Money & Banking
Low-risk bank customer accounts can be a conduit for money laundering
Transactions in low income individual account also need to be monitored with the same keen eyes as in other accounts by bank officials. There are several instances about low-risk customers allowing someone to use their bank account for a small commission
Money laundering is trading in criminal money. Money launderers seek out areas, which seem low risk due to existence of ineffective anti-money laundering systems. Launderers, prefer to move funds through areas with stable financial systems. For this purpose, they also seek out low income individuals having accounts with banks and use them as mules to transfer their illicit funds. The narrative that follows highlights how a low risk customer with a bank account was used to transfer funds illegally. It also brings into focus how ill trained, grossly negligent bank officials, ignored the obvious red flags that triggered large amounts being transferred through savings account of a factory worker. The identities of the country, the bank and the account holder are not disclosed here.
Mrs A was an employee in a garment factory in the Middle East. Like many other factory workers, she also walked to the bank branch every other week to deposit a few hundred of hard-earned dirhams in cash into her savings account. And, like thousands of other bank customers, she would occasionally transfer some money from that account to an account overseas apparently to her home country. This went on for three years, until, the branch manager noticed a considerable number of wire transfers being made from her account. This had all the earmarks of money laundering, which meant the branch manager should quit business (close account) with Mrs A immediately. But he hesitated. First of all, the idea that Mrs A might be laundering money seemed silly for him. Second, he did not want to close her account abruptly, because there were number of customers from the same factory where she worked. If word got around that the bank had abruptly closed her account, that would not have helped the bank's business.
The first step was to take a closer look at her account records. A single large deposit, the branch manager said, would not have caused him any concern. After all, Mrs A might have had a big win in the weekly lottery. But a single large deposit is not what he found. What he saw was that, over the past six months, a woman who had in the past made small deposits every other week was now depositing as much as 80,000 dirham in cash, on a random but frequent basis.
To the manager this looked like ‘placement’ – getting the money into the system. He was upset that his tellers had not brought the new pattern of deposits to his attention. In addition, he saw that relatively similar amounts were now being sent by wire transfer to accounts in other countries and other banks. This he thought looked like ‘layering' – moving money around to confuse the trail. But it was the next day, before he could follow through with inquiries with managers of the bank’s branches in other countries. Could they tell him, he asked, whether the accounts receiving the wire transfers were still open and active? It turned out that one account had been closed and the equivalent of 350,000 dirhams, most of it remitted in by telegraphic transfer, had been withdrawn. An equal amount of money in a second account, most of it also remitted in by telegraphic transfer, had been used as the down payment for a mortgage on a restaurant property. Another two accounts were still open but funds remitted (from Mrs A's account) had already been turned around and remitted out to other accounts elsewhere. A fifth account in the name of a small business had a balance that fluctuated frequently, though lately the average balance had climbed.
To the branch manager it seemed obvious. This was a money laundering operation, functioning on a fairly small scale, but successfully cleaning up dirty money –– and ‘integrating’ it into the legitimate economy. He also guessed that his customer, Mrs A, was not the source of the money but was probably letting her account be used for a small cut of the proceeds.
Finally, the branch manager decided to close her bank account. But he stopped. He was not sure what to do, especially since funds have already moved through his branch. The case indicates that there was ‘MONEY LAUNDERING’ going on under the Manager’s nose. Mrs  A was used as a mule against payment of some commission and the bank manager and staff were either inadequately trained or grossly negligent in ignoring the obvious red flags. The moral is that transactions in low income individual account should also be monitored with the same keen eyes as in other accounts and also employees should be well trained and fully equipped to spot such patterns of transactions.
(Saiyid (SSA) Zaidi is a training and development consultant as well as external subject matter expert at the Educom Group Banker's Academy in New York.) 


Corporate governance as an ingredient of stock market Index
By creating an index that factors in corporate governance practices of a listed entity, investors can be provided a good alternative to select scrips. This will help in protecting interest of investors in a much better way
Removal of United Spirits Ltd (USL) from NSE's CNX Nifty, the most actively traded index in the India, has brought to fore one of the key variables that all stock market indices fail to capture. The point is that of factoring in corporate governance practices in formation of any Index. Before moving ahead it is pertinent to note that as per media reports, removal of USL from Nifty is not just a periodic exercise, but an outcome of non-reporting of financials by the company. The issue is indeed series and warrants attention. Even otherwise, significance of corporate governance in creation of an index cannot be overlooked.
Let us look at an index like Nifty. It is based on some of the key variables that determine the formation on any equity index. The benchmark considers impact cost, investible weight factor and a listing history as some of the eligibility criteria for formation of Nifty. But there is no mention of corporate governance as a variable in the creation of the index.  The same applies to other indices as well. As a result of these criteria, most trader friendly companies become part of the index, leaving behind interest of investors. This is not to say that once companies with high standard of corporate governance are included in the index, the issues related to fraud and cheating will permanently get eliminated. But definitely interest of investors will be protected in a much better way.
Now the most interesting aspect of the issue i.e. how to create an index, which will factor corporate governance practices of the company. While this may be debated, there are exclusive examples in the world that give an insight into this kind of index. Let us look at one such index. Borsa Istanbul has an index, which takes on consideration corporate governance practices. The index is known as BIST Corporate Governance Index (XKURY). As per the website of Borsa Istanbul, “BIST Corporate Governance Index is the index in which the companies that apply Corporate Governance Principles are included. BIST Corporate Governance Index aims to measure the price and return performances of companies traded on Borsa İstanbul Markets (except companies in Watchlist Companies Market and List C) with a corporate governance rating of minimum 7 over 10 as a whole and minimum of 6.5 for each main section. The corporate governance rating is determined by the rating institutions incorporated by CMB in its list of rating agencies as a result of their assessment of the company's compliance with the corporate governance principles”.
This experiment is however not just limited to Istanbul. There are at least eight stock exchanges,  which have launched indices with corporate governance as the critical ingredient:
While creating these indices, some of the key criteria have been considered. Here is an insight into what Italy and Brazil consider as the criteria for creating indices:
While many of these criteria are part of corporate governance practices that we follow in India, they are not included in any of the benchmarks. As regards the success that these indices have achieved in their respective countries, here is a table which shows that large number of companies have joined these indices, wherever number of companies in an index is not capped.
Small investors often find it difficult to comprehend and gauge corporate governance practices of companies. However, by building an index which factors in corporate governance practices investors can be provided a good alternative to select companies which are high on corporate governance standard. At least time has come to think on these lines. 
(Vivek Sharma has worked for 17 years in the stock market, debt market and banking. He is a post graduate in Economics and MBA in Finance. He writes on personal finance and economics and is invited as an expert on personal finance shows.) 


Before we can 'make it in India'!
The e-biz initiative of the Cabinet Secretary hopes to help companies get over some 60 clearances on line; but this is likely to take time before a single platform to take care of all the needs are covered
Speaking for the first time from the Red Fort ramparts on this Independence Day, Prime Minister Narendra Modi made an impressive extempore speech and invited foreign investors to "make" (or rather manufacture) what they need and export it to where they please from India. He invited foreign investors to make India their industrial hub.
He threw caution to the winds and spoke fearlessly, unshielded by bullet proof glass or vest. He was humble enough to call himself as the "pradhan sevak" and said that India has the raw materials needed, qualified and technically skilled personnel, competitive and low wages, and the keen desire to make products that the manufacturer could sell, where they are needed. From the Red Fort, he offered red carpet treatment to investors to make India their industrial base.
The question before us is whether India has the wherewithal to meet the exacting needs of the foreign investors?  Can they comply with hundreds of formalities and obtain approvals from various departments, and authorities before they can even think of going to the drawing board to prepare the blue prints for a manufacturing programme?
According to an assessment made by the Project Monitoring Group in the Cabinet Secretariat, they found some 24 approvals are needed from the Central Government and another 35 clearances from various State departments concerned. A formidable task indeed. They found that out of these only two can be obtained through one platform and apparently there is a lack of coordination and cooperation between state departments and the central government itself! Efforts are now being made to have the platform e-biz set up to comprehensively cover these issues.  At least a good move to reduce tension for the new applicant!
This e-biz initiative of the Cabinet Secretary hopes to help companies get over some 60 clearances on line; but this is likely to take time before a single platform to take care of all the needs are covered.
Among the many areas that have caused inordinate delay is the time involved in getting "green clearances". According to information available in the press, hundreds of projects in the country are stuck due to this issue.  The reports indicate that 425 projects are awaiting environmental clearances out of which 160-170 are set to be for industrial projects!  This needs to be removed to the maximum extent possible.
The next important issue is the availability of land. According to experts, the cost of land accounts for 20% to 25% of the project cost and would certainly vary from one location to another. In order to overcome this, should the government decide, with the cooperation of the State concerned, to make it available in the interior, free or even at cheap prices, which would be away from towns and cities, there would be the imperative need for development of infrastructure facilities. Extension of existing power lines, rail-road connections, setting up of small townships so that the employees may live close by are other factors that need to be covered.
PM Modi mentioned about skilled personnel being available in the country; this is basically true but a majority of them are employed.  Others will have to be trained to meet the needs of the factory.  Even otherwise, the fact is almost 60% of the population are involved in agriculture, one way or another, and there is also a growing tendency for farmer's children to leave for cities and towns to take up "jobs" rather than "farming"! This attitude is already affecting farming particularly during harvest seasons.
The SEZs are a boon to the exporters. However, Dr Nirmala Sitharaman, our Commerce Minister, is reported to have said: "within the country, people are saying why exporters should only get this fantastic facility?"
Modi's invitation to foreign investors make the writer wonder if the Prime Minister has some special scheme in mind, such as setting up FEZs - Foreign Exporters Zones - where they could come and establish manufacturing units exclusively for exporting their finished products out of India?  If such goods manufactured in FEZs are required for use in India itself, they could be "exported" by the manufacturer!  For this purpose, they would have to "import" raw materials and manpower services from India!  This will be a special privilege that can be established so that foreigners come and invest in the country, and make India their industrial hub!  Maybe they can be given some tax benefits which are more attractive then their own country of origin?
Food for thought?  Such ideas can be worked out in detail to the benefit of the country! 
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)



Dr Anantha K Ramdas

3 years ago

Thank you Mr Malik for your comments. What PM Modi can do and really should do is to request all concerned that ALL the pending cases, as on date, will have to be completed within a time frame of say the next 100 days, starting from the first 100 days in office of this new Managers of India!

If there are reasons for rejections, the department concerned must officially state the details in the Govt Gazette and also tell the applicant that, if they are able to comply with the conditions laid therein and the corrections are made, say, within 60/90 days, the MOEF
will give them the clearance.

I believe State governments - particularly Jharkhand - which is sitting on the mineral wealth of India, is one State where things do not move as speedily as required. Let's forget the past but get on with the future, and let the State officials declare that they are unable to "pass the papers" simply because of non-compliance by the applicant, and that there is "no other legitimate reason" for delays.

Likewise, if new applications are submitted, let there be a NEW System of public announcement of what is "missing" in the application and what "needs" to be done; let them also give a time frame within which the applicant has to comply with the need. If the applicant gets into stumbling blocks, duly "created" by vested interests, let them say so fearlessly.

If such bold steps are taken we truly could take a pride in leading the rest. We simply do not want to do, and, sorry to say that these "enlightened babus" put in the obstacles in the way, so that they can make a fast buck for not doing the job that they are supposed to do and for which they are getting paid by honest tax payers money!

For give my saying, it is a bloody shame and it is time we stop this nonsense.

Veeresh Malik

3 years ago

Land - there is about 467 lakh hectares of wasteland available in India. If Indians are willing to go to the deserts of Arabia to set up factories then they will do so in the deserts and wastelands of India also. Start from there - but then, most large industries as I know them want land that will appreciate in value co-terminus with the loans taken going NPA. Wasteland to work in is only for industries willing to work.

Foreign investment - when 3 or 4 or 5 lakh crores worth of Indian capital has gone into NPA over the last few years, what good is a few thousand crores of Foreign Investment going to do, is it worth the effort? There is a big flaw in this argument of lack of capital. My banker is begging the middle class around here to take housing loans as he can not deploy enough capital lately.

And thirdly, your main point, clearances and documentation. Yup, that's the show stopper, we wait and watch. If that is fixed, even at my small level I will organise 5-10 crores and start something, and there will be 1000s like me in India, ready to go into manufacturing, AND ensuring that employees get best of class facilities at the workplace.

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