ED Hunt Leads to 'Loan Wolves' That Laundered Rs 3,000 Cr to China through Foreign Banks | Exclusive

Around 10 months into an investigation of Chinese loan and investment applications, the Enforcement Directorate has now found that over Rs 3,000 crore has already been laundered to China through some private and international banks. Of this amount, around Rs 1,400 crore has been routed out through a foreign bank that has a branch in Mumbai. This is an alarming revelation as all the money trails are leading to China, officials say.

Based on 25 FIRs lodged in the Bengaluru zone of the ED, the agency started its case last year. With the alarming figures of the cash laundered to China, the ministries of home affairs and finance have now started closely monitoring the case and reviewing the probe details, News18 has learnt.

Clubbing all the FIRs, the ED started four cases under the Prevention of Money Laundering Act (PMLA) and two under the Foreign Exchange Management Act (FEMA).

Of the total laundered money, Rs 40.20 crore has been transferred through cryptocurrency. “Crypto has been extensively used in the case to conceal the illegitimate origin of payments for which the accused persons involved have used a variety of strategies,” said a senior officer of the ED.

Even as the directorate issued summons to Chinese mobile manufacturer Xiaomi Technology India Private Limited and three international banks operating here, which have allegedly sent Rs 5,500 crore as “royalty” to China, violating rules, there are at least 300 other smaller companies operating with dummy directors and being used as filters for money laundering, the central agency has found during the investigation. The dummy directors include random individuals from low-income groups—a street vendor, driver, gig worker, delivery boy, and so on.

What is the Chinese loan and investment app case?

Based on multiple FIRs filed by customers, the ED registered six cases last year to probe the loan or investment apps.

According to the FIRs, the primary allegations against the apps were criminal intimidation, blackmail, capturing data, intrusion in privacy, and over 40% of interest in seven days.

As the investigation progressed, a bigger conspiracy through money laundering, the use of cryptocurrencies, started unfolding and it was traced to China.

New connections, new trails

As the probe progresses, the investigators are stumbling upon new elements in the Chinese loan and investment app case. Apart from hundreds of such loan and investment app operators or companies, which have links with some major fintech and non-banking financial companies (NBFCs), connections between a Surat-based diamond merchant and Chinese nationals have also been found, said a senior officer.

“The Chinese nationals formed a racket to damage India’s financial system. At some point, a few of our banking systems were also compromised,” he added. The first charge sheet in connection with the case was filed in March.

“During the investigation, it was noticed that by making certain changes in the website, the accused persons misrepresented the nature of the business to payment gateways to create an account with them. Further, the insecure pay button was added to the website, which allowed the user to pay without logging in. Thus, the accused persons, on one side, hide their real nature of business from the payment gateway and, on the other side, cheated the public by collecting money and not refunding,” added the officer.

According to investigators, Chinese persons would directly coordinate with the NBFCs and sign agreements with them without making the directors (of fintech/Chinese-referred companies) aware of this.

The non-banking financial companies assisted the Chinese nationals without examining their credentials and relationships with the fintech companies for the sake of some commission, which the NBFCs would get against letting the fintech firms use their licences for lending.

The non-banking financial companies also helped the Chinese nationals to get merchant IDs created with payment gateways as the accounts of NBFCs (or escrow in the name of NBFCs and fintech companies) are required to be linked with the merchant IDs created with payment gateways for the money-lending business.

The NBFCs did not show the names of the loan apps on their websites and platforms being run by such fintech companies, through which the loans were disbursed in the name of the non-banking financial companies. By doing so, the NBFCs hid their association with the loan apps run by such fintech companies. Multiple NBFCs and fintech companies are now under the scanner, added the officer.