to be
done.
The charges/Fess and benefits
• The overseas bank lending to the borrower based on the LoU
earns interest on the amount,
• the bank issuing the LoU gets a fee and
• the borrower gets a credit facility at a place where he may not
have banking relationships.
• Moreover, interest rates in India are higher compared to
international benchmark rates.
• So the effective outgo on interest for the borrower is also
beneficial CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
Proessional-Hyderabad
LOU -Frauds
• What is the process that is normally followed to issue
LoUs and transmit messages by SWIFT?
• Requests for loans or LoUs for large amounts have to
be approved by the senior management.
• The other part of the story is the transmission of the
messages.
• This is usually a three-layer process that takes place
either at the branch or its offices.
• One bank official is designated as a maker, another a
verifier, and a third is the authoriser.
• All have different logins and passwords, and work
independently of each other.
CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
Proessional-Hyderabad
What went wrong in the PNB case?
1. SWIFT transactions are linked to the Core Banking Solution
(CBS) of banks, which contains transaction histories and
other data of all customers, and can be accessed by all
branches where a customer has an account.
2. SWIFT transactions, therefore, are automatically recorded,
and are seen by officials from regional managers to general
managers and, when the amount is big, by the top
management.
3. In the PNB case, the scamsters allegedly delinked SWIFT
from CBS in the case of companies that were linked to Nirav
Modi and Mehul Choksi.
4. However, LoUs of other companies were routed through the
SWIFT-CBS system.
5. This meant that funds were provided to the Modi-Choksi
companies without being recorded in the bank’s CBS.
CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
Proessional-Hyderabad
FRAUDS-DEPOSIT

CA KRANTHIKUMAR -DISA ,FAFP, Insolvency


Proessional-Hyderabad
Kite flying-Deposits
1. Kite flying involves the deposit of worthless
cheques into a bank account, to create a false
credit balance.
2. By way of special arrangements with bank staff,
the account holder then empties the account for
his own benefit, without having to wait for the
worthless cheque to first be cleared and then
dishonoured.
3. Theft of Customer deposits particularly from
Dormant accounts
4. grant of loans against forged FDRs
CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
Proessional-Hyderabad
Fraud-TGB
Telangana Grameena Bank located at Aziznagar in Moinabad for
cheating, forgery and falsification of accounts.
1. During the probe it was found that ₹8.9-crore defrauded
amount was linked to 133 TD and savings bank accounts.
2. Several bank customers told the investigators that the
accused had collected amounts from them outside the bank
premises and made fake entries in passbooks.
3. He also gave fictitious TDRs to customers giving them false
impression their deposit was active, the complainant said.
4. The employees tampered with face value of term deposit
receipts (TDR’s) while doing online entry in the computer
system by omitting the digit ‘0’.
5. They also did not enter the transactions in account books,
did not have physical issue of TDRs and regenerated old
TDRs after accepting the funds.
CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
Proessional-Hyderabad
BANK STAFF FRAUDS

CA KRANTHIKUMAR -DISA ,FAFP, Insolvency


Proessional-Hyderabad
Bank staff Frauds
1. Sanctioning loans on Forged Fabricated documents
2. Loan sanctions Beyond authorization
3. Misused KYC documents of persons known to him and creating
fake firms/ and companies.
4. Opening Accounts with out verifying persons physically (PAN
Card of other Persons and claiming Income tax refund)
5. Opening fake current Account for shell companies
6. Loans without collateral
7. Loans without Business
Other Frauds
1. Opening Accounts with PAN Card of other Person without the
Knowledge of PAN Card holder and claiming Income tax refund.
2. Opening Fake current accounts and using the Accounts for cyber
frauds
3. forged cheques discounting
CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
Proessional-Hyderabad
Bank staff Frauds
1. Unauthorized credit facilities extended
for reward or for illegal gratification
2. Misappropriation and criminal breach of
trust.
3. Cash shortages.

CA KRANTHIKUMAR -DISA ,FAFP, Insolvency


Proessional-Hyderabad
Legal Audit
• Legal Audit of Title Documents in respect of Large
Value Loan Accounts
• 9.1.1 Banks should subject the title deeds and other
documents in respect of all credit exposures of ₹ 5
crore and above to periodic legal audit and re-
verification of title deeds with relevant authorities
as part of regular audit exercise till the loan stands
fully repaid.

CA KRANTHIKUMAR -DISA ,FAFP, Insolvency


Proessional-Hyderabad
FRAUD RISK FACTORS
1 a) Default in undisputed payment to the statutory
bodies as declared in the Annual report.
b) Bouncing of high value cheques
2 Frequent change in the scope of the project to be
undertaken by the borrower
3 Foreign bills remaining outstanding with the bank for a
long time and tendency for bills to remain overdue.
4 Delay observed in payment of outstanding dues.
5 Frequent invocation of BGs and devolvement of LCs.
6 Under insured or over insured inventory.
7 Invoices devoid of TAN and other details.
8 Dispute on title of collateral securities.
9 Funds coming from other banks to liquidate the
outstanding loan amount unless in normal course.
CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
Proessional-Hyderabad
FRAUD RISK FACTORS
10 In merchanting trade, import leg not revealed to the bank.
11 Request received from the borrower to postpone the
inspection of the godown for flimsy reasons.
12 Funding of the interest by sanctioning additional facilities.
13 Exclusive collateral charged to a number of lenders without
NOC of existing charge holders.
14 Concealment of certain vital documents like master
agreement, insurance coverage.
15 Floating front / associate companies by investing borrowed
money
16 Critical issues highlighted in the stock audit report.
17 Liabilities appearing in ROC search report, not reported by
the borrower in its annual report
18 Frequent request for general purpose loans.
CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
19 Frequent ad hoc sanctions. Proessional-Hyderabad
FRAUD RISK FACTORS
20 Not routing of sales proceeds through consortium I
member bank/ lenders to the company.
21 LCs issued for local trade I related party transactions
without underlying trade transaction
22 High value RTGS payment to unrelated parties.
23 Heavy cash withdrawal in loan accounts.
24 Non production of original bills for verification upon
request.
25 Significant movements in inventory, disproportionately
differing vis-a-vis change in the turnover.
26 Significant movements in receivables,
disproportionately differing vis-à-vis change in the
turnover and/or increase in ageing of the receivables
27 Disproportionate change in other current assets
CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
Proessional-Hyderabad
FRAUD RISK FACTORS
28 Significant increase in working capital borrowing as
percentage of turnover
29 Increase in Fixed Assets, without corresponding increase in
long term sources (when project is implemented).
30 Increase in borrowings, despite huge cash and cash
equivalents in the borrower's balance sheet
31 Frequent change in accounting period and/or accounting
policies
32 Costing of the project which is in wide variance with standard
cost of installation of the project
33 Claims not acknowledged as debt high
34 Substantial increase in unbilled revenue year after year.
35 Large number of transactions with inter-connected
companies and large outstanding from such companies
36 Substantial related party transactions
CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
Proessional-Hyderabad
FRAUD RISK FACTORS
37 Material discrepancies in the annual report
38 Significant inconsistencies within the annual report
(between various sections)
39 Poor disclosure of materially adverse information and
no qualification by the statutory auditors
40 Raid by Income tax /sales tax/ central excise duty
officials
41 Significant reduction in the stake of promoter /director
or increase in the encumbered shares of
promoter/director.
42 Resignation of the key personnel and frequent changes
in the management CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
Proessional-Hyderabad
Operating Frame work

CA KRANTHIKUMAR -DISA ,FAFP, Insolvency


Proessional-Hyderabad
Frauds-operating framework
1. All banks have policy and operating framework in
place for detection, reporting and monitoring of
frauds as also the surveillance/ oversight process
in operation so as to prevent the perpetration of
frauds.
2. The RBI, vide its Circular No. DBS.
CO.FrMC.BC.No.10/23.04.001/2010-11 dated 31st
May 2011 had identified certain areas wherein
frauds had shown occurrence or increasing trend
in banks
CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
Proessional-Hyderabad
Frauds-operating framework

(i) Detection and reporting of


frauds.
(ii) Corrective action.
(iii) Preventive and punitive action.
(iv) Provisioning for Frauds

CA KRANTHIKUMAR -DISA ,FAFP, Insolvency


Proessional-Hyderabad
Detecting Frauds-(RFA -EWS)
1) Default in payment to the banks/ sundry debtors and other
statutory bodies,etc., bouncing of the high value cheques.
2) Raid by Income tax /sales tax/ central excise duty officials.
3) Frequent change in the scope of the project to be
undertaken by the borrower.
4) Under insured or over insured inventory.
5) Invoices devoid of TAN and other details.
6) Dispute on title of the collateral securities.
7) Costing of the project which is in wide variance with
standard cost of installation of the project.
8) Funds coming from other banks to liquidate the
outstanding loan amount.
9) Foreign bills remaining outstanding for a long time and
tendency for bills to remain overdue.
CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
Proessional-Hyderabad
Detecting Frauds-(RFA -EWS)
10) Onerous clause in issue of BG/LC/standby letters of
credit.
11) In Merchanting trade, import leg not revealed to
the bank.
12) Request received from the borrower to postpone
the inspection of the godown for flimsy reasons.
13) Delay observed in payment of outstanding dues.
14) Financing the unit far away from the branch.
15) Claims not acknowledged as debt high.
16) Frequent invocation of BGs and devolvement of LCs.
17) Funding of the interest by sanctioning additional
facilities.
18) Same collateral charged to a number of lenders.
CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
Proessional-Hyderabad
Detecting Frauds-(RFA -EWS)
19) Concealment of certain vital documents
like master agreement, insurance coverage.
20) Floating front / associate companies by
investing borrowed money.
21) Reduction in the stake of promoter /
director.
22) Resignation of the key personnel and
frequent changes in the management.
23) Substantial increase in unbilled revenue
year after year.
CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
Proessional-Hyderabad
Detecting Frauds-(RFA -EWS)
24) Large number of transactions with inter-
connected companies and largeoutstanding from
such companies.
25) Significant movements in inventory,
disproportionately higher than the growth in
turnover.
26) Significant movements in receivables,
disproportionately higher than the growth in
turnover and/or increase in ageing of the
receivables.
27) Disproportionate increase in other current
assets.
CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
Proessional-Hyderabad
Detecting Frauds-(RFA -EWS)
28) Significant increase in working capital
borrowing as percentage of turnover.
29) Critical issues highlighted in the stock audit
report.
30) Increase in Fixed Assets, without
corresponding increase in turnover (when project
is implemented).
31) Increase in borrowings, despite huge cash and
cash equivalents in the borrower’s balance sheet.
32) Liabilities appearing in ROC search report, not
reported by the borrower in its annual report.
CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
Proessional-Hyderabad
Detecting Frauds-(RFA -EWS)
33) Substantial related party transactions.
34) Material discrepancies in the annual
report.
35) Significant inconsistencies within the
annual report (between various sections).
36) Poor disclosure of materially adverse
information and no qualification by the
statutory auditors.
CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
Proessional-Hyderabad
Detecting Frauds-(RFA -EWS)
37) Frequent change in accounting period and/or
accounting policies.
38) Frequent request for general purpose loans.
39) Movement of an account from one bank to another.
40) Frequent ad hoc sanctions.
41) Not routing of sales proceeds through bank.
42) LC’s issued for local trade / related party
transactions.
43) High value RTGS payment to unrelated parties.
44) Heavy cash withdrawal in loan accounts.
45) Non submission of original bills.
CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
Proessional-Hyderabad
Other EWS
a) Cheques/bills discounting facility used for liquidation
of funds without any physical collateral or just for
deferment of liability.
b) Repayment of third party loans despite bank’s loan
account irregular or out of order.
c) Maintenance of bank accounts with other bank
without consent of lender bank.
d) Inordinate delay in conducting stock inspections by
bank officials and/or stock auditors at the instance of
the borrower not to show its weakness and
misutilization of funds.
e) Unauthorized changes to CBS parameters,
unauthorized/fraudulent direct entries, NPA date
tampering etc CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
Proessional-Hyderabad
Corrective Action

CA KRANTHIKUMAR -DISA ,FAFP, Insolvency


Proessional-Hyderabad
Corrective Action Plan-1
1. An important corrective step in a fraud is recovery
of the amount siphoned off through the fraud.
2. A structured scrutiny/ examination of events or
transactions would lead to quick conclusion
whether a fraud has occurred and the bank’s funds
have been siphoned off.
3. Therefore, this exercise is the first critical step
towards corrective action in the sense that it
would lead to expeditious filing of police
complaints,
4. blocking/ freezing of accounts and salvaging funds
from the blocked/ frozen accounts in due course.
CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
Proessional-Hyderabad
Corrective Action Plan-2
1. Once a set of transactions is explicitly identified as
fraudulent,
2. Bank should give mandate for seizing and taking
possession of related documents,
3. Bank should give issuance of suspension order/
4. Bank should Release order to proceed on leave to
identified/ suspected employees
5. Bank should preventing them from destroying/
manipulating evidences or obstruction of
investigations
CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
Proessional-Hyderabad
Preventive Action

CA KRANTHIKUMAR -DISA ,FAFP, Insolvency


Proessional-Hyderabad
Preventive Action
1. For key and sensitive posts such as those in dealing
rooms, treasury, relationship managers for high value
customers, heads of specialized branches, etc.,
selecting only such officers who satisfy the “Fit and
Proper” criteria.
2. The appropriateness of such postings should be
subjected to periodical review
3. Putting in place the “staff rotation” policy and policy
for “mandatory leave” for staff.
4. The decisions taken / transactions effected by officers
and staff not rotated/ availing leave as per policy
should be subjected to comprehensive examination by
the internal auditors Proessional-Hyderabad
CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
Provisioning for Frauds

CA KRANTHIKUMAR -DISA ,FAFP, Insolvency


Proessional-Hyderabad
Provisioning for Frauds
• RBI has vide its circular RBI/2015-16/376
DBR.No.BP.BC.92/21.04.048/ 2015-16 dated 18th
April, 2016, decided to amend the provisioning
norms in respect of all cases of fraud, as under:

CA KRANTHIKUMAR -DISA ,FAFP, Insolvency


Proessional-Hyderabad
Provisioning for Frauds
1. Banks should normally provide for the entire amount
due to the bank or for which the bank is liable
(including in case of deposit accounts), immediately
upon a fraud being detected.
2. While computing the provisioning requirement, banks
may adjust financial collateral eligible under Basel III
Capital Regulations - Capital Charge for Credit Risk
(Standardised Approach), if any, available with them
3. However, to smoothen the effect of such provisioning
on quarterly profit and loss, banks have the option to
make the provisions over a period, not exceeding four
quarters, commencing from the quarter in which the
fraud has been detected;
CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
Proessional-Hyderabad
Provisioning for Frauds
1. Where the bank chooses to provide for the fraud over
two to four quarters and this results in the full
provisioning being made in more than one financial
year,
2. Banks should debit 'other reserves' [i.e., reserves
other than the one created in terms of Section 17(2)
of the Banking Regulation Act 1949] by the amount
remaining un-provided at the end of the financial year
by credit to provisions.
3. However, banks should proportionately reverse the
debits to ‘other reserves’ and complete the
provisioning by debiting profit and loss account, in the
subsequent quarters of the next financial year
CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
Proessional-Hyderabad
Provisioning for Frauds-Disclosures
1. Banks shall make suitable disclosures with regard
to number of frauds reported,
2. amount involved in such frauds,
3. quantum of provision made during the year and
quantum of unamortised provision debited from
‘other reserves’ as at the end of the year.

CA KRANTHIKUMAR -DISA ,FAFP, Insolvency


Proessional-Hyderabad
RBI-Identified Areas of Fraud
1. loans/ advances against hypothecation of stocks
2. housing loans cases.
3. Submission of forged documents including letters of credit.
4. escalation of overall cost of the property to obtain higher loan
amount.
5. over valuation of mortgaged properties at the time of
sanction.
6. grant of loans against forged FDRs.
7. over-invoicing of export bills resulting in concessional bank
finance, exemptions from various duties, etc.
8. frauds stemming from housekeeping deficiencies.
9. Unrecoreded recipts
10. Theft of Customer deposits particularly from Dormant accounts

CA KRANTHIKUMAR -DISA ,FAFP, Insolvency


Proessional-Hyderabad
Following acts constitute fraud
RBI/DBS/2016-17/28 DBS.CO.CFMC. BC.No.1/23.04.001/2016-17
1. Fraudulent removal of pledged stocks / disposal of
hypothecated stocks without the knowledge of the bank /
2. inflating the value of stocks in the stock statements & drawing
excess bank finance.
3. Diversion of funds, lack of interest or criminal neglect on the
part of the borrowers partners etc., in adhering to financial
discipline and managerial failure with mala fide intent leading
to the unit becoming sick rendering the advance difficult for
recovery and resulting in financial loss to the bank.
4. Diversion of Funds,
5. Inflating value of stocks,
6. showing unpaid stocks as paid stocks,
7. Not providing for bad debts etc

CA KRANTHIKUMAR -DISA ,FAFP, Insolvency


Proessional-Hyderabad
Frauds-Money
Laundering

CA KRANTHIKUMAR -DISA ,FAFP, Insolvency


Proessional-Hyderabad
Frauds in Money Laundering
Proceeds of illegal acts are converted into proceeds
from the legal acts.
1. Physically moving the cash into locations or
jurisdictions and depositing it in off shore banks with
lesser stringent enforcement laws and regulations.
2. Using business typically known to receive revenue in
cash to be used to deposit criminally derived cash.
3. Trade based laundering – Over or Under Invoicing.
4. Shell companies operating in jurisdictions not
requiring reporting of
5. beneficial owner to earn tax favored profits.

CA KRANTHIKUMAR -DISA ,FAFP, Insolvency


Proessional-Hyderabad
Money Laundering
6. Round Tripping wherein money is deposited in a controlled
foreign corporation offshore preferably a tax haven where
minimal records are kept & then shipped back as FDI to earn
tax favored profits through a shell company
7. Use of Casinos – Chips are purchased with laundered cash and
on winning,
8. the buyer either gets back the winnings in cheque or gets a
receipt for the winnings.
9. Real estate Transactions – seller agrees to understate the value
of the property and collects the difference in cash.
10. Bank capture – Buying a controlling interest in a Bank in a
jurisdiction with weak money laundering controls and then
move money through the bank without much scrutiny
11. CTR STR

CA KRANTHIKUMAR -DISA ,FAFP, Insolvency


Proessional-Hyderabad
Wilful default
1. The unit has defaulted in meeting its payment /
repayment obligations to the lender even when it has the
capacity to honor the said obligations.
2. The unit has DIP to the lender and has not utilized the
finance from the lender for the specific purposes for
which finance was availed of but has diverted the funds
for other purposes
3. The unit has DIP to the lender and has siphoned off the
funds so that the funds have not been utilized for the
specific purpose for which finance was availed of, nor are
the funds available with the unit in the form of other
assets
4. The unit has DIP to the lender and has also disposed of or
removed the movable fixed assets or immovable property
given by him or it for the purpose of securing a term loan
CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
without the knowledgeProessional-Hyderabad
of the bank / lender.
NPA FRAUDS-Tampering Parameters
1.NPA –Date tampering Changing the Sanction date in
the ERP
2.Renewal of NPA Accounts with out any Documents
3.NPA Account Regularization with Additional limits,
Ad-hoc limits ST limits
4.Cheque Reversal: Credits in CC Accounts on 31st
March and Reversal in the first week of April
5. NPA-Agriculture account Reschedule of Crop loans
by applying SBLC decision to all places, All crops,
instead of specified Cases.
CA KRANTHIKUMAR -DISA ,FAFP, Insolvency
Proessional-Hyderabad
Reporting of frauds to RBI
Banks need to furnish Fraud Monitoring Return (FMR)
in individual fraud cases, irrespective of the amount
involved, to RBI electronically using FMR Application
in XBRL System supplied to them within three weeks
from the date of detection

CA KRANTHIKUMAR -DISA ,FAFP, Insolvency Proessional-


Hyderabad