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FinCEN Files — Delhi, Dubai: US bank red-flags garment export firms under DRI, ED scanner

Beneficiaries of an estimated Rs 16,000-crore hawala network linked to many companies in India and one in Dubai are suspected to have moved their funds unhindered between 2009 and 2014, according to records investigated by The Indian Express.

In its Suspicious Activity Report (SAR) filed in 2017 with US watchdog for money laundering Financial Crimes Enforcement Network (FinCEN), Standard Chartered Bank, New York, flagged 717 transactions worth $105.05 million between Dubai-based Al Khat Al Fizi Trading LLC and six companies engaged in export of garments. Five are allegedly controlled by Delhi-based textile businessman Sahdev Gupta and the sixth is linked to Surat-based alleged hawala operator Afroz Fatta.

In India, both Gupta and Fatta came under the scanner of the Directorate of Revenue Intelligence (DRI) and Enforcement Directorate (ED) respectively in 2014, in two separate unlinked cases.

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A money laundering probe against Fatta is also being monitored by the Supreme Court-appointed-Special Investigation Team (SIT) investigating black money stashed abroad.

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Standard Chartered’s SAR has now reported transactions that link the alleged money laundering activities of Gupta with Fatta. The six firms flagged by the bank include five linked to Gupta and one to Fatta. Gupta’s firms include: DSM International Garments Pvt Ltd; GD Mangalam Exim Pvt Ltd; Konark Exim Pvt Ltd; Sidh Designers Pvt Ltd and Yogmaya Traders Pvt Ltd. The sixth one is Al Almas FZE, linked to Fatta. These firms, according to the Registrar of Companies (RoC), are engaged in export of textiles and garments.

According to the SAR, G D Mangalam received 116 payments totaling $24.04 million; Yogmaya received 88 payments worth $20.02 million; SIDH Designers got 93 payments totaling $19.26 million; Konark got 75 payments totaling $14.11 million; DSM International received 43 payments of $8.39 million and Al Almas received five payments of $2.49 million.

Some of these transactions were facilitated through Bank of Baroda in UAE and the US.

Calling these transactions suspicious, the bank flagged how the main entity, Al Khat, received and/or remitted “unusual” multiple payments and how several payments were made the same day, consecutive days, or close in time to the same counterparties.

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The bank said that Yogmaya, DSM, G D Mangalam, SIDH and Konark seemed to have “acted in concert with one another.”

“The main entity presumably purchased (goods) more than $77 million, which is more than 70% of the total transaction value, worth of garments from these entities alone. The amounts and volume of transactions with these entities far exceeds the number and value of the transactions with the other counterparties, and does not appear commensurate with the purchase of garments,” said Standard Chartered Bank.

While these “suspicious” transactions took place between January 2013 to September 2014, the bank reported these transactions to FinCEN only in 2017, as a part of their “lookback project” on anti-money laundering compliance. The lookback process kicked in after a 2012 inspection by the New York Department of Financial Services found holes in the bank’s anti-money laundering software and processes. In fact, the bank has had to cough up $947 million in fines to American agencies and £102 million to the UK’s Financial Conduct Authority.

In its SAR, Standard Chartered Bank revealed that Gupta’s DSM International was already the subject of two SARs filed by the bank as early as 2009. When asked about these transactions, Gupta told The Indian Express in an email: “The companies/Business Concerns are engaged in export of readymade garments for many years…The export…in 2013-14, as mentioned in your email have been investigated by DRI (HQ), New Delhi and show-cause notices have been issued and are pending adjudication, hence subjudice. All the allegations regarding doubtfulness of transactions are not correct. All the transactions are through proper banking channel in compliance of RBI guidelines. As a law-abiding person, I am always ready to co-operate.”

Denying wrongdoing, Afroz Fatta told The Indian Express: “The case against me was a politically motivated one…The investigating officer in my case was subsequently booked, investigated and also arrested on corruption charges, by the CBI. The matter is sub-judice and I don’t want to go into details, save the fact that I am unaware of the details that you mentioned and also my purported involvement.”

Gupta has been accused by the DRI of fraudulent and inflated exports of over Rs 8000 crore to several companies in Dubai and Hong Kong in 2013-14. The agency alleged that firms controlled by Gupta claimed a duty drawback of Rs 300 crore against these fraudulent exports from the government and received part of it.

Following the DRI probe in 2015, the Central Bureau of Investigation (CBI) booked a graft case and arrested two Customs officials and Gupta for aiding him in the alleged fraudulent exports case. But in 2017, a lower court in Delhi acquitted Gupta and the officers for bribery. The DRI case has reached the adjudication stage.

Despite a clean chit from the lower court, in June 2019, the two Customs officials, accused in the bribery case, were dismissed by the government and the CBI has filed disproportionate assets cases against both. Fatta surfaced on the investigating agencies’ radar in 2014 when ED uncovered alleged hawala transactions worth Rs 8000 crore after the Surat branch of ICICI Bank filed a complaint alleging that a diamond firm, R A Distributors, had cheated the bank to the tune of Rs 104.60 crore by submitting 17 bills of entry with fake stamps and had forged signatures of Customs officials to send the money abroad.

Subsequently, the ED found that nine companies with bank accounts with the same branch of ICICI Bank remitted funds against forged bills of entry to three companies in UAE and 15 companies in Hong Kong.

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These Indian firms got funds from a web of around 2700 companies allegedly controlled by Fatta and his aide. These companies only existed on paper and Fatta and his aide have allegedly earned hefty commissions.

The agency arrested Fatta and four others in connection with the case in 2015. Later that year, the ED joint director heading the Fatta case was booked by the CBI on charges of bribery after a controversial internal probe by the ED. Fatta is currently out on bail. The trial in the ED case is yet to begin.

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The ED has so far attached assets worth Rs 34.29 crore of Fatta and the other accused in the case. It has also filed five prosecution complaints (chargesheets) in the case before a special court in Ahmedabad.

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