Internal audit bringing Bank of Baroda fraud to light is welcome

Internal audit bringing Bank of Baroda fraud to light is welcome

The alleged trade-based money laundering in the Bank of Baroda (BoB) shows that procedures at the bank were clearly wanting as money was remitted against imports that perhaps were not made. The accused, allegedly in connivance with bank officials, reportedly created a fraudulent trade circuit: the Indian companies exported overvalued products by generating fake bills and the shell companies in Hong Kong submitted fake import bills to claim duty drawback. 

The difference in the bills and actual value was moved through the banking channel, in violation of the anti-money laundering rules.

That an internal audit brought the fraud to light is welcome. While no system is fully foolproof, in this case, controlling offices are to blame for failure to verify the shipments from customs authorities. 

Customs issues bills of entry, giving details of the exporter and the consignment, and a bill of lading, detailing the shipment of merchandise. Officials in BoB appear to have ignored the requirement of bill of entry and bill of lading, besides bills or receipts of the exporter as evidence of purchase despite the abnormal volume of remittances. The anti-money laundering law requires a bank to report suspicious transactions, but that was not done.

 Nor was the authenticity of documents verified. The lack of due diligence by the controlling offices is baffling. And that too with consignment verification becoming far simpler now, through Customs Electronic Commerce/Electronic Data interchange gateway.

Six people that include bank officials have been arrested. Both the Enforcement Directorate and the Central Bureau of Investigation are probing the scam. Exemplary punishment to fraudsters can act as a deterrent, but there is no substitute for eternal vigilance by banks to curb money laundering.

Source:Bankingupdates