Friday, 15 March 2013

Cobra Post's Money Laundering Allegations, though sensational, don't make Sense

The Cobra Post has become one of the most read website, especially in the financial markets circle, withing a couple of days after the sensational new items alleging private banking giants, ICICI Bank, HDFC Bank and Axis Bank for Money Laundering. The website blatantly puts it out in bold letters, embarrassing the big brands of Indian Banking System.
HDFC Bank: Bank on Us to Make Black Money White
ICICI Bank: True to its Motto, Khayal Aapka, ICICI Welcomes Tainted Mon
Axis Bank: Axis of Money Laundering
The websites throws all the evidences of how they arrived at these conclusions. After going through these cases, there is nothing really strong to stay that banks are laundering money, though the same could be derived. Science is not the ultimatum.

Having been a banker myself with 2 of these banks, ICICI Bank and HDFC Bank, I dare say that there are numerous checks to prevent money laundering at these banks. Take an example. Just search for complaints on these banks on the internet and you will find a bucket of complaints stating that the bank is not accepting cash beyond Rs 50000 or the bank is not accepting cash at other branches though they call it anywhere banking or the bank is asking for a cheque for even a simple withdrawal transaction and so on. You will find numerous complaints on cash deposit charges as well. So, from the bank's point of view, they have taken all necessary steps to prevent any money laundering or passing of money from accounts, unaccounted. But then, of course, no matter how far the police goes, the thieves are a step ahead. In fact, its only when the thieves are ahead that they exist.

Like many consumers have already pointed out, there are huge targets for bankers to cross sell products like insurance, mutual funds, gold coins, etc. Generally, when you go to people who are waiting for you and pose a question, "Is is possible?", the definite answer is "Yes". We have to understand here that, in case someone comes to me saying that he has to invest Rs 1Cr in an insurance product, I will jump out of my seat. I will say yes to whatever he says. I will even tell stories, true or otherwise, on how I have been helping other customers in similar cases. If money is a game of trust, banking runs on relationship. Cobra post plays the game till here and calls it Quit. What Cobra Post doesn't realize is there are people, systems and processes beyond this. It is easy to publish a story at this juncture quoting that the bank was willing to take my Rs 1Cr. But, would it actually take? Rather, would it be able to take?

I believe, Cobra Post should have taken the next step. They should have handed over the money to the banker and asked him to invest it. I am certain that the deal would not have gone further. Any cash transaction of Rs 10lacs and more in an account gets reported to the RBI. We have to understand that the bank can do a basic background check of the customer based on the principle of utmost good faith (uberrimae fidei) of the statements by customer. Large transactions are also scrutinized by the branch level auditors and many other teams that come in the process before the transaction goes through. One must note that the banks that have mammoth sizes would not take a risk of indulging into petty cases like these and take a hit on their reputation. So, the point is, it is not illegal to think about crime. Crime happens when it is done. Merely because a banker told you ways of transacting doesn't suffice to prove that it could be done. Propositions can not be conclusions. If that was so, would we not have more terrorist outfits in the nation than media houses vying for attention?

We all must understand that no matter how many steps we take to ensure righteousness, someone who wants to do something wrong, finds a way. There is no denying that some people in banks might try to break rules for their benefit, either to reach targets or to improve productivity, etc. However, that is not the bank's culture. It is an individual's attribute. Saying that more than one lac employees working in these organizations are money launderers is not only grossly wrong but also lunatic. Similar situations were created in 2008 when a media report declared that ICICI Bank is going bankrupt. Nothing happened to the bank but the bank's shares tumbled grossly. Even today, I remember ICICI Bank's greatest gesture to its customers by keeping the branches open on the half yearly closing day and letting customers withdraw funds or close account without any questions. It was an example to the entire banking industry. We often see these efforts to flaunt sensationalism, exactly what the media wants as exactly what the people also want. But then, at what/whose cost?

Over my experience, I have firmly built a strong trust in the Indian Banking System. The Reserve Bank of India is one of the strongest central banks that has always been on the consumer's side. Banks have hardly any margin for notoriety, even if they wish to. Every rule that the bank frames, in most cases, has to get the RBI's approval. The checks and balances are so strong that once can not muddle with them. Above all, the culture at these banks is clear. There is no scope for any activity that is not in the interest of the bank and the customer. Above all, to be very plain, it is only because of the banking system that black money is discouraged. It would really be illogical to claim that banks are encouraging black money transactions.

There is a general misconception that when money is deposited in the bank account or when the transaction is routed through the bank, the money becomes white. I, at least, did not expect someone trying to act as a whistle blower to continue under the misconception. By definition, black money is money/income that is not accounted for. It is very much possible that people transact everything through bank accounts and yet generate black money by not accounting it or reporting it as income. In case people transact in cash and report it as income, it is not black money anymore. Just because you see a bunch of currency notes, you can not call it black money and just because the amount is in the bank doesn't make it white. Basically, all the money that is recorded in the statement of accounts are white. It is not merely about bank account. It is about the Books of Account. On a lighter note, when people deposit their hoarding in the bank accounts under this thought, are the banks not helping the economy by getting the money into circulation rather than letting it rust in the beds or walls of the hoarders?

I am sure many would have faced numerous inconveniences with these banks to open an account. Though we are under a feeling that it is easy to open account in case we have money, it is not true. The maximum a sales oriented employee can do it collect the form, documents and send it for account opening. A large number of forms get rejected on account of various reasons. I remember there were more than a hundred reasons why an account opening form could be rejected. In fact, in urban areas, knowing that everyone has a bank account already, these banks demand a token cheque from existing bank account to open account. All the AML/KYC guidelines are adhered to strictly. The banks have checks on every transaction by following a wonderful rating process. The sales guys are rated by the number of forms they submit (along with the account opening amounts). The operations / authentication guys are accept only such forms where there are no violations of guidelines. Now, the operations guys send the forms to account opening department. It is very important to note here that the operations guys are rated on the basis on percentage of acceptances, which means, if I get 15 forms from Sales, accept 10 and send them for account opening and only 8 forms are accepted, my performance is affected drastically. While the sales guys are under pressure to generate forms, the operations guys are under the pressure of accepting only such forms that are perfect in all aspects. In numerous cases, this is a major point of contention between bankers. But then, in the long run, the maker-checker concept that is implemented in our banking system, is the most natural way to ensure things go in the right direction.

I would not deny that the cases for insurance are different. There are some deviations taken but then, all these deviations can be taken only with approval of higher officials. Higher officials are not sitting to approve merely to generate sales. They are genuine people who have bank's larger interests on their minds. When Cobra Post offered to invest into insurance and the sales guy gave numerous ways of doing it, even the sales guy knew that it will not go through because there are checks in place. But then, please understand that their duty is to sell and keep up the hope. Sir, kuch toh rashta nikalenge is what they say. In all these cases, if the transaction really proceeds further, the sales guy is of hope that he will at least get Rs 1lac of insurance, if not Rs 1Cr. Human nature is such that it runs where it sees hope. If you go into a street and tell someone that you have Rs 5Cr and you don't know what to do, you will get numerous ideas like buy land, go abroad, etc. from people who have only seen things on television. Why would someone want to to invest a large chunk of money into an insurance product, unless he is totally financially illiterate? Even the bank knows this and if you tried to do it, I'm sure, there would be a thorough investigation before accepting the funds. Merely because someone offered doesn't suffice to allege that the system is wrong. There are numerous cases where employees have been ruthlessly fired for having indulged in unethical practices. Nothing in the world is 100% pure. Even Gold stands at 99.99% only. There are definite glitches. However, those are to do with individuals. My point here is that when these individuals offer to do something wrong, there are many others who are involved in the process who are required to authorize transactions and they would put an end to such activity.

When I joined the banking industry, at ICICI Bank, I was made to sit for 21 days and my brain was drilled with just one statement, "Integrity or Get Out". The volume of importance that was laid on ethics, integrity, compliance and other factors was a clear communication to me that, "Boy, if you are not going to be honest in the business of people and money, you better leave this business". Those were times when there were enough rumors in the market that ICICI Bank will close down. I knew on that day that it is this bank that will, in the coming future, be an example for all the qualitative aspects of life. Even today, I remember our center manager shouting on the top of his voice at least a 100 times, "Compliance with Conscience". Nobody will ask you to do it. You should do it on your own. At HDFC Bank's induction too, there was so much emphasis laid on being truthful to the customer and honest in performing duties. The banks can not come and sit at the homes of all employees to find out what they are doing. The employees have their responsibilities and they do it well. One off cases are definitely there. 20 cases from 56000 employees is not a good sample to conclude. Cobra Post should have rather tried to pose these questions to Operations team or Audit team or the Senior Managers to know the real answers. When you go to a patient and ask him if he wants an apple, what else will he say. How right would we be if we call India a speechless nation referring to a leader who doesn't speak much or how right would we be if we call India  a rapist nation considering the recent cases of rapes? Sensible?

I am not sure if the banks will sue Cobra Post for defamation, considering Indian banks are generally generous. It is not right to make an attempt to write statements as they appear on the website. These are not long term business building proposition. The attention stays for a few days only. The maximum that could happen is the stock prices may drop. After a few days, its banking as usual. Banks that have so many checks against malpractices have nothing to lose. However, the impact of such news items can be devastating. Most times, stocks fall, not because of any significant change in business, but because of huge selling, followed by margin calls leading to sales of pledged shares. One must find out whether in the process of creating sensation, is he making sense?

As a last piece, we must all understand that banking is not a business of money, it is a business of trust. Attempts like this to grab tremendous attention and become an overnight hit, but in turn damage the financial system and thus, should be curbed. If someone is really interested in helping the nation, they should report such happenings to the bank's management and demand an answer from them. Go to the RBI. Go the the Government. Then, in case there is no action seen, expose. I am not sure of the Government. I am a little sure of the RBI. However, I am very sure of bank's managements. They understand situations and consequences. Actions will be definitely taken in the first place itself. I am glad that someone is trying to do something but just because someone is doing something, we can not appreciate it. Saying that the policies of banks or the bankers are anti-customer is one side. It can be heard, accepted and worked upon. But then, saying that the bankers are anti-nation is something that definitely hurts the community of bankers who have been living all their life, thinking of each moment, about being trustworthy. There is a huge difference between money laundering and tactful methods of money transfers. While one is against the nation, the other is against the law. Being against the law, to some extent, can be worked upon to resolve. Being against the nation is something that is shameful, pathetic and equivalent of a national enemy. Its okay that you put us on the wrong side of law. Fine, we'll try to discuss, discover and improve. Don't put us on the wrong side of the nation.

Journalism should come with responsibility, if not for the people, at least for the nation.

RBI 'de-stings' Cobrapost, says no money laundering at ICICI Bank, HDFC Bank, Axis
Systems to prevent money laundering in India perfect, says RBI
Money laundering sting: too many questions


  1. Puneet has made some good points in defense and I know from personal experience as a customer, that various checks and balances are in place in these banks.. so i would go with Puneets arguments that cobrapost has not done its homework fully.

    At the same time, there have been well documented instances of banks (I think UBS, HSBC, StanChart) being convicted and fined by the US government for money laundering.

  2. i am surprised by your tone and tenor of the positive spin you have put up in favour of banks . and doubly surprising , because you are also connected to the stock market . while we need banks and most bankers are honest most of the times, you would be considered naive to give them a "global clean chit" . Maybe you were too young to know about the 1992 Harshad Scam and the 2001 KP scam. if you read in detail about that you will change your mind . Incidentally Suchetha Dalal has written a wonderful book THE SCAM ( Suchetha is the sister of a fellow Ajeeth, Sunil Dalal , Hoy 1972 -1975 ). More when we discuss this on the phone .

    1. Sir, I am happy to take a note of this point. We'll catch up soon ;)

  3. Thanks Puneet for this insightful post.


    1. Vish sir, I'm glad you like it ;)

  4. Exactly correct, Puneet..!!
    I am working as AML officer in a bank and i know the heap of information that is checked through various sources without even the customer knowing it, proper risk is weighted and only then account is opened. Even after account is opened, transaction monitoring takes place round the clock n STR (Suspicious Transaction Reports) get filed without tipping off the customer.

    These banks have excellent support systems in place.

    1. Amit, you are definitely the best positioned to have spoken on this topic. Like you have mentioned, there are a plenty of checks in place. So much such that I have, at most times, been requesting to relax these norms ;)

  5. Excellent piece.. i have been trying to explain this to a lot of people that this is not a systemic doing but rather an Individual attribute as you have rightly pointed out.. Very well written piece.. Thanks.

    1. Kush, thank you. Most times, most people get carried away with sensationalism. Some news starting buzzing/trending and readers/viewers tend to pick up merely what is written rather than reading to understand. I remember reading an article where the writer gives examples of how people are turning black money to white by investing in insurance policy, pre-closing it and claiming it be returns from investing. The author forget the basic law that the Sec 10(10D) under which such claims are admissible, applies only in case of policy maturity or death claims. So, we have to be aware of the fact that just because something is in black and white, it doesn't have to be truth.

  6. I dis agree with "Team Leaders" view... Though Ms Dalal is a wonderful investigative journalist.. one must remember that our banking systems have seen a sea change after the new KYC norms have been introduced. A Harshad Mehta or Ketan Parekh would never have been able to subvert the banking systems.

  7. True this. Ultimately Harshad Mehta and Ketan Parekh did get caught. I strongly believe that Cobrapost should have gone to the next level and investigated it further.

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