RBI Imposes Penalty On Bank of Baroda For Forex Scam

India’s central bank, the Reserve Bank of India (RBI) has levied a penalty of Rs.5 crore on public sector bank, the Bank of Baroda with regard to the Rs. 6,000-crore foreign exchange scam that was unearthed last year.

The penalty was based on findings from an investigation carried out by the RBI last year.

The bank has declared this in a filing made to the Indian regulatory authority SEBI.

In a statement, a representative for the Bank of Baroda said,

The RBI carried out the investigation and noted the deficiencies which were reflective of weaknesses and failures in internal control mechanisms in respect of certain AML [anti money laundering] provisions such as monitoring of transactions, timely reporting to FIU [Financial Intelligence Unit], and assigning of UCIC [Unique Customer Identification Code] to customers

RBI’s investigation found that that the bank failed to follow several guidelines such as filing of Suspicious Transaction Reports (STRs) and opening accounts without fulfilling the Know Your Customer (KYC) norms. The RBI investigation was launched in October 2015 after it was revealed that fraudulent advance import remittances worth Rs. 6,000 crore had been carried out by executives in Bank of Baroda’s Ashok Vihar branch.

Government authorities including the Central Bureau of Investigation (CBI) and the Enforcement Directorate (ED) are still carrying out investigations into remittances that took place between Hong Kong and New Delhi involving as many as 59 companies.

The scandal came to light after an internal audit at the Ashok Vihar branch reported that this relatively new branch had unusually high number of forex transactions. Around 8,667 forex transactions were executed by the Ashok Vihar branch between the period of August 1, 2014, and Aug 12, 2015. The matter was brought to the attention of the CBI and ED who launched an investigation into these high value forex transactions.

The CBI had carried out raids last year in 50 branches across banks where bank employees had illegally transferred funds flouting RBI norms. A number of banks in both the public sector and private sector had been involved in the forex scheme. The Bank of Baroda has also carried out an extensive internal audit across its branches to identify irregularities based on RBI’s instruction in the aftermath of the scandal which required all banks to audit existing processes and checks and balances within their systems.

The Bank of Baroda has stated in its filing that it has implemented a comprehensive plan to correct the lapses and procedural irregularities. The RBI has also penalized HDFC Bank and Punjab National Bank (PNB) for having pendency in the receipts of bills of entry related to the advance of import remittances.

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