In April 1994, when then finance minister Manmohan Singh inaugurated UTI Bank (now Axis Bank) in Ahmedabad, the country’s first private sector bank, many thought took it as a landmark day in Indian banking. It was thought that Indian private banks would deliver services that public sector banks just could not.

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But along with increasing banking activities, Axis Bank, besides several other private banks, were also involved in money laundering activities, a sting operation by cobrapost.com found out. By making the sting, dubbed ‘Red Spider’, public in mid-March, the Aniruddha Bahal-led website shattered the myth that Indian private banks cannot do what many of their counterparts in tax haven destinations have been accused of for long: parking illegal money into the financial system.

Besides Axis, cobrapost claimed to have found on camera that ICICI and HDFC banks’ officials were also involved in the same.

Come May, and another myth was shattered by another sting operation of cobrapost, now christened Red Spider Part-2. There has been common perception that public sector banks and public insurance company are not involved in money laundering activities, and that their operations are ‘safe and secure’.

On Monday, a cobrapost.com sting made public found new culprits in the public sector banks, involved in money laundering activities worth several crores, according to the sting op.

Prepared over several months of undercover investigations in different parts of the country, the sting claims to have found uber-venerable PSU institutions like the State Bank of India, Bank of Baroda, Punjab National Bank, Canara Bank, Indian Bank, Indian Overseas Bank, Oriental Bank of Commerce, Dena Bank, Corporation Bank, Allahabad Bank and Central Bank of India involved in money laundering.

“The scale is vast and unfathomable,” Bahal told the media. And staff of all hue — right from front-office hands to officers in the ranks of assistant general managers and vice-presidents — broke the hierarchical barrier in dirtying their hands in this unscrupulous business, the journalist alleged.

“They have flouted the foreign exchange management act (FEMA) rules, Reserve Bank of India (RBI) guidelines, income tax act, banking act, prevention of money laundering act (PMLA) and KYC (know your customer) norms,” he added.

And the tap does not dry there, for unscrupulous political leaders are allegedly involved in the operations end of the business as well, Bahal claimed. He alleged that Andhra Pradesh education minister Sake Sailajanath guaranteed at least one such deal. “He stood guarantor for the safety of black money investment of Dr H. Prasad, an orthopedic surgeon from Tirupati, in a real estate project,” he said.

Bahal added that a hawala operator, claiming to be a former cop, was also involved in such nefarious activities.

In a shocking revelation, the sting found money laundering allegedly going on in even banks operating from Parliament Street — home to parliament and the RBI. The sting claims to have found Bank of Baroda, Allahabad Bank, Central Bank of India, HDFC and ICICI’s Parliament Street branches involved in money laundering.

Meanwhile, financial services secretary Rajiv Takru has said, "I have aksed Indian Banks' Association to look into Cobrapost's allegations.

More and more in the net

The cobrapost sting also accused Life Insurance Corporation of India (LIC) of blatantly violating laws and involved in money laundering. “The LIC manages assets worth Rs 1,474 lakh crore — about 15 percent of India’s GDP. What LIC has done is the most shameful thing that has come out,” Bahal said.

According to cobrapost, besides LIC, private insurance companies like Reliance Life Insurance, Birla Sunlife and Tata AIG were also found involved in this illegal activity.

With the second sting op, cobrapost claimed to have netted more private sector banks involved in money laundering. It alleged that Yes Bank, Dhanlaxmi Bank, Federal Bank, DCB Bank and IDBI Bank, besides biggies HDFC, ICICI, Axis, were also involved in fraudulent activities.

How the sting was done

The website carried investigations by making its staff pose as relative of fictitious politicians, who made cold calls at dozens of bank branches and insurance companies to park black money. During the undercover operation, it was found that banks would accept huge amounts of unaccounted cash to invest in its insurance products, Bahal said.

“Insurance has emerged, whether with private or public sector insurers, as the most favorite tool to launder money — undetected,” Bahal alleged. The investment of money was done without the mandatory PAN card or adhering to KYC norms.

“I want the government to suspend licences of branches involved in such unlawful activities,” he said. But at the same time he is not hopeful of the government doing anything to clean banking operations.

“It is a systemic problem and should be solved at that level. Accountability would come only if severe punishment is meted out. If we don’t punish those involved, we will be condemned for life to a rotten system,” Bahal said.