Money laundering cloud over UBS deal

Money laundering cloud over UBS deal
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First Published: Tue, Dec 25 2007. 12 30 AM IST
Updated: Thu, Jan 08 2009. 06 59 PM IST
Mumbai: The Reserve Bank of India (RBI) will not give its nod to UBS AG’s $118.2 million (Rs467 crore) plan to buy the Indian mutual fund business of Standard Chartered Bank as the Indian banking regulator has not received clarifications with regard to some transactions of the Swiss bank, possibly involving alleged money laundering out of India.
According to people close to the Indian apex bank, RBI has asked questions involving UBS and possible money laundering involving certain transactions of Hasan Ali Khan, a Pune-based stud farm owner that appear to be linked to UBS. These people, while declining to quantify the amounts involved, said the money found its way to Switzerland and is not accounted for.
Late Monday night, Manisha Girotra, managing director and chairperson of UBS India, couldn’t immediately be reached for comment. Messages sent to her mobile phone weren’t immediately returned. Mint was unable to locate Khan for comment.
It has been widely reported that Khan was being probed by Indian Income-tax department and enforcement directorate following enforcement raids on his residential and office premises in Mumbai, Pune and Hyderabad in January this year.
“The RBI did ask for clarifications from the bank, but has not received any response. Naturally, it cannot give its nod (to the mutual fund deal),” said one person who didn’t want to be identified. UBS, says this person, was keen to close the deal by 31 December.
His version is also corroborated by an official of India’s finance ministry, who too didn’t want to be identified. This person said the finance ministry has similar reservations about the deal and had communicated the same to RBI.
The ministry official said that a detailed note was sent by the revenue department of the ministry to the banking regulator sometime back, drawing RBI’s attention to certain incidents where UBS was involved. He declined to elaborate on the incidents.
He also said the ministry never directed the banking regulator to not give its nod, but merely drew its attention to some incidents.
UBS said in January that subject to regulatory approvals, it would buy the British bank’s mutual funds business in India through the purchase of 100% of Standard Chartered Asset Management Co. Pvt. Ltd and Standard Chartered Trustee Pvt. Ltd.
Monday’s The Economic Times reported that UBS had resubmitted an application to RBI, but was unlikely to get approval in time to meet Standard Chartered’s time table.
A spokeswoman for RBI told Reuters earlier Monday that the bank doesn’t comment on individual applications. A spokesman for UBS in Hong Kong also told the new agency: “We consider our discussions with the regulator to be confidential.” Reuters said the head of Standard Chartered Asset Management Co. in India also declined to comment.
Standard Chartered would have the option of calling for fresh bids in a couple of weeks if UBS had not completed the deal by then, according to a mutual fund manager cited by Reuters.
“They have time till about 5 January, but it’s very unlikely that they will get the RBI approval so soon,” said this fund manager, who may be a potential suitor if the business was put up for sale again and asked not to be named.
Standard Chartered Mutual Fund has assets worth about Rs14,300 crore, or nearly 3% of the market. UBS is bulking up its asset management interests in Asia, and also formed a strategic alliance with Standard Chartered for fund distribution in India.
A deal would catapult any potential suitor into the Top 10 mutual funds in India by assets, the source said.
India’s 32-strong mutual fund sector is seeing increasing interest from global asset managers encouraged by a booming economy that is boosting incomes and investments.
Mutual funds accounted for 4.8% of the country’s savings in 2006/07, up from just 0.4% two years earlier.
At the time of the January deal, Standard Chartered business in India manage 16 mutual funds, 10 of which are fixed income, two asset allocation and four in equities. It is the ninth largest mutual fund manager in India with a 4% share of the domestic market and is headquartered in Mumbai with offices in 27 other Indian cities.
Rina Chandran and Nishant Kumar of Reuters contributed to this story.
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First Published: Tue, Dec 25 2007. 12 30 AM IST
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