‘Due Diligence Goes for a Toss’

An encounter with Aniruddha Bahal, editor of CobraPost, on Operation Red Spider and sting operations in general losing their sting

In an undercover exercise codenamed ‘Operation Red Spider’, CobraPost stung branches of HDFC Bank, ICICI Bank and Axis Bank across the country and exposed a money laundering scam. The website’s reporters posed as agents of politicians who wanted to park their black money with these banks, and caught bank officials on camera offering a vast variety of ‘solutions’ on how to convert black money into white, solutions that violate the Income Tax Act, Foreign Exchange Management Act, Banking Act and Prevention of Money Laundering Act, apart from Reserve Bank of India regulations. Apparently keen to draw in the shady funds, these officials offered insurance packages, mutual funds and other schemes, even lockers to stash black money away. The startling revelations have cast the integrity of India’s private banking sector in doubt. The RBI has ordered a probe of these banks’ wealth management practices. Mihir Srivastava of Open spoke to Aniruddha Bahal, editor of CobraPost, about Operation Red Spider and sting operations in general losing their sting

Q The findings of Operation Red Spider are rather serious…

A This has been happening in the banking sector for so long, [but] no one did this story. The evidence is overwhelming. The [top] management tried to give it a spin that they were not aware of it. Bullshit. Money laundering was sold as a product.

Q The story is significant, but failed to create a furore, don’t you think?

A We can’t say that. Most news channels took it live. There were live debates on every channel. However, the conduct of business papers and channels was disappointing. For them, this story should have been of overwhelming importance, which was apparently not the case. We need to examine the reasons for it.

Q What are the reasons in your view?

A It’s simple. You can’t kill the goose that lays the golden egg. All business papers and channels bestow big awards on these banks, perhaps have sponsorship deals with them, may even have taken big loans [from them] and—God knows—direct or indirect equity investment as well.

Q It poses a question of the credibility of business journalism in India.

A Not one journalist from a business paper or news channel contacted me for a detailed briefing on the scam. This tells you where their hearts and minds are. They are PR mouthpieces of the establishment.

Q Apart from individual funds, does the story point to corporate black money being laundered through the banking system?

A We had a very clear-cut format on how to approach bank officials: we would declare our illegal intent as soon as possible. There was no ambiguity about this intent. We [then] immediately went into the process of how it could be achieved. Bank officials started giving us information on how to subvert the system, how to put black money in the banking system, violating India’s Income Tax law, Foreign Exchange Management Act and a thousand other rules and regulations. Then the reporter would say, ‘This black money has to be sent abroad.’ They would advise us on how money could be sent through their official channels. Lockers [would be] used for stashing cash [and they said] they would collect and count cash for their clients after banking hours.

Q Yes, but does your story talk about corporate black money being parked in this manner with banks?

Have you ever applied for a loan? The laid-out due diligence process is exhaustive when you apply for one. The paperwork required would weigh 3 kg. There are multiple meetings, they require many documents—like your tax returns, pay slip and so on—and ask you to fill a thousand forms. [But] when they invite deposits or when clients want to park their cash, due diligence goes for a toss. There is a proper code of conduct in place, but is not followed. When money is going out, there is comprehensive due diligence; when somebody’s money is coming in, there is no due diligence.

Q Didn’t they ask your reporters the source of the money?

A Not one of them asked the source of the money. It could be proceeds from criminal activities like the trade in wildlife or sale of arms. No one asks that question.

Q Did bank officials ask the identity of the politician whose black money was being spoken of?

A Of course, they tried to ask. But we told them that we could not reveal the name. This was okay with them. They were prepared to help. They were prepared to subvert the system by advising us to put the money in multiple accounts, or in their insurance products, and take the money out in tranches so that it doesn’t trigger alerts. The main story is how [banks are so keen] to access cheap deposits. A person looking to launder his money is not looking for high returns. It raises a question about the legitimacy of bank deposits and hence their profits. The unnatural growth they have seen in recent years baffles me.

Q Coming back to reactions. What do you make of the Government’s?

A The first statement from the Finance Minister was, “I have talked to the head of banks and they have assured me, more or less, nothing is wrong.” Really? Then we know which way the enquiry is headed. How can a bank head assure the Government that nothing is wrong before an enquiry is done? How can the Finance Minister take such assurances at their face value?

Q The Government is thick-skinned. Why do you think it is not embarrassed?

A It should be embarrassed. It is a systematic thing. Money has no colour. Everybody’s money is in there. [These people] are shocked… Banks have lots of dope on lots of people.

Q You have been a pioneer of sting journalism. Do you think it has lost its sting?

A Not at all. Do you think any mainstream organisation would do a story like this? Not at all.

Q Is that the reason your website is so small and not ‘mainstream’?

A I cannot afford to [run a big website]… I have no stake in the system. It is imperative that people who have no stake in the system do such stories.

About The Author

Mihir Srivastava