Bank of Baroda Forex Scam Prompts RBI to Launch Review

The Reserve Bank of India (RBI) has asked all public banks to conduct a complete internal audit and submit findings to their audit committees and to the RBI.

The RBI initiated the review after the rupees 6,100 crore forex scam was discovered at Bank of Baroda’s Ashok Vihar branch back in 2015. The RBI wants to use the review system to ensure that Indian banks are not vulnerable to further violations of foreign exchange polices.

A circular was issued by RBI to all scheduled commercial banks recommending them to launch a comprehensive audit of the internal controls present in banks and present a report to the audit committee of the board of the respective banks. A report with the summary of findings is to be submitted to RBI as well.

The RBI also confirmed that it was in the process of receiving the reports with findings from all the banks.

The forex scam was unearthed in late 2015 by the Enforcement Directorate and Central Bureau of Investigation after an internal audit found that foreign exchange remittances in Bank of Baroda’s relatively new Ashok Vihar’s branch was reportedly unusually high. The investigation found that accounts were opened with fake identification papers in the Ashok Vihar branch and was later used to transfer foreign advance remittances to accounts in Hong Kong and the Middle East for proposed imports which never took place.

The fraud included over-claiming duty drawback (a government scheme to promote exports), evading customs, taxes among other things, and amounted to over Rs. 6000 crores. A number of senior bank employees were arrested and interrogated by the CBI.

In the aftermath of the scandal, the RBI has asked the Bank of Baroda to also conduct an investigation into outward remittances of all its branches to uncover presence of similar cases in other branches. This report has been completed and presented to the audit committee of the bank. As a part of its measures to improve its controls, the bank has also appointed a consultant to review its Anti-Money Laundering (AML), Know Your Customer (KYC) as well as the Combating the Financing of Terrorism (CFT) policy and practices.

The RBI has said that Bank of Baroda has reviewed and modified polices with respect to advance import remittances to ensure a working system of checks and balances in its branches.

In a statement, a representative of the RBI said,

They have also framed a policy for advance import remittance which covers system check points like cooling period of six months in respect of newly opened account, multiple transactions in a day for USD 100,000 and below, etc.

Investigations into the Bank of Baroda scam are still on-going.

---