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CA Mayur Joshi
CA Mayur Joshihttp://www.mayurjoshi.com
CA Mayur Joshi is a Forensic Accounting evangelist in India. He is the co-founder of Indiaforensic and is author of 7 books on forensic accounting, fraud investigations and money laundering.

Cooperative banks, once perceived as pillars of financial stability, now face scrutiny due to their involvement in money laundering activities. Bank officials, entrusted with protecting the interests of depositors, have been implicated in facilitating these illicit transactions. Such breaches of trust erode public confidence in the banking system. Cooperative Bank Money Laundering is a growing concern in India.

History of the Cooperative Bank Money Laundering

In 2018, Cooperative banks in Maharashtra have come under the scrutiny of the Income Tax (IT) department due to a Fixed Deposit Fraud. As part of the investigation, the IT department has also uncovered another fraud involving demand drafts valued at less than Rs 50,000. This amount represents the maximum threshold for transactions without the need to produce PAN cards.

You don’t need to provide a Permanent Account Number to get a demand draft below Rs. 50,000. Tax authorities found that certain co-operative banks in Maharashtra issued multiple demand drafts without specifying the payee’s name.

In 2018, the Income Tax Department uncovered that cooperative banks were handling undisclosed funds, primarily owned by politicians, totaling at least Rs. 10,000 crore in hidden fixed deposits.

Additionally, the Income Tax Department uncovered a deceptive practice employed by these banks. They issued demand drafts up to Rs 49,900 to avoid providing PAN card details and bypassing Know Your Customer (KYC) requirements. It is important to note that as per the guidelines set by the Reserve Bank of India (RBI), any demand draft exceeding Rs 50,000 is subject to further documentation. Several cooperative banks in Maharashtra were potentially involved in this practice. Investigations are also being conducted on cooperatives in other states.

Cooperative bank Money Laundering

Money laundering is a grave concern that plagues various sectors, including the co-operative sector in India.

Co-operative banks have been used as conduits for money laundering due to their less stringent regulations and weaker oversight compared to commercial banks. Criminals and individuals involved in illicit activities exploit these vulnerabilities to channel their illicit funds through co-operative banks, making it challenging for authorities to detect and prevent money laundering activities. The money laundering problem in the co-operative sector poses significant risks to the financial system, as it facilitates the integration of illicit funds into the legitimate economy.

Role of ED in Coopeartive Bank Money Laundering

Enforcement Directorate (ED), entrusted with combating financial crimes, has initiated a comprehensive money laundering probe. ED issued notices to Satara District Cooperative Bank, Pune District cooperative bank, Sindhudurg District Cooperative Bank, and Ratnagiri District cooperative banks in addition to Maharashtra State Co-operative Bank. This shows the significance of the action.

But in addition to these District co-operative banks, ED investigated Adarsh Credit Co-operative Society. Their investigation has unearthed a web of deceit, leading to the attachment of assets worth Rs 1400 crores. This staggering figure underscores the magnitude of the problem.

In addition to attaching immovable properties, ED has frozen bank balances linked to many of the fraudulent activities. These actions align with the provisions of the Prevention of Money Laundering Act (PMLA), which empowers authorities to take strict measures against money laundering offenders.

Role of FIU in Coopeartive Bank Money Laundering

To strengthen the fight against money laundering, Financial Intelligence Unit (FIU-India) plays a vital role. This specialized agency monitors and analyzes suspicious financial transactions, helping identify potential instances of money laundering. Their collaboration with law enforcement agencies is crucial in curbing such illicit practices.

As the investigations unfold, it is important to recognize the significance of regulatory oversight and stricter adherence to anti-money laundering guidelines. Cooperative banks must prioritize implementing robust internal controls, conducting thorough due diligence, and adhering to Know Your Customer (KYC) norms to prevent money laundering.

Furthermore, the cooperation of all stakeholders is crucial in combating this menace. Government authorities, financial institutions, and the general public need to work in unison to eradicate money laundering from the co-operative sector and uphold the integrity of the financial system.

Educating ourselves about money laundering and its impact is essential. To learn more about this pervasive issue and contribute to the fight against financial crimes, Indiaforensic offers different certification programs for banking companies.

Let us collectively raise awareness about money laundering and promote transparency in financial transactions. Together, we can protect our co-operative sector and build a more resilient economy.

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