The Supreme Court ordered committee may find an answer to dealing with mega financial scams that invlove money laundering
Thousands of chain-money schemes have been proliferating in India, preying on the financial illiteracy and gullibility of ordinary people, to steal thousands of crores of rupees from them. All the big schemes have four common features—strong connections with politicians and investigation agencies, international operations that allow them to repatriate large sums of money to safe havens abroad, the ability to hire expensive lawyers and misuse India’s turgid judicial processes to the hilt and, finally, the use of celebrities to build credibility and continue to raise fresh funds even when they are subject to investigations.
The biggest of these, in recent years, is PACL which, over the past 20 years of its existence, has been variously known as Pearls Agrotech, Pearls Infrastructure or simply Pearls. The company collected an astounding Rs49,100 crore from nearly 50 million people, mainly from low-income groups. They thought that they were buying into the big Indian property boom by investing in a company that claimed to own one of the biggest land banks in the country. After 13 years of exploiting our slow judicial system, while continuing to raise money, PACL was finally ordered to halt its operations and the directors were ordered to refund Rs55,000 crore to the public (inclusive of interest). When it failed to do so, the Securities & Exchange Board of India (SEBI) ordered the freezing of its assets and bank accounts. Since then, investors have been running from pillar to post for a refund. Yet, their travails find only an occasional mention in the mainstream media.
Apart from SEBI, we have the usual confusion of multiple agencies involved in the PACL investigation with very little progress to report. Meanwhile, a fair bit of investigation has been done by the The Australian newspaper, which reports that PACL’s founder, Nirmal Singh Bangoo, and his family have been big investors in Queensland’s Gold Coast. It estimates an investment of nearly $100 million in a resort property and its renovation as well as a lavish personal property by the Bangoo family.
PACL also bought itself credibility in that country by roping in international cricketer Brett Lee for $300,000 and have him claim that he was not just a brand ambassador, “but I am proud to be a family member of Pearls Group.” Like all celebrities who have endorsed dubious products and companies, he has quickly disassociated himself from what he had said.
According to The Australian, PACL has also diverted funds to Madagascar and Dubai. Now, isn’t this a fit case for the much-touted Black Money Act to show its efficacy? The newspaper quotes Australian government officials as saying that it is an ‘Indian fraud’ and they will act only when there is a formal request from India’s Central Bureau of Investigation (CBI). That has not yet happened. We, in India, know how that goes. From the Bofors scandal nearly 30 years ago, to a recent SpeakAsia, or the more high-profile QNet or Citi Limouzine—every investigation ends up in a morass of confusion, collusion and botched up Letter Rogatories that invariably let culprits off the hook.
A big difference this time is that SEBI has appointed a three-member committee under the chairmanship of Justice RM Lodha, former chief justice of India for disposing off the land purchased by PACL and refunding the proceeds to investors. This has been done under the specific direction of the Supreme Court on 2nd February. The two other members of this committee are senior SEBI officials. Since the appointment happened only on 17th February, we need to see what the committee does and whether it can direct investigation to ensure that the funds siphoned out of India are brought back.
There are other questions as well. For instance, why wasn’t the Prevention of Money Laundering Act invoked to investigate PACL diversion of funds? Can the Lodha committee direct the CBI and the enforcement directorate(ED) to act swiftly and write to Australia, Dubai, Madagascar and other countries to secure assets there before they are disposed off?
Setting up a committee headed by a retired chief justice of the Supreme Court could become an important template in dealing with financial crime (especially the mega money-circulation schemes proliferating across India), if it yields swift results. But it would work more effectively if this were a multi-disciplinary committee that included members of the CBI, ED, income tax department and serious frauds investigation office (SFIO) along with SEBI officials. Each of these agencies has already worked on the PACL case and their cohesive action is required to ensure quick and stringent action to recover money.
Unfortunately, when it comes to financial scams, regulatory action has never focused on the end objective or been conscious about the time-value of money. Any action that does not lead to investors getting their money back, or even part of their money back, is meaningless. SEBI’s order, asking for a Rs49,100-crore refund with interest, is not worth the paper it is printed on, unless assets of that value are detected, liquidated and the money returned to investors. That is the only meaningful result.
Never-ending investigation with sporadic and desultory action is the story of how India handles financial scams. The securities scam of 1992 is still winding its way through courts, despite a specific legislation to ensure speedy trial. City Limouzine, a scheme through which the flamboyant Sayed M Masood (maker of Chak de India and close buddy of two super stars) raised funds, is similarly meandering its way through courts. We learn that the company raised at least Rs1,300 crore; in fact, an officer from the SFIO told Moneylife that they had discovered an overseas transfer of over Rs900 crore through a political leader. It had 10 cases registered against it in 2003, although complaints mounted dramatically within a year or two. Thousands of investors have been duped; but media reports have quietly begun to downsize City Limouzine’s default anywhere between Rs500 crore-Rs1,000 crore and say that the operation shut down only in 2009. How did the story change? What happened to the rest of the money? Maybe, the answer lies in a news report of 2010 that said that over 6,000 policemen and hundreds were government officials, including depositors were those from the income-tax department and Reserve Bank of India (RBI).
Although Mr Masood has been arrested and is on bail, action against him has not being stepped up under the much-touted Black Money Act, despite reports that the Singapore government traced Rs280 crore to him and is willing to repatriate the funds if India acts within a strict deadline. Mr Masood and his wife were also named in Switzerland’s official gazette for holding Swiss bank accounts.
Here, too, the judicial system was effectively gamed. Over a 100 cases, that were filed against City Limouzine all over India, have still to be transferred to a special court in Mumbai and one can be sure that the judgement will be appealed before the Supreme Court. By then, any hope of investors recovering their money will have evaporated or become meaningless. It is hard to believe that, despite newer and more draconian legislation, victims of chain-money scams get no justice at all. The Sharadha scam of West Bengal is another example of how investigation has turned into a political circus.
We can only hope that PACL investors have better success under the Lodha committee, because it has the apex court’s ear and could seek necessary powers to ensure that investors get some of their money back. It is in the interest of all scam victims in India that this new experiment, initiated by the apex court, yields results where investigation agencies and special courts have failed.
(Sucheta Dalal is the managing editor of
Moneylife. She was awarded the Padma Shri in 2006 for her outstanding contribution to journalism. She can be reached at [email protected])