Is Sahara Group a BLACK

MONEY laundering machine

headed by Subrata Roy?
A few days ago I wrote about Subrata Roy, chairperson of Sahara Group. Here are
some points in discussion with Supratim Basu, combined from other sources.
Would appreciate your thoughts/comments.

Subrata Roy's business involves taking unsecured loans from thousands of people,
and investing in luxury resorts, sugar factories, distilleries, dairies.Two of his
unlisted companies collected 2.9 billion from 30 million investors in 2008.
[Details]. An outline as at 27 Feb 2014, of the case.

MONEY LAUNDERING INVESTIGATION

The Subroto Roy/Sahara case is potentially not about theft of money from small
investors (SEBI can't find the investors!), but one of immense money
laundering. SEBI has turned over much of its documentation to the Enforcement
Directorate if the ED does its work properly, Mr Roy's woes are just starting.
[Source: Supratim Basu's comment on this blog]

ECHOES OF THE THE JAIN HAWALA CASE

All the political parties are silent because this case strikes at the heart of the black
money system that prevails in India. Like the (in)famous Jain Hawala case, India is
at inflection point with this particular case.

We did not do anything with the Jain Hawala case, and allowed everyone to get
away in the mid-eighties. The result is clear to see for everyone in terms of the
increase in both quantum and number of corruption cases from 1985 to
2014. Thirty years later India faces another critical case for its system the path
that the courts and the regulator takes will probably determine the next 30 years of
governance.

The first charge sheet in the Jain Hawala case was actually filed in 1991, and the
case was tried in the mid-nineties, not mid-eighties as I mentioned, erroneously.
This case was also linked to national security, as the same hawala route was also
used allegedly by the ISI to fundKashmiri terrorists. None of the political big
names were convicted including
VC Shukla,LK Advani and Balram Jakhar among others, as the Supreme Court
held that the diaries of the Jain brothers were not sufficient evidence. The court
castigated the CBI for its inept investigation and recommended that the CBI be
moved under the supervision of the CVC, instead of the Home Ministry.
Interestingly, the first conviction in the case was secured in May 2013 when one
of the middle-men in the case confessed/accepted the charges.

The first charge sheet in the Jain Hawala case was actually filed in 1991, and the
case was tried in the mid-nineties, not mid-eighties as I mentioned, erroneously.

This case was also linked to national security, as the same hawala route was also
used allegedly by the ISI to fund Kashmiri terrorists. None of the political big
names were convicted including
VC Shukla, LK Advani and Balram Jakhar among others, as the Supreme Court
held that the diaries of the Jain brothers were not sufficient evidence. The court
castigated the CBI for its inept investigation and recommended that the CBI be
moved under the supervision of the CVC, instead of the Home Ministry.

Interestingly, the first conviction in the case was secured in May 2013 when one
of the middle-men in the case confessed/accepted the
charges. [Supratim Basu's comment on this blog]

SEBI HAS jurisdiction

The history is as follows: one of the Sahara group companies filed for IPO. Going
through its prospectus, SEBI found an interesting data point that two other group
companies had raised OFCDs worth Rs24,000 cr from the public. SEBI asked for
more information about this capital raise. Sahara did not provide the information,
claiming that those were private companies governed by the Ministry of Corporate
Affairs. SEBI then asked MCA to provide the information, which the latter did. On
perusing the information, SEBI ruled that these OFCDs were clearly collective
investment schemes, with more than 50 investors, and hence should have been
regulated by SEBI from the start in the absence of this regulation, SEBI ruled
that Sahara must return the money to its investors as the schemes were illegal
under Indian Securities Law. This was in 2009.

Sahara appealed to Securities Appellate Tribunal (SAT) against the SEBI order
but, the SAT ruled that the SEBI order was correct, and Sahara must comply.

Sahara then went to the SC to appeal against the SAT order the SC ruled that
both SEBI and SAT were correct, these were collective investment schemes,
should have been regulated by SEBI from the first, and hence illegal as it stood
today.

The MCA also issued a clarification note in 2011 saying that the law was always
clear that any company raising money, even privately, from more than 49
investors would fall under the regulation of SEBI. There was no ambiguity that
Sahara could claim. In fact, Sahara was the only company/group in India claiming
this ambiguity.

So, the jurisdiction part of SEBI is crystal clear it was re-affirmed by the SAT,
the SC and the MCA.

Yet, the Sahara group keeps issuing advertisements claiming that it was not meant
to be regulated by SEBI.

RE: Sahara the issue I have with Sahara is that the group does not want to be
regulated properly - when they are providing a banking service, why do they
not want to be regulated by the RBI. The MFIs were all regulated by the RBI
they had to follow proper KYC norms. Why does Sahara think that they are
beyond this kind of regulation?
Similarly, once RBI cracked down hard on their money raising activities, they
switched to using instruments like OFCDs but refused to be regulated
by SEBI. Why? They could raise money as FDs and submit to regulation by the
RBI or raise money through these collective investment schemes and submit to
regulation by SEBI.

But, no, they wanted to be regulated only by the MCA, which does even have a
proper regulatory and enforcement arm the CLB is the weakest regulator in
India. I can understand Sahara saying they wanted to be regulated as a private
company, but, then why do things which are either borderline or clearly illegal? No
one is stopping Sahara from becoming a bank come clean before the RBI.
Provide all the documentation that they want. Provide all the history that RBI
wants. [Source: Supratim]

SEBI investigations indicated foul play

SEBI found plenty of issues in the first two truckloads of documents that it
inspected same names for multiple deposits, variations of the same name,
same addresses being used for multiple investors with different family
names, no KYC documents worth the name nearly everyone in India has some
form of identification today ration card, voters ID, Electricity bill, telephone bill,
passport copy, PAN card. Why were unique identification documents not presented
with each deposit form/by each depositor? The IDs could still be fraudulent, but at
least an ID should have been collected?

SEBI stopped accepting more truckloads of documents from Sahara after the first
two, and asked them to warehouse the documents in Navi Mumbai, at Sahara's
cost it asked Sahara to validate the existing documents first
to SEBI's satisfaction before it would open any more documents. I think that is
perfectly fair. [Source: Supratim]

Supreme Court has used its contempt of court powers after TWO YEARS OF
CONTEMPT of its orders
Subroto Roy had been given time since 2012 to comply with the SC orders which
repeatedly ordered the Sahara group to comply with SEBI's orders and to refund
the monies. Every single time Sahara either asked for more time or did not bother
to comply with their own set timelines or came up with some new excuse.

Finally, the SC demanded the presence of Subroto Roy in court, which demand he
flouted multiple times, before the SC issued a non-bailable arrest warrant against
him. It held him AND the other directors of Sahara in contempt of the court for
not complying with what the court had ordered in the past and in fact, their own
submissions and timelines to the court.

It also jailed other directors of Sahara. The SC said that it was exercising its
"extraordinary powers" under the constitution to jail Subroto Roy and the other
directors to prevent a complete breakdown of law and order since the Sahara
group had been violating its orders for the previous 2 years. [Source: Supratim]

POSSIBLE MODUS OPERANDI

In a recent reply to Parliament, minister of state for corporate affairs Sachin Pilot
said his ministry had shared with the Reserve Bank of India (RBI) the particulars
of around 34,000 companies with the objective of carrying on financial business.
RBI has taken up verification of such companies, he said.

These companies are not registered with RBI or the Securities and Exchange Board
of India (Sebi), the key agencies regulating the financial markets. A good number
of these are into illegal money raising. Business Standard itself has brought to
the fore the case with close to a dozen such companies over the past couple of
years. They use instruments such as debentures, membership coupons, online
currency and even registration papers of plots of land.

One of the narratives that have emerged is of the companies being crooked
and the investors being small, uneducated and innocent. Slowly, this narrative
is changing. What if the investor was equally cunning?
What does our neighbourhood revenue official do with all the bribes he takes?
Where does our brake inspector who takes home thousands every day hide his
haul? Our highways contractor, our film star, our politician and our cricket hero

Laundering comes later. There are more immediate problems. Where do you even
park this booty? Buy a house. Buy a second one third. All done, money still
keeps coming, now what? Swiss banks are too high-profile. There must be other
options, our neighbourhood guy is wondering.

Enter our agent from one of our mushrooming finance shops, our own Swiss
bank. The agent sells an investment scheme. Our neighbourhood guy says he
cannot transact in cheques or other traceable instruments.

Our agent says, No problem, Sir. If your investment is in a few lakhs, the agent
offers to open multiple accounts in your name; the money you invest is split into
several deposits. It is done in such a way that the maturity amount is less than the
RBI-prescribed cash limit of Rs 20,000. For example, a sum of Rs 2 lakh is split
into 20 deposits of Rs 10,000 each; at the end of 15 years, you get back cash of Rs
15,000 per deposit and so on. The agent gets his cut, the company gets its cash
flow and our neighbourhood guy gets his own Swiss bank. He is least bothered
about the returns, nor is he worried about inflation. His problem is different: He
needs a place to park.

The second level in this game starts when the money is so big that it will not
disappear into multiple accounts in a single name. The agent and the company now
generate a list of names. The sum is then distributed among these names and
deposited into the company. Only the agent and the branch manager recognise,
which group of names belong to which neighbourhood guy and so on. This is why
the agent is key. And, this is why regulators are often not able to trace the investor.
But, company officials do so in no time.

Also, the instruments, receipts which are serially numbered, play a part. Whoever
produces it gets the money, as in some Swiss banks. There might be some real
investors but the big numbers do not come from them. Hope RBI completes its
verification soon. [Source: Business Standard]
POINTERS OF MONEY LAUNDERING

The fact remains that Sahara is unable to show who are the depositors for
the Rs24,000 crores it has raised more damningly, it deposited Rs5,000
odd crores of this money with SEBI to repay investors, claiming it has already
repaid Rs19,000cr (one of its stories, which was also proved to be false, as they
could not substantiate this in any manner) SEBI then asked depositors to come
forward with documents to claim this money from it less than Rs10cr have so far
been claimed from SEBI !!!! So, who are these FUNNY investors who
gave Rs5,000 cr to Sahara and now do not want to claim their OWN money
back??? We have some REALLY GENEROUS investors in the state
of Uttar Pradesh!!!

That is why I believe this to be a mega money-laundering scheme, and not about
rural investors at all. [Source: Supratim]

SUMMARY

There is every ground to believe that Subrata Roy is a Swiss Bank of India. I
wouldn't be surprised if it turns out that Sahara is not a big money lender (as it
makes itself out to be), it is the money launderer of big politicians and other such
people. The key give away: there is no outcry from its "investors". And the FAKE
"receipts" supplied to SEBI.

Swami Ramdev should realise that while he is worried about black money taken
abroad, here is a case of black money within India being laundered into white. We
can't just look abroad. We have to look at the HUGE amount of black money
inside India. And Sahara seems to meet the prima facie test of being involved in
black money on a grand scale.

Sahara scam a crystal clear case of money laundering

Posted on March 15, 2014 by Uttam Gupta
It is almost 20 months since Supreme Court (SC) ordered Dr Subroto Roy, chairman, Sahara Group in August, 2012 to
return a gargantuan sum of Rs 20,000 crores that two of its group companies in real estate sector had taken from
millions of investors.
Dr Roy had contested the amount stating that its outstanding liability to investors was only about Rs 5000 crores and
this was deposited with SEBI towards end of 2012. SEBI with full backing of SC has been doing a wild goose chase
to ensure recovery of full amount with interest and penalties.

But, that has not yielded results leading to recent arrest of Dr Roy. SC had directed him to come up with a concrete
plan. However, he submitted proposal for just half the amount of over Rs 35,000 crores now claimed by SEBI.

Dismissing this as disrespect and contempt of court, SC in a recent hearing ordered continued detention of Dr Roy till
next hearing in March (end) when, Saharas are required to come up with a credible action plan with prompt payment
schedule.

Given wide differences between the assessment of SEBI/SC and that of Saharas and gaping holes in ownership and
valuation of various assets & properties that need to be disposed off to generate required money, stalemate is
unlikely to end any time soon.

Meanwhile, combing through micro details of the saga, one comes across a startling reality that raises a question
mark over the very premise and the track on which regulatory authorities have been proceeding against the Saharas.

Out of Rs 5000 crores or so, SEBI has thus far refunded a meagre Rs 1 crore to concerned investors. That represents a
pittance 0.02% of the outstanding liability assessed by Saharas. As percentage of amount claimed by SEBI, this gets
even more miniscule 0.0028%!

Could this be attributed to in-efficiency of SEBI in processing documents (truckloads of them deposited by Saharas)
or simply lack of infrastructure? This is highly improbable as in money matters involving huge sums, room for
tardiness is minimal.

Another critical point to take note is this. Unlike other similar frauds perpetrated on millions of gullible investors
where they have lost thousands of crores, big outcry and even cases of suicide, in the instant scam, nothing of that
sort is visible.

Juxtapose the above two points both very unusual and contrary to conventional wisdom one gets to some stunning
and bewildering questions.

Are those millions of investors not traceable? Is it so difficult for authorities to trace them? Why do they not come up
on their own to collect? Why do they have to be goaded? Where have they disappeared? Do they really exist?

If, a person having lost all his hard earned savings does not cry, come forward and cant be traced, what does one
make out? It only confirms a lingering doubt that even though investment was made but, investors were not genuine.

It is a clear indication that some one who wanted to keep his identity hidden, had invested under a fictitious
name and address. So, when the lid blows over the scandal, obviously you wont find him; because a genuine investor
never existed!

Who would be keen to keep his identity hidden? Clearly, it is a person who had black money and wanted to make it
white and thus, land in a safe zone. With so much of black money around, one could easily imagine millions of fake
investors looking for right platform.
From the perspective of black money mongers, a convenient investment opportunity would one where their actions
could escape the not so watchful eyes of the regulators. The optionally fully convertible debentures (OFCD) issued
by real estate and investment firms of Sahara provided the right fit.

These instruments were neither full-fledged deposits that could come under the oversight and supervision of RBI nor
these were equity which would fall under the jurisdiction of SEBI. These were a so sort of hybrid lying on the
periphery being no ones baby in so far as regulatory control goes.

It was a pre-meditated and well orchestrated plan aimed at helping hoarders of ill-gotten money. The proof of
pudding is in eating. The plan worked very well and huge empires were built and proliferated acquiring legitimacy
under the eyes of the law.

It was all going on smoothly until SEBI took notice of this in 2010 in the context of evaluating some other proposal
submitted by the group firms. SEBI had to struggle hard to demonstrate that it had jurisdiction to proceed in the
instant case.

The judicial proceedings culminated in the apex court ordering return of money in August, 2012. Now, with Dr Roy in
jail and SC vigorous pursuit, it might be possible to make Sahara eventually pay up the entire amount.

There being hardly any genuine investors to whom money could be returned, SEBI may put it in a pool and use for
protection of investors at large in a variety of ways. It may also share a portion of this with government for reducing
its fiscal deficit. But, authorities would do well to go beyond.

Prima facie, it is very clear that Sahara schemes provided an easy platform for money laundering, prosecution should
be initiated under provisions of Prevention of money laundering Act.

The enforcement directorate should initiate necessary investigation and follow up with prosecution of all those
involved. All arms of the government viz., SEBI, RBI, Finance Ministry etc should act in unison and coordinated
manner to lead the investigation and prosecution to a successful end.

For the future, there is dire need for greater oversight and surveillance transcending beyond the mandates of each of
existing regulators who operate in water tight compartments. Perhaps, this role may be assigned to a super-
regulator. It needs to focus more on overall intelligence/surveillance and give timely alerts to sector/area specific
regulators for necessary action.