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Is Sahara Group a BLACK MONEY laundering machine headed by Subrata Roy? Strong pointers.

A few days ago I wrote about Subrata Roy, chairperson of Sahara Group. Here are some points in discussion with Supratim Basu, combined from other sources. Would appreciate your thoughts/comments. 

Subrata Roy's business involves taking unsecured loans from thousands of people, and investing in luxury resorts, sugar factories, distilleries, dairies.Two of his unlisted companies collected 2.9 billion from 30 million investors in 2008. [Details]. An outline as at 27 Feb 2014, of the case.

MONEY LAUNDERING INVESTIGATION

The Subroto Roy/Sahara case is potentially not about theft of money from small investors (SEBI can't find the investors!), but one of immense money laundering.  SEBI has turned over much of its documentation to the Enforcement Directorate – if the ED does its work properly, Mr Roy's woes are just starting. [Source: Supratim Basu's comment on this blog]

ECHOES OF THE THE JAIN HAWALA CASE

All the political parties are silent because this case strikes at the heart of the black money system that prevails in India. Like the (in)famous Jain Hawala case, India is at inflection point with this particular case.

We did not do anything with the Jain Hawala case, and allowed everyone to get away in the mid-eighties. The result is clear to see for everyone in terms of the increase in both quantum and number of corruption cases from 1985 to 2014. Thirty years later – India faces another critical case for its system – the path that the courts and the regulator takes will probably determine the next 30 years of governance.

 The first charge sheet in the Jain Hawala case was actually filed in 1991, and the case was tried in the mid-nineties, not mid-eighties as I mentioned, erroneously. This case was also linked to national security, as the same hawala route was also used allegedly by the ISI to fundKashmiri terrorists. None of the political big names were convicted – including VC Shukla,LK Advani and Balram Jakhar among others, as the Supreme Court held that the diaries of the Jain brothers were not sufficient evidence. The court castigated the CBI for its inept investigation and recommended that the CBI be moved under the supervision of the CVC, instead of the Home Ministry. Interestingly, the first conviction in the case was secured in May 2013 – when one of the middle-men in the case confessed/accepted the charges.

The first charge sheet in the Jain Hawala case was actually filed in 1991, and the case was tried in the mid-nineties, not mid-eighties as I mentioned, erroneously.

This case was also linked to national security, as the same hawala route was also used allegedly by the ISI to fund Kashmiri terrorists. None of the political big names were convicted – including VC Shukla, LK Advani and Balram Jakhar among others, as the Supreme Court held that the diaries of the Jain brothers were not sufficient evidence. The court castigated the CBI for its inept investigation and recommended that the CBI be moved under the supervision of the CVC, instead of the Home Ministry.

Interestingly, the first conviction in the case was secured in May 2013 – when one of the middle-men in the case confessed/accepted the charges. [Supratim Basu's comment on this blog]

SEBI HAS jurisdiction

The history is as follows: one of the Sahara group companies filed for IPO. Going through its prospectus, SEBI found an interesting data point that two other group companies had raised OFCDs worth Rs24,000 cr from the public. SEBI asked for more information about this capital raise. Sahara did not provide the information, claiming that those were private companies governed by the Ministry of Corporate Affairs. SEBI then asked MCA to provide the information, which the latter did. On perusing the information, SEBI ruled that these OFCDs were clearly collective investment schemes, with more than 50 investors, and hence should have been regulated by SEBI from the start – in the absence of this regulation, SEBI ruled that Sahara must return the money to its investors as the schemes were illegal under Indian Securities Law. This was in 2009.

Sahara appealed to Securities Appellate Tribunal (SAT) against the SEBI order – but, the SAT ruled that the SEBI order was correct, and Sahara must comply.

Sahara then went to the SC to appeal against the SAT order – the SC ruled that both SEBI and SAT were correct, these were collective investment schemes, should have been regulated by SEBI from the first, and hence illegal as it stood today.

The MCA also issued a clarification note in 2011 saying that the law was always clear – that any company raising money, even privately, from more than 49 investors would fall under the regulation of SEBI. There was no ambiguity that Sahara could claim. In fact, Sahara was the only company/group in India claiming this ambiguity.

So, the jurisdiction part of SEBI is crystal clear – it was re-affirmed by the SAT, the SC and the MCA.

Yet, the Sahara group keeps issuing advertisements claiming that it was not meant to be regulated by SEBI. 

RE: Sahara – the issue I have with Sahara is that the group does not want to be regulated properly – when they are providing a banking service, why do they not want to be regulated by the RBI. The MFIs were all regulated by the RBI – they had to follow proper KYC norms. Why does Sahara think that they are beyond this kind of regulation? 

Similarly, once RBI cracked down hard on their money raising activities, they switched to using instruments like OFCDs – but refused to be regulated by SEBI. Why? They could raise money as FDs and submit to regulation by the RBI or raise money through these collective investment schemes and submit to regulation by SEBI.

But, no, they wanted to be regulated only by the MCA, which does even have a proper regulatory and enforcement arm – the CLB is the weakest regulator in India. I can understand Sahara saying they wanted to be regulated as a private company, but, then why do things which are either borderline or clearly illegal? No one is stopping Sahara from becoming a bank – come clean before the RBI. Provide all the documentation that they want. Provide all the history that RBI wants. [Source: Supratim]

SEBI investigations indicated foul play

SEBI found plenty of issues in the first two truckloads of documents that it inspected – same names for multiple deposits, variations of the same name, same addresses being used for multiple investors with different family names, no KYC documents worth the name – nearly everyone in India has some form of identification today – ration card, voters ID, Electricity bill, telephone bill, passport copy, PAN card. Why were unique identification documents not presented with each deposit form/by each depositor? The IDs could still be fraudulent, but at least an ID should have been collected?

SEBI stopped accepting more truckloads of documents from Sahara after the first two, and asked them to warehouse the documents in Navi Mumbai, at Sahara's cost  – it asked Sahara to validate the existing documents first to SEBI's satisfaction before it would open any more documents. I think that is perfectly fair. [Source: Supratim]

Supreme Court has used its contempt of court powers after TWO YEARS OF CONTEMPT of its orders

Subroto Roy had been given time since 2012 to comply with the SC orders – which repeatedly ordered the Sahara group to comply with SEBI's orders and to refund the monies. Every single time Sahara either asked for more time or did not bother to comply with their own set timelines or came up with some new excuse.

Finally, the SC demanded the presence of Subroto Roy in court, which demand he flouted multiple times, before the SC issued a non-bailable arrest warrant against him. It held him AND the other directors of Sahara in contempt of the court for not complying with what the court had ordered in the past and in fact, their own submissions and timelines to the court.

It also jailed other directors of Sahara. The SC said that it was exercising its "extraordinary powers" under the constitution to jail Subroto Roy and the other directors to prevent a complete breakdown of law and order – since the Sahara group had been violating its orders for the previous 2 years. [Source: Supratim]

POSSIBLE MODUS OPERANDI

In a recent reply to Parliament, minister of state for corporate affairs Sachin Pilot said his ministry had shared with the Reserve Bank of India (RBI) the particulars of around 34,000 companies with the objective of carrying on financial business. “RBI has taken up verification of such companies,” he said.

These companies are not registered with RBI or the Securities and Exchange Board of India (Sebi), the key agencies regulating the financial markets. A good number of these are into illegal money raising. Business Standard itself has brought to the  fore the case with close to a dozen such companies over the past couple of years. They use instruments such as debentures, membership coupons, online currency and even registration papers of plots of land.

One of the narratives that have emerged is of the companies being crooked and the investors being small, uneducated and innocent. Slowly, this narrative is changing. What if the investor was equally cunning?

What does our neighbourhood revenue official do with all the bribes he takes? Where does our brake inspector who takes home thousands every day hide his haul? Our highways contractor, our film star, our politician and our cricket hero…

Laundering comes later. There are more immediate problems. Where do you even park this booty? Buy a house. Buy a second one… third. All done, money still keeps coming, now what? Swiss banks are too high-profile. There must be other options, our neighbourhood guy is wondering.

Enter our agent from one of our mushrooming finance shops, our own Swiss bank.  The agent sells an investment scheme. Our neighbourhood guy says he cannot transact in cheques or other traceable instruments.

Our agent says, “No problem, Sir.” If your investment is in a few lakhs, the agent offers to open multiple accounts in your name; the money you invest is split into several deposits. It is done in such a way that the maturity amount is less than the RBI-prescribed cash limit of Rs 20,000. For example, a sum of Rs 2 lakh is split into 20 deposits of Rs 10,000 each; at the end of 15 years, you get back cash of Rs 15,000 per deposit and so on. The agent gets his cut, the company gets its cash flow and our neighbourhood guy gets his own Swiss bank. He is least bothered about the returns, nor is he worried about inflation. His problem is different: He needs a place to park.  

The second level in this game starts when the money is so big that it will not disappear into multiple accounts in a single name. The agent and the company now generate a list of names. The sum is then distributed among these names and deposited into the company. Only the agent and the branch manager recognise, which group of names belong to which neighbourhood guy and so on. This is why the agent is key. And, this is why regulators are often not able to trace the investor. But, company officials do so in no time.

Also, the instruments, receipts which are serially numbered, play a part. Whoever produces it gets the money, as in some Swiss banks. There might be some real investors but the big numbers do not come from them. Hope RBI completes its verification soon. [Source: Business Standard]

POINTERS OF MONEY LAUNDERING

The fact remains that Sahara is unable to show who are the depositors for the Rs24,000 crores it has raised – more damningly, it deposited Rs5,000 odd crores of this money with SEBI to repay investors, claiming it has already repaid Rs19,000cr (one of its stories, which was also proved to be false, as they could not substantiate this in any manner) – SEBI then asked depositors to come forward with documents to claim this money from it – less than Rs10cr have so far been claimed from SEBI !!!! So, who are these FUNNY investors who gave Rs5,000 cr to Sahara and now do not want to claim their OWN money back??? We have some REALLY GENEROUS investors in the state of Uttar Pradesh!!!

That is why I believe this to be a mega money-laundering scheme, and not about rural investors at all. [Source: Supratim]

SUMMARY

There is every ground to believe that Subrata Roy is a Swiss Bank of India. I wouldn't be surprised if it turns out that Sahara is not a big money lender (as it makes itself out to be), it is the money launderer of big politicians and other such people. The key give away: there is no outcry from its "investors". And the FAKE "receipts" supplied to SEBI.

Swami Ramdev should realise that while he is  worried about black money taken abroad, here is a case of black money within India being laundered into white. We can't just look abroad. We have to look at the HUGE amount of black money inside India. And Sahara seems to meet the prima facie test of being involved in black money on a grand scale.

ADDENDUM

Sahara seeks SC’s nod on money transfer

Sanjeev Sabhlok

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