Mumbai: UBS AG’s reluctance to cooperate with Indian authorities to unravel a multinational trail of money transfers—across Switzerland, New York, the British Virgin Islands and Pune—between Indian stud farm owner Hasan Ali Khan and a fugitive Saudi arms dealer has not only cost the Swiss bank its deal to buy the Indian mutual fund business of Standard Chartered Bank for $118.2 million (Rs467 crore), but also a presence in the booming Indian banking landscape.
After initially clearing it, the Reserve Bank of India (RBI) has put on hold a banking licence to UBS. According to people familiar with the development, the banking regulator had last year issued a licence to UBS, allowing it to open its first branch in Mumbai, but later recalled it.
“RBI has put the branch licence on hold. It will not release it till it gets certain clarifications from UBS,” said one person who didn’t want to be identified.
Armed with the branch licence, UBS was ready to commence its banking operations in India and it had even identified a premise to open its branch before RBI recalled the licence, according to a person familiar with the Swiss bank’s India plans.
A UBS spokesperson in Hong Kong declined to comment on this development, saying: “It is our global policy not to comment on such speculative reports.”
Currently, UBS is present in India through UBS Securities India Pvt. Ltd, a broking and investment banking arm, headed by Manisha Girotra. It also runs a private wealth management business and an offshore unit in Hyderabad.
Between July 2006 and June 2007, RBI gave licences to seven foreign banks operating in India for opening 20 branches. In addition to that, it allowed seven foreign banks to open representative offices here. Under the World Trade Organization (WTO) norms, the Indian banking regulator is required to offer 12 new licences every year to all foreign banks.
At the end of last October, 29 foreign banks from 19 nations were operating in India with 273 branches.
The same people familiar with the development said the banking regulator and the Indian government acted in close coordination in spiking the UBS plan to buy the mutual fund business of Standard Chartered Bank and then the permission to open its first branch in India. The finance ministry had reservations about clearing the mutual fund deal and it had communicated the same to RBI. The home ministry approval is mandatory for any bank licence, and after the banking regulator gives its nod to the entry of a foreign bank in India, it is vetted by the ministry for security reasons.
On 25 December, Mint had exclusively reported that RBI had decided to turn down the proposal by UBS to acquire Standard Chartered Asset Management Co. Pvt. Ltd over possible money laundering through UBS by Khan, a Pune-based stud farm owner who was under investigation in India by the income-tax department.
Following the Mint story, Standard Chartered, the parent company of Standard Chartered Bank in India, then sent a notice to stock exchanges in London and Hong Kong, where it is listed, in the last week of December saying it will not proceed with the proposed sale. It did not give any reason other than saying the “contract with UBS...has expired. Standard Chartered will now seek a new buyer”.
The proposed deal, for $118 million, was signed in January 2007 and subject to regulatory approvals.
On 2 February, Mint had carried another exclusive report, by its sister publication, the Hindustan Times, saying a top official in the Enforcement Directorate (ED) who did not wish to be identified confirmed that the agency’s officials, in December 2007, had advised the Indian government not to clear a Rs467 crore plan by UBS, the world’s biggest wealth management company, to buy the Indian mutual fund business of Standard Chartered Bank because the Swiss bank had not helped track international money transfers of Hassan Ali Khan.
Investigators from the ED, who recently claim to have found $8 billion in the Swiss bank accounts of Hasan Ali Khan, say they now have evidence of a $300 million transfer to him (via a Chase Manhattan bank account in New York) from billionaire Saudi arms dealer Adnan Khashoggi, whose arms supplies to Tamil terrorists, the LTTE, were revealed during an investigation into the 1991 assassination of Rajiv Gandhi.