Home / Politics / Policy /  Cash trail tapers in Ponzi probes

Kolkata: The Enforcement Directorate (ED) has so far recovered around 400 crore in cash and attached properties estimated to be worth 500 crore in cases related to the Ponzi schemes run by the Saradha Group and Rose Valley Group.

All the cash recovered (actually the accounts have been blocked by ED) has been from Rose Valley. No substantial cash recovery is likely from the Saradha Group, said officials from ED and the Central Bureau of Investigation (CBI) who, for the first time, shared details of the investigation with Mint.

The money collected by the group, estimated at 2,000-2,500 crore, appears to have been frittered away, and in small measure repaid to depositors.

The two frauds, whose value is estimated at 12,000 crore by ED and CBI, have highlighted gaps in India’s regulatory and monitoring regime for financial services companies. They have also brought to national focus the number of companies raising money fraudulently in India’s eastern states, notably West Bengal and Odisha.

On Tuesday, CBI said it had taken into its custody Pramatha Nath Manna, chairman of the now defunct MPS Group, for allegedly raising an estimated 2,500 crore in illegitimate deposits and siphoning money. Manna had been in detention of the West Bengal state police for the past few months because of his company’s inability to repay depositors.

Investigators have also arrested several leaders of the Trinamool Congress, which runs the government in West Bengal, for their alleged involvement with the Saradha Group and are investigating the party’s source of funds. The party has maintained that the allegations are politically motivated, stemming from its opposition to the Bharatiya Janata Party, which is seeking to establish itself in the state and which is the dominant constituent of the National Democratic Alliance government in New Delhi.

The officials—who spoke to Mint on condition of anonymity because the politically sensitive investigations are still ongoing—say they have not been able to recover much documentation to build their case, but add that those who derived financial gains from Saradha have not been able to fully cover their tracks.

Some tell-tale documents have escaped the shredder, they add.

But there is no cash stash waiting to be discovered, the investigators admit.

Even so, this is the biggest ever cash haul for ED, the mandate for which in this case is to unearth the proceeds of the crime. CBI is investigating individuals who appear to have abetted and benefited from the crime.

Lately, the scope of the investigation has been expanded to include the Trinamool Congress as well—not just some of its key leaders—after it came to light that it had been receiving donations and loans from shadowy companies.

Apart from the cash haul, ED has attached properties said to be worth 500 crore from the Saradha Group. More properties are being scrutinized, but the true market value of these assets—or the amount that can be recovered by liquidating them—remains undetermined at this point.

The agencies are at this point going by the book value stated by the Saradha Group—or the price at which they were acquired—which in all probability is inflated.

ED has lately trained its guns on the Rose Valley Group, which has moved several courts to thwart so-called coercive action such as attachment of properties. The group’s case has been thrown out of at least nine high courts; one more petition is currently pending at the Calcutta high court.

Money laundering

The central agencies started their investigations into the Saradha Group a year after it had run aground in March-April 2013. By then, most documents had been destroyed. But ED and CBI aren’t complaining because they are used to working without the luxury of readily available documentary evidence.

“It isn’t fair to blame the local police," says an officer. “Neither do they have the infrastructure to conduct an investigation of this nature, nor did they have the support of the administration… If you try to be too proactive, you are very likely going to be shunted out in a couple of months, so why blame the police?"

While handing the responsibility of the investigation to the central agencies, the Supreme Court had said it wasn’t satisfied with the probe conducted by the local police of Kolkata because of its inability to recover any significant cash.

But some of those who exploited the Saradha Group for personal gains have left some telltale fingerprints.

The investigators say some “influential people" siphoned money to a Dubai-based asset management company. To make sure that these foreign remittances do not get much regulatory attention and are compliant with foreign exchange laws, they borrowed from banks and transferred the money abroad.

The loan back home, however, was thereafter repaid with money from the Saradha Group, which went to the banks through a circuitous route.

“It’s a nuanced case," says one officer. “The beneficiary says he had no idea that his loan had been repaid, and that he had no dealings with the company that repaid the loan. And he is citing his audited accounts to prove that: indeed, there is no entry linking him to the company that repaid the loan. The challenge for us is to establish that the repayment of bank loans was pre-meditated."

That won’t be easy, admit the investigators. The money was routed to banks through several money laundering or in local parlance, so-called jama-kharchi, companies. The ownership of many of these intermediaries has changed, and because these companies are run through proxies, or name-lenders, the people behind some of these companies are now untraceable.

Even so, under the Prevention of Money Laundering Act, the agencies have a strong case against all such recipients of laundered proceeds of crime because the onus is now on them to prove that they indeed had no role to play in the repayment of the bank loans.

Trinamool Congress

Evidence has lately emerged that the Trinamool Congress has also received funding from dubious sources through several years. CBI has already asked the party to furnish details of its income and expenditure, including earnings from the sale of paintings by West Bengal chief minister and party chief Mamata Banerjee, from 2010 to 2014.

The party says it can account for every penny it had received, but adds that the explanation must come from its estranged leader and former general secretary Mukul Roy because he was responsible for managing its financial affairs. Trinamool Congress’s secretary-general Partha Chatterjee said last week that launching an investigation into the party’s accounts was politically motivated to undermine its image.

Investigations have already been launched to determine if the party indeed received, like some of its key leaders, laundered crime proceeds. The sale of Banerjee’s paintings (to raise money) could put the party on a sticky wicket because in the balancesheet of at least one company linked to another that made loans and donations to the Trinamool Congress, paintings worth 4 crore pop up and disappear without being accounted for, according to officers and documents reviewed by Mint.

One of the key people behind these companies, Mantosh Kumar Yadav, previously said in an interview that he was co-operating with the Election Commission of India and “other state agencies" which had launched separate investigations.

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