Data Sutram, a B2B SaaS firm with a focus on Banking, Financial Services and Insurance (BFSI), has raised $9 million (about INR 77 crore) in Series A funding, headed by Lightspeed Venture Partners and B Capital. There were both primary and secondary agreements in the round.
Rajit Bhattacharya, the founder and CEO of Data Sutram, told a media outlet that several of the original angel investors have also partially left the current fundraising effort, although he would not reveal their names.
With the new funding, the Kolkata-based business intends to improve its fraud detection system. It also seeks to serve a broader range of high-risk industries, such as insurance, e-commerce, gaming, real-time payments, cryptocurrencies, and fast commerce. The company’s previous concentration was only on the banking and lending industries.
With about 65 employees now, Data Sutram also wants to increase its personnel. Bhattacharya stated, “This investment will enable us to expand our customer base, improve our product offering, and fortify our global presence in order to serve more businesses and institutions worldwide.”
Growing Fraudulent Activities in BFSI Sector
The banking industry has seen an increase in fraud instances involving mule accounts. Additionally, the number of non-performing assets in NBFCs has increased to a concerning level.
In order to provide risk and fraud detection services to the nation’s BFSI industry, three college friends—Bhattacharya, Ankit Das, and Aisik Paul—founded Data Sutram in 2018. The firm protects consumer onboarding and gives banking and financial institutions a “Trust Score” with its flagship product, DS Authenticate.
Data Sutram’s AI-powered tool, which is supported by data gathered from over 250 sources, alerts its clients to any fraudulent behaviour when they open accounts or disburse loans. Additionally, the startup offers a suite of products called DS Find, DS Markets, and DS Collect, which aid in client acquisition, offer superior market insights, and create opportunities for cross-selling and upselling, respectively.
According to the IIFL-backed business, its clients have seen a 45% decrease in fraud instances. Among the clients are companies such as HDFC Bank, Axis Bank, Tata Capital, and Amazon Pay.
Financial Outlook of Data Sutram
In 2023, under the direction of the Bharat Fund, Data Sutram last raised $3 million. To date, it has garnered over $15 million in fundraising, with investors including Indian Angel Network, IIFL Fintech Fund, and 100X.VC.
Financially speaking, Tofler reports that the startup’s standalone operational revenue increased by about 23% to INR 5.4 Cr in the fiscal year that ended on March 31, 2024 (FY24), from INR 4.4 Cr in the prior fiscal year. Nonetheless, Data Sutram’s net loss more than doubled from INR 4.75 Cr in FY23 to INR 10.83 Cr over the reviewed period.
According to Bhattacharya, the firm has successfully decreased its increasing deficit in FY25 and plans to break even within the next year. As investors rush to support AI-driven SaaS firms, SaaS startups in India raised $2.1 billion in funding last year, a 31% YoY increase, according to the “Indian Tech Startup Funding Report 2024”. In addition, the SaaS industry in India is anticipated to expand quickly.
A former employee of the fintech business MobiKwik allegedly altered merchant details to cheat the company out of INR 1.26 Cr. The company said in an exchange filing that Gaurav Sharma, the former employee, diverted the money from its books between August 2023 and September 2024. The company’s book of accounts has been adjusted to reflect the amount that was stolen. According to MobiKwik, the individual in question is presently being held after the company filed a case with the Gurugram police. MobiKwik has put in place a number of corrective actions to close the gaps. These include creating distinct wallets for various business segments, limiting access to admin portals, requiring a VPN for SSO (single sign-on) login, reversing unused merchant incentive amounts to their respective wallets, and sending hourly alerts to authorised individuals for changes in sensitive fields, such as bank account details.
MobiKwik Going Through Slew of Challenges
The company has already been going through a difficult period on the stock exchanges when it was informed of the scam. The company’s shadInvestors were especially optimistic before the IPO because of MobiKwik’s demonstrated profitability over the course of a full fiscal year. But since then, the fintech’s financial performance has suffered. In fact, in the two quarters since going public, it has posted losses.
According to MobiKwik’s most recent financial declaration, the company lost INR 55.3 Cr in Q3 FY25, against a profit of INR 5.3 Cr in the same period last year. However, operating revenue increased by 18% year-over-year to INR 269.47 Cr in the December quarter, up from INR 228.93 Cr in Q3 FY24. Since then, the business has been attempting to strengthen its operations by venturing into unexplored areas.
Ongoing Developments at MobiKwik
By establishing a fully owned subsidiary, MobiKwik Securities Broking, the company has made its foray into the investing tech sector. This means that it will deal in commodities, currencies, debt instruments, shares, stocks, and securities, as well as their derivatives. It expanded its fixed deposit (FD) aggregation as its primary service in February by purchasing a share in Blostem Fintech, a B2B banking infrastructure firm, for INR 1.5 Cr. Going forward, the board of the corporation authorised an undisclosed investment in “one or more” subsidiaries.
Google Pay, Paytm, and PhonePe are competitors of Mobikwik, which was founded in 2009 by Bipin Preet Singh and Upasana Taku. In addition to other financial products, it provides buy-now-pay-later (BNPL) services and mobile wallets. On December 18, 2024, Mobikwik debuted on the stock market, with shares trading at INR 442.25.
A company that was founded nine years ago, in 2014, and named in the honor of Nikola Tesla, Nikola Corporation, was, ostensibly, in the business of manufacturing heavy-duty commercial battery electric vehicles, fuel cell energy vehicles, and energy solutions.
After presenting several vehicle concepts between the years 2016 and 2020, leading with a natural gas-fuelled turbine-electric semi-truck, it went public on 4th June 2020. Nikola Corporation also went ahead and delivered its first two battery-electric trucks in December 2021, known as Nikola Tre. However, by September 2021, the Securities and Exchange Commission and the Department of Justice had already launched an investigation into allegations of security fraud by its founder and former CEO Trevor Milton. It was at this time, that the unraveling began.
Trevor Milton founded Nikola Corporation in Salt Lake City, Utah in the year 2014 and announced that 5000 Nikola One hydrogen-powered glider trucks would be built by 2016. They were to be built by Fitzgerald Glider Kits in Tennessee. By the year 2019, Nikola had acquired 389 acres of land in Coolidge, Arizona for a total of USD 23 million. The company announced that the factory construction work was slotted to begin by 2020, truck construction a year later, in 2021, and by 2023, Nikola would be fabricating 35000 to 50000 trucks per year.
By March 2020, Nikola Corporation and VectoIQ Acquisition Corporation, announced a merger that resulted in the combined company, NKLA, being listed on the NASDAQ exchange. The Nikola stock began trading on 4th June 2020, a day after the merger was officially completed. Within the space of one week, Nikola shares doubled as the investor’s interest heightened leading to a continuation of betting on the growing potential of electric transport. This was followed by the company beginning to take order reservations for the truck, even though customers had as yet not even seen a prototype.
The growth continued and by August 2020, Nikola Corporation reached a valuation of USD 13 billion. On September 8, 2020, Nikola Corporation entered into another strategic partnership with GM (General Motors). The partnership stated that GM would acquire an 11% stake in Nikola and also nominate one member to Nikola’s board. Consequently, GM would also begin the production of Badger and supply fuel cells and batteries to Nikola, globally. Unsurprisingly, this resulted in Nikola’s stock increased by 50% as the announcement was received with enthusiasm.
Unraveling The Fraud
It all began with the short-seller firm, Hindenburg Research releasing a report on 10th September 2020 that outright accused the company’s founder Trevor Milton of perpetrating ‘an intricate fraud’. Trouble mounted when this report was confirmed by Financial Times and Research Enquirer that showed a Nikola One rolling down a slope using the natural force of gravity instead of onboard propulsion. In response to these claims, Nikola stock fell by 10% and the GM stock took a hit of 4%. Within a couple of days, by September 12th, Nikola stock witnessed a sharp drop of 36%.
As outraged as Nikola was with these claims and threatening legal action against Hindenburg, its troubles were far from over. These claims had interested the US Attorney’s Office for the Southern District of New York. September 14th saw reports stating that the Securities and Exchange Commission had begun investigating allegations of fraud against Nikola Corporation, followed by the Department of Justice beginning its investigations a day later.
Within a week, by September 21, Trevor Milton resigned from his designations as Executive Chairman and Founder while the share price of Nikola continued to drop surrounded by news of the allegations. This was quickly followed by unraveling partnerships and further share price fall.
Nikola Motors Fraud
BP (British Petroleum Company PLC) canceled a potential partnership that would have developed hydrogen refueling stations for Nikola’s EV trucks. November 2020 saw GM backing away from the proposed deal to buy an equity stake in Nikola Corporation as well as canceling the production of the Badger electric pick-up truck. A month later, another announced partnership with Republic Services was terminated. This partnership was in formation to jointly develop zero-emissions garbage trucks.
How Nikola Surged Ahead
By February 2021, Nikola rallied a little and publicly canceled Powersports unit and its plans to produce them. However, they stated that by the fourth quarter of the year, their intention was to produce between 50 and 100 Nikola Tre Vehicles. In June of the same year, Nikola Corporation invested USD 50 million in a new hydrogen factory to produce fuel for semi-truck fuel stations. The effort was to be spearheaded by Wabash Valley Resources. A month later, by July there was an announcement to add five new class 8 truck dealers in Arizona, Texas, Colorado, California, New Mexico, Delaware, Florida, Maryland, and Virginia.
Who Is Trevor Milton
Trevor Milton – Founder Nikola Motors
Trevor Milton was born in Utah and is one of five siblings. He pursued a career in sales and marketing after opting to drop out of Utah Valley University. Milton’s career included various businesses that began with his first venture, an alarm sales company called St. George Security and Alarm. He exited the business for USD 300,000. He immediately launched an online classified advertisement website that sold used cars. However, the company failed and eventually closed. He launched dHybrid Inc., which was in the business of retrofitting commercial trucks with engines that could run on natural gas. It ran into trouble with an investor that resulted in the company closing down. He then launched dHybrid Systems which, according to his claim, was purchased by Worthington Industries. It was after this, that Milton founded Nikola.
Following the allegations and investigations into him, Milton surrendered himself and pled not guilty to all charges leveled against him. However, in June 2022, Milton was charged with additional wire fraud, and by October 2022, was found guilty of one count of securities fraud and two counts of wire fraud.
Conclusion
In July 2021, when Trevor Milton was indicted, Nikola Corporation said – “We remain committed to our previously announced milestones and timelines are focused on delivering Nicola Tre-battery electric trucks later this year from the company’s manufacturing facilities.”
A little over a year later, by August 2022, Nikola announced the acquisition of the battery company, Romeo Power. The process was completed by October 2022. It remains to be seen how the company executes the upcoming opportunities.
FAQs
What is the Nikola Motors fraud scandal?
The Nikola Motors fraud scandal involves accusations that the electric truck maker, Nikola Corporation, misled investors and the public about its technological capabilities, and achievements. Nikola denied the allegations and launched its own investigation.
What was the role of founder Trevor Milton in the fraud scandal?
Founder Trevor Milton was accused of making false statements to investors in the Nikola Motors fraud scandal. He resigned after the allegations emerged.
What actions did Nikola Motors take to address the fraud allegations?
After the fraud allegations were made, the company denied the accusations and launched its own investigation into the matter. The company’s Board of Directors formed a special committee to oversee the investigation.
What is the impact of the fraud allegations on Nikola Motors’ stock prices?
The fraud allegations caused a significant drop in Nikola Motors’ stock price. While the stock price has since recovered somewhat, it remains below its peak levels from earlier in 2020.
Talking about scams and frauds by businesses or companies has become a fad in today’s times. The list is going only upward while the innocents are being looted, it has become imperative to stay updated and informed regarding a company or business.
According to the Federal Trade Commission, USA mentions that fraudulent opportunities mostly occur in the top 10 categories in its database reports of consumers complaining about fraud activities.
In India, fraudsters are tough to avoid. With many unemployed job seekers, the list of fake companies in India is long. This act of swindling is growing at an enormous rate with high risk in our digitally enabled world.
To think of frauds, the use of the internet has given birth to many security challenges that people tend to get trapped in. Over the years, India has seen many corporate frauds that left a deep wound in the confidence of many investors. Companies like Satyam, Kingfisher Airlines, DHFL, and YES Bank are some of the big corporate frauds the country has witnessed.
These scam artists are sophisticated as they exactly know how, whom, and where to target customers. In terms of investing in any business, consumers need to look for proper information and must know their rights. If a business has no information available, then that should be treated as a red flag for not pursuing it further.
While keeping in view these corporate frauds, there must be an awareness program for identifying fraud companies. Until there are certain programs available, you can always cross-check a company on your own.
In this article, we have curated some tips on how to identify a fraudulent business or company.
Specific things to look out for in a company to know if they are real are as follows:
Check Whether the Company Is Registered by Visiting the MCA Website
In India, for a company to be licensed, they need to register itself with the Registrar of Companies. MCA is the short form for the Ministry of Corporate Affairs, which is a government-regulated online portal containing the details of all the companies that have been incorporated in India.
On this website, you can check for the registration number of a company, what type of a company is, the date of incorporation, and other such details.
Check Out if the Company Has a Website and Look For Other Details on Their Site
Even if the company has a website, try to get a closer look at the address and contact number. Every website has a ‘contact’ page, where the address and a telephone number will be given to get in touch with them.
Try calling them with the number provided and search on Google maps to verify it is an actual office and not a fake one. However, you should also keep in mind that phone numbers are super easy to fake, so depending only on this fact can never give a piece of accurate information about the company.
If the company says ‘local business’ on its website, try to search in other cities to see if they are running their operation in other localities. If they happen to show the same website in other areas as well, know that they are not right. These businesses usually have copied templates with many broken hyperlinks.
Check for Wrong Spelling and Grammar
Spelling and grammar are the two most important things that will impress anyone. Make sure you go through every detail given on the website, and if you notice unsatisfactory English sentences and wrong spelling, then it is time for you not to indulge with them. Inaccurate sentence formation clearly shows there is something wrong, and you should investigate further before coming to a final decision.
Check for Their Privacy Policy
Another thing you can look for in a company to be legitimate is by reading their privacy policy carefully. Read about their history that will give a brief about how long the company is in operation.
Even if they have a privacy policy read through their mission and vision statement and look for anything suspicious. Reading through their privacy policy will also allow you to give information about their registered business address and other details which you can check on the MCA website.
Check for Their Customer Testimonials and Reviews
Feedbacks or reviews are the best way to find out about a company. The reviews can reflect different people’s opinions and provide you with a concrete overall idea about the company.
Check if the Company Accept Payments
If you are trying to get employed by that company, remember they will never ask you to pay cash or any sort of payment. Other than this, if you are paying for any service, it is important to see how the company accepts payments.
They should accept payments through secure methods and not through shady and insecure methods like paper cheques or cash. Consider looking into payment methods from which you can your money back if things go wrong or if their product or service does not give you satisfactory results.
Conclusion
Scams are a part of the system, and we must accept that incidents like these are inevitable. It can be safe to say companies and the government, in general, must lay down a strong foundation system that keeps a close watch on such activities.
A substantial system with regular monitoring, a robust recruitment process by companies, and launching awareness programs for the public are the kind of things we desperately need.
The above-mentioned points are some of the factors through, which you can check a business’s lawfulness, but it is always better to trust your instincts if you feel something is wrong with the company.
FAQs
How do you know if a company is legit or not?
Check the trademark of the company, check their business on MCA, look for any grammatical errors, and check out the company privacy policy.
How do businesses identify and control fraud?
Many businesses develop a strategy against fraud, protect their businesses from cyber attacks, and know the customers in and out.
Day by day, something or other happens in cases related to fraudster or swindling. In India, such issues go viral and are often linked to businessmen duping money and getting away easily.
While there can be numerous reasons as to why someone can cheat or will cheat puts us to question our thoughts on the system. Things like these can be distressing to see when we don’t have the answers for ourselves.
As we are all aware that the breaking news of Ajay Singh getting arrested by the police has left many viewers anxious. The curiosity is only rising as to why and what happened that led to his incarceration.
Recently, Ajay Singh, an Indian entrepreneur and the Managing Director of SpiceJet airline, has been booked for defrauding a businessman of Rs 10 lakh worth of shares.
Born on the 29th of December 1965, Ajay Singh was brought up in Delhi’s Maharani Bagh area. His father belonged to Alwar, and his mother was from Meerut.
He did his graduation in engineering from the Indian Institute of Technology, Delhi, and holds an MBA degree from Cornell University in the United States. Besides this, he is also a law student and holds a degree from the University of Delhi.
Ajay Singh is married to Shiwani Singh. The couple has a daughter named Avani Singh, who is an alumnus of Standford University.
Career and Foundation of Spicejet
Ajay Singh co-founded India’s second-largest airline SpiceJet in 2005. He started the airline with the object to make airlines affordable for every Indian. After about five years since the inception of SpiceJet, Ajay Singh exited the company.
When the company was on the brink of shutting down, Ajay Singh decided to take over SpiceJet again. Soon after his leadership, the airline started to grow making it one of the best-time performers among several other airline service providers.
Ajay Singh is known for his all-rounder personality, such as being a businessman, sports administrator, bureaucrat, and investor. He is currently the Chairman and Managing Director of SpiceJet.
Ajay Singh is fond of sports and games. Keeping in view his liking for sports, he is the President of the Boxing Federation of India, and Associate Vice President of the Indian Olympic Association. On 25 September 2016, Ajay was elected as the President of the British Film Institute (BFI).
He is also the first-ever Indian to Chair the Aviation, Travel and Tourism Governor’s meeting at the World Economic Forum, Davos in 2019.
Due to his sharp leadership skills, SpiceJet was responsible for the Boeing order of making 50 Bombardier Q400 planes. The order was approved by then US President Donald Trump.
Political Alliances of Ajay Singh
Many believe Ajay Singh to be the BJP’s right-hand man. He is the go-to person for every member of the party for any kind of political advertisement.
Ajay Singh is associated with politics as he managed the campaigning for the BJP during the 2004 and 2014 general elections. He is the man behind the famous slogan, “Abki Baar Modi Sarkar”, which translates to Now is the time for Modi Government.
Most of the opposition parties refer to him as “Chhota Ambani or Chhota Adani of Narendra Modi for being privileged under Modi’s political clout.”
Why Was Ajay Singh Arrested?
Amit Arora, a Gurugram businessman has filed a complaint against the Managing Director of SpiceJet, Ajay Singh for delivering a fake Depository Receipt (DIS) worth Rs 10,00,000 shares.
In his complaint, Amit Arora revealed that Ajay Singh had promised him shares worth Rs 10 lakhs of SpiceJet for the services Amit had provided him during the time when Ajay brought over the airline from the promoters.
He claims that when he approached Ajay, he handed him a depository slip, which was later found out to be invalid. Upon reaching him several times, Ajay Singh denied paying him the shares.
Since there was no option of getting the shares from Ajay, he pressed the charges against him. Additionally, he has claimed that Ajay has been cheating many others in the same manner. He got to know from a source that a person named Chetan Nanda and Priti Nanda had charged a criminal complaint against Ajay Singh and that they were duped of their shares in the same manner.
On 11 July 2022, Ajay Singh has been arrested by the Gurugram police under Sections 406 (criminal breach of trust), 409 (criminal breach of trust by a public servant or banker, or agent), 415 (deception), 417 (cheating), 420 (cheating and dishonesty) of the Indian Penal Code.
To clarify the allegations against Ajay Singh, an official from SpiceJet has stated that these allegations are done to defame Ajay Singh and are inauthentic. The company is soon going to file a defamation suit against Amit Arora, who is the complainant.
The administrator from SpiceJet said,
“A frivolous, mischievous and completely bogus complaint has been filed by a liquor dealer Amit Arora with Gurugram police with an intention to hurt SpiceJet and Ajay Singh’s image.”
Conclusion
The case is under investigation. Some reports suggest that the high court has issued the case as a non-bailable warrant against Ajay Singh as he was unable to appear before the court due to covid isolation. Only time can tell what will happen next.
FAQs
Why was Ajay Singh arrested?
Ajay Singh, the chairman of SpiceJet was arrested for defrauding a Gurugram businessman for Rs 10 lakh worth of shares.
Who is the owner of SpiceJet?
Ajay Singh is the owner, chairman and managing Director of SpiceJet.
In the past few years, cases of many banking frauds have been gripping attention. Take the cases of these billionaire entrepreneurs like Vijay Mallya, Nirav Modi, and Lalit Modi, to name a few.
When most of the investors thought that the economy would be retained and business will run like usual, the Indian economy seems to have been hit again by another corporate bandit. We are talking about what is known to be the biggest scam in Indian History – the DHFL scam after the ABG Shipyard fraud case of Rs 20,000 crore.
Headquartered in Mumbai in the year 1984, the multinational housing corporation DHFL was founded with the idea to allow economical housing loans to lower and middle-income families in semi-urban and rural areas of India.
The DHFL stands for Dewan Housing Financial Limited, a well-known non-banking financial service provider in India and also the biggest in the sector it operates.
The Reveal of the DHFL Scam
All the tension started to begin for DHFL when the Central Bureau of Investigation (CBI) charged them and others for duping a sum of Rs 34,615 crores. There are about 17 banks that have been tricked by home loan provider DHFL. Former CMD Kapil Wadhawan and director Dheeraj Wadhawan are among 13 others who have been booked in connection with the case.
Kapil Wadhawan
Let us go through the following points to know the story behind the biggest case probed by the CBI.
The not-so-famous media house, ‘Cobrapost’ were the first one to reveal such shocking evidence against the DHFL company. They published an article citing the fraudulent activities carried out by the renowned housing finance company.
They revealed that DHFL has been using the loan money for its benefit by buying personal assets like properties and lands. However, to gain confidence in the eyes of the public, DHFL filed a response with the Bombay Stock Exchange stating there is no proper weightage to the allegations raised by the journalist group and that it was an act of causing damage to the reputation of the company.
To make the most out of these ‘false claims’ DHFL hosted conferences by inviting several investors/analysts to clarify that the Rs 31,000 crore loan is taken for an upcoming project.
The matters got off-hand when recently the CBI booked former promoters of the DHFL group for defrauding 17 banks in an amount of Rs 34,615 crore.
DHFL has borrowed a total of Rs 42,000 crore loans from banks like State Bank of India, and Bank of Baroda and the highest being borrowed from Union Bank of India (UBI), out of which DHFL has not paid a sum of Rs 36,000 crore. The UBI (Union Bank of India) has asked one of the leading providers of risk, financial, and corporate governance, KPMG to look into this matter.
They have been accused of syphoning off the money to their other companies or Shell companies to buy assets at a cost of public sector lenders.
The rating agencies downgraded the rating score on commercial paper after the company defaulted on debt payments. It was during this time when rating agencies involving ICRA and Crisil demoted DHFL’s worth of Rs 850 crore on commercial paper to ‘default’ from ‘A4’ because it had a mortgage lender’s deteriorating liquidity condition.
Breakdown of the DHFL Scam
The Resolution Plan
DHFL tried to make an impression in front of the investors that they would be repaying them the full amount. They devised a resolution plan that transformed its debt into equity and moved to the court in the hopes that it would influence their plan.
Raid by ED
Following the court case, DHFL couldn’t remain safe as they were raided by none other than the Enforcement Directorate itself. The ED made claims that they found several linkages to money laundering. This money has been used for their advantage, which was intimately associated with the company’s promoters, especially Dheeraj Wadhawan. They also found that this loan money was also linked to the criminal organisation, Dawood Ibrahim.
Removal of Board of Directors
By this time, DHFL had no longer had power and control and was bankrupted due to which the Central Bank of India decided to remove its board of supervisors and managers. The decision took place under Section 45-IE (I) of the Reserve Bank of India Act, 1934.
First Arrest of Kapil Wadhawan
This created sensational news when the promoter of the DHFL, Kapil Wadhawan was arrested under the Prevention of Money Laundering Act (PMLA). The ED had found out that his firm was allegedly involved in providing loans to the criminal association of Dawood Ibrahim.
Charge Against DHFL
Recently, the CBI finally booked DHFL and 13 others related to this case for swindling 17 banks of Rs 34,615 crore. They are undergoing investigation by both the CBI and the ED. The ED has stated that Yes Bank is also involved in this scam.
Scams like this can prove to cause huge damage to Indian investors. What can we learn from this is just that we need to have strong and stringent banking laws and policies. The country can only hope to see strict business and financial advisory groups without corrupted intentions.
It is quite evident from the above-mentioned facts the DHFL scam remains the biggest scam to date. The case is still undergoing, and we can only wait for the judgment to come out.
FAQs
Is the DHFL scam true?
Yes the DHFL financial scam is termed one of the biggest scams in the banking industry.
What is the DHFL scam?
DHFL has been charged for defrauding a total of 17 banks of over Rs 34,000 crore.
ABG Shipyard has been making news in recent days. The scam by this shipbuilding business has not only placed the Narendra Modi administration under scrutiny but has also thrown the opposition and the Modi government into a political fight. The ABG Shipyard Limited, a Gujarat-based shipbuilding enterprise, was accused of defrauding a consortium of 28 banks, including the State Bank of India (SBI), IDBI, and ICICI, for Rs 22,800 crores.
Without a doubt, ABG Shipyard is the largest private shipyard in India. The organisation has a large client base around the globe. They are the first to create all-aluminium jet-propelled watercraft that are powered by diesel-electric dynamic ships.
The company’s registered office and yard are both located in Surat, Gujarat. The company’s first ship was delivered in the year 1990. In the 15 years after its inception in 1991, the firm has grown to become India’s largest private sector shipbuilding yard, with a global client base of happy clients.
AGB Shipyard Fraud: How Did the Fraud Come to Light?
Based on a complaint from the State Bank of India, the Enforcement Directorate filed a money-laundering investigation against Gujarat-based ABG Shipyard, which has been described as being implicated in “India’s biggest bank scam in history.” The company’s chairman, Rishi Kamlesh Agarwal, has been questioned by the CBI for defaulting on loans of Rs 22,842 crore that ABG Shipyard obtained from 28 banks.
According to the CBI, a forensic audit conducted by Ernst & Young in 2019 indicated that funds were diverted to other linked firms, with loans reportedly being utilised for investments through offshore subsidiaries. According to the examining agency, these loans were not utilised for the intended purpose, thereby breaking the agreements.
AGB Shipyard Fraud: Actions Taken by SBI Against the company
On November 8, 2019, the SBI filed a complaint on a very serious note in order to get strong clarifications, and on March 12, 2020, the SBI requested explanations too. In August of that year, the bank filed a new case. The CBI moved on the complaint after “scrutinising” it for over a year and a half, registering the FIR on February 7 this year.
The SBI said in its lawsuit that the problem was caused by the global economic slump and the shipbuilding sector, according to the news agency Press Trust of India. It had “affected the shipping sector as a result of a drop in commodities demand and prices, as well as a drop in cargo demand.”
AGB Shipyard Fraud: Banks Involved in the Case
According to a case filed by the State Bank of India, AGB Shipyard owes the bank 2,925 crores, ICICI Bank 7,089 crore, IDBI Bank 3,634 crore, Bank of Baroda 1,614 crore, Punjab National Bank (PNB) 1,244 crore, and Indian Overseas Bank 1,228 crore (IOB).
According to CBI, the funds were utilised for reasons other than those for which they were given by banks. The Enforcement Directorate (ED) has opened a second money laundering inquiry into them.
AGB Shipyard Fraud: Why Is It Considered As India’s Biggest Bank Fraud?
Previous diamond merchant Nirav Modi and his uncle Mehul Choksi’s scams totalled about Rs 14,000 crore, while Vijay Mallya’s fraud was Rs 9,900 crore. The case of AGB Shipyard has crossed amounts of all the previous scams in history.
Former Chairman and MD of ABG Shipyard Limited Rishi Kamlesh Agarwal, former executive director Santhanam Muthaswamy, and directors Ashwini Kumar, Sushil Kumar Agarwal, and Ravi Vimal Nevatia have all been charged by the investigating agency and the officials. Meanwhile, searches have been carried out in 13 ABG Shipyard facilities.
ABG Shipyard is the subject of a forensic audit that was organised and conducted by Ernst & Young LLP. Between April 2012 and July 2017, it uncovers evidence of fraud. According to the audit, fraud was committed through “finances diversion, theft, and criminal breach of trust, with the goal of gaining unlawfully at the expense of the bank’s funds.”
ABG Shipyard received loans from 28 institutions in the form of three distinct types of loans. The funds generated from these loans were subsequently funnelled through 98 sister concern firms for mostly personal benefit.
AGB Shipyard Fraud: Timeline of the events
1985: The ABG Group’s flagship enterprise, ABG Shipyard Ltd, was founded. It was run and operated by Rishi Kamlesh Agarwal and is in the shipbuilding and repair industry, with shipyards in Gujarat’s Dahesh and Surat cities. It is financed by a consortium of 28 banks, with ICICI being the principal bank.
2005-2008: Despite warnings of danger from the global financial crisis of 2008, banks continue to lend grandly to ABG Shipyards.
2008: The worldwide financial crisis, which was sparked by the housing bubble in the United States and the fall of Lehman Brothers, affected ABG Shipyards.
2014: Under corporate debt restructuring, or CDR, SBI tries to restructure debts to ABG Shipyard. The reorganisation failed terribly because ABG Shipyards was unable to pay the interest and instalments on time and with parity.
2019: SBI identified the fraud in January 2019.
2020: SBI filed a complaint in 2019 and then again a detailed complaint in 2020.
2022: ABG Shipyard and ABG International Private Ltd are both booked by CBI. According to the CBI’s FIR, ABG SL owes a total of Rs 22,842 crore.
The CBI has issued lookout notices for Rishi Agarwal, ABG executives Santhanam Muthuswamy and Ashwini Kumar, and founder Rishi Agarwal.
Meanwhile, the opposition, led by the Congress party, had accused the Narendra Modi administration of participating in “India’s biggest bank fraud” of Rs 22,842 crore, which is larger than Nirav Modi and Mehul Choksi’s PNB scandal of Rs 14,000 crore and breaks the history of scams. The BJP government at the Centre pointed out that the fraud occurred during the UPA administration, the Congress retaliated by questioning why it took the CBI and SBI nearly seven years to find the crime. Along with that, the banks are in a terrible position of attempting to recoup their losses.
FAQ
What happened to ABG Shipyard?
The CBI has filed a complaint against ABG Shipyard for cheating 28 banks of Rs 22,482 crores.
Who is the owner of ABG Shipyard?
Rishi Kamlesh Agarwal is the owner and chairman of ABG Shipyard.
NSE or the National Stock Exchange is one of the most famous institutions in India. As the name suggests, it is the National Stock Exchange of India, which is one of the apex institutes for investors in the Indian land. It is prestigious and holds upright the fundamentals and morals of the investors. The existence of the NSE can be attributed to some people and Chitra Ramkrishna was one of such names that come together with the stock exchange. Ramkrishna was selected to create NSE from scratch and has served as the CEO of NSE between 2013-2016. However, it is the co-location scam case of the NSE that she has now taken the centre stage of.
There are some people who are always present in every institution who try to manipulate the power and authority given to them in ways that are unethical or corrupted. They can be found in private, as well as public bodies. They can be found in banks, formal institutions, government propagated social institutions, These manipulators are present in almost every organisation you can think of.
There will always be people like these who try to manipulate the general public with the use of their authority or power. No institution is left without these people, even the NSE. There is a curious case of the National Stock Exchange with a person who used her power to do some fishy things. The case came out in the news and got a really big headline. However, most people still don’t remember the case in its entirety.
Here, in this article, we will see who was the fraudster behind the National Stock Exchange and what were the allegations that were posed to her. There are many twists and turns in its story that can even make a good story plot. Let us see how the case started and then slowly unfolded before the eyes of the law. Let’s unfold the complete Chitra Ramkrishna and NSE co-location case.
A Brief about Chitra Ramkrishna NSE Co-location Case
Before we go deep into the series of events that led to the eventual reveal of the big case, let us see the case at a glance. Here we will be discussing, what according to the news, the story was and how the case unfolded before everyone and how people are reacting to it. Let us see what was the issue that caused the fire to ignite. So this here is the co-location case in brief.
The National Stock Exchange, which is one of the oldest stock exchanges in the world, took a toll on its MD and CEO. Chitra Ramkrishna, who is the Ex-Managing Director and the Former Chief Executive Officer of the National Stock Exchange was accused of misusing her power.
It was alleged that she used her power and authority in the NSE to make some inapt appointments, which eventually lead to disruption of secrecy of the exchange. It was also said that there was an information leakage, which was to be concealed but she failed in doing so.
Another claim was that she was the one who made some incorrect and misleading submissions to the SEBI. The Securities Exchange Board of India was also seen stating that Chitra’s spiritual guru influenced her in doing the actions she was accused of. The ‘Himalayan Yogi’ mentioned was unnamed and unknown to the news and the media. All these were the claims that clouded the sky for Chitra Ramkrishna in the past.
The consequences of these actions were quite easy to see. The CBI or the Central Bureau of Investigation was the body that questioned her after the acquisitions and found out various fishy arrangements.
The CBI, during its enquiry, also issued some circulars against the Ex-Chief executive officer, Ravi Narain, who was her predecessor. It was also reported that the Central Bureau of Investigation also ordered circulars against the former GOO (Group Operating Officer), Anand Subramanian.
Who is Chitra Ramkrishna?
Chitra Ramkrishna is not a familiar name but in the world of finance, she is really well-known as a person. She is the former Managing Director and the Ex-Chief Executive Officer of the National Stock Exchange. She started her career as a Chartered Accountant. As she started and sailed through her career, she brushed some finance in her life.
Chitra Ramkrishna
In 1985, she IDBI (Industrial Development Bank of India). As her career and life moved forward, she got a short and brief notice period at the SEBI. After that brief work at the Securities Exchange Board of India, she returned to IDBI after two years. This was the time near the beginning of the NSE. She was eventually picked by SS Nadkarni, who was the then IDBI chairman, to establish the National Stock Exchange from zero.
What are the Allegations Against Ex-NSE Chief Ramkrishna?
By now you must have got an idea about the person who is at the centre of this case. Now is the time to understand the case and the allegations it posed towards Chitra Ramkrishna.
Starting from the beginning, Chitra Ramkrishna was appointed as the Managing Director and the chief executive officer on the first of April, 2013. She was worthy of the title and the post and designation that she received.
After her joining as the MD and CEO of the National Stock Exchange, she thought of appointing a person as the CSO (Chief Strategic Officer) for the exchange. Mr Subramanian was the person who was chosen for the post and this decision shocked everyone.
The reason why the decision shocked everyone was that the person, or the newly selected CSO, Mr Subramanian had no clue what stock and the capital market was. He had no prior exposure to the world of capital markets. He was Vice President of a leasing and repair service at an enterprise called Transafe Services private limited, before joining as the CSO for the exchange.
The Securities Exchange Board of India mentioned in a document that the person chosen for the job role had no prior exposure to capital markets. The selection of this candidate is subject to raising all the eyebrows in the room. The consultancy position for which Mr Subramanian was selected did not suit his prior life.
More than this, Subramanian’s salary at his last workplace was Rupees 15 Lakhs, which was now raised to a whooping 1.68 Crore rupees. This jump in the salary of Mr Subramanian from the last workplace to the National Stock Exchange was unjustified and abnormal.
Not only this, he was asked to work four days a week with all the benefits multiplied on his behalf. After all the appraisals and all the multiplied performance ratings, his compensation rose to 4.21 crore rupees just within two years. After all the eyebrow-raising and the magical promotions, he was redesigned to work as the GOO (Group Operating Officer) and Adviser to the Managing Director.
All of this and in the research and investigation, it was found that the exchange had no vacancy for the appointment of a CSO. Yes, The exchange never needed a Chief Strategic Officer, it was never advertised.
Chitra Ramkrishna not only appointed a person as a CSO but she also compensated him with exaggerated numbers and metrics. Remember, this is happening at the National Stock Exchange. This is a huge blow to the regulations and regulators.
Another claim or allegation that Chitra faced was this. The SEBI found out that the former chief (Before Chitra) was also guilty of spreading secret information for the exchange out in the open.
The information which is being regarded as confidential includes, some financial documents, organisations working model, dividend payout ratio and the board meeting consultations. All of this information was leaked in some sense or the other, by the ex NSE Chief who was said to have been following orders of her spiritual guru who remains unknown at the moment.
Chitra Ramkrishna and the board of directors were found guilty of not informing the regulator about the doings and leaking in the organisation. The regulator, in reply, asked both Subramanian and Ramkrishna to surrender their designations. Subramanian left the office officially in October 2016, followed by the surrender of Chitra Ramkrishna in December 2016.
The former chief of the National Stock Exchange has been examined for the case that was resisted in May 2018. The central bureau of investigation took the matter into its hands and are enforcing whatever it can.
According to the investigations of the CBI, it was found out that, the former member of the board had got access to the back servers of the exchange. This point of contact with the servers led to the control and manipulation of confidential and important data on the servers. This led to something similar to ‘Insider trading’ in the stock market.
When information travels asymmetrically, or faster to some people, they can use it to earn some abnormal gains. The brokers held unfair access between December 2012 to May 2014.
“Stock exchanges as institutional mechanisms have an important role to play in ensuring the stability of the financial and economic system,” the Bombay HC order had said.
In that light, Ramkrishna as the then-NSE chief is accused of financial misleading, concealing of information, and improper conduct. She was arrested in the co-location scam case on 6 March 2022, Sunday evening.
The Penalties and Orders by SEBI
Watching all the fraud play unfold, SEBI or the Securities Exchange Board of India made some orders and punishments to the offenders. According to the orders of the Securities Exchange Board of India, Chitra Ramkrishna has been denied to deal in stocks.
She will never trade in any of the securities, intermediate or with any clearing corporation for a period of three years. She is also ordered to pay a penalty of 3 Crore Rupees for the damage that has happened due to the bad governance.
For the denied time of 3 years, Mr Subramanian was also ordered to restrain himself from associating with any sort of market infrastructure institution. He has to stay away from the world of the market for the specified time and he has been ordered to pay a fine/penalty of 2 crore rupees.
On the market organisation of the NSE, it was ordered that the National Stock Exchange will not launch a new product or service for the next six months. Moreover, the NSE has been directed to leave/forfeit the excess leave encashment (cash in lieu of leaves) in 1.5 crore rupees and the deferred bonus of 2.8 crore rupees that the exchange owed to Ramkrishna. The forfeited amount that the NSE ordered to leave was to be utilised in its investor protection fund trust.
Other than these two people who were the centre of the storm of the fraud? there were more. The other three people who were also involved in the events were also penalised. They include Mr Narain who was the then president, A Company Secretary named J. Ravichandran, and the former regulatory officer J Ravichandran of violating some sections.
Those violated sections included the 15HB of the Securities Exchange Board of India Act 1992. Section of 23A and 23H of the securities contract Act 1956. In this case, not just president Narain was penalised but also the whole exchange was penalised. Both Narain and the National Stock Exchange were penalised with a penalty of 1 crore rupees.
The Mysterious ‘Himalayan Yogi’
This is probably the most amusing character in the case. He is a yogi who was said to be the person who was influencing the minds of the accused people. Both the people, Ramkrishna and Mr Subramanian, were at the centre of the case of misleading and making some confidential information open to the public.
Both of these parties, even after the trials and all the investigations, believe that the yogi is real and legitimate. They were seen mentioning that the spiritual guru they were talking about was a ‘Siddha purush’ or a ‘paramhansa’, which means a truly accomplished (Enlightened) being.
According to the former NSE chief, the spiritual guru has no physical coordinates and it is impossible to trace him. He is a guru that can only be found after you manifest at your own will. She also said that she met him twenty years ago on the banks of river Ganga. The yogi then gave her an email address for contacting him in the future.
All these claims were baseless and proved to be guilty of both the parties at the National Stock Exchange. SEBI, however, denied believing that the spiritual guru was fake, in fact, it said that it was a real person and the erstwhile Exchange chief went on several vacations with the guru. This proves the fact that the yogi is a real and legitimate individual.
It is the entity that makes the whole story a crooked one. Especially in a country like India, where gurus and pundits are celebrated and worshipped like demigods, this case does not stand differently. If this yogi analogy is a lie in the case, then it is very cunning on the sides of both Ramkrishna and Subramanian.
Confrontation with the Yogi
The Ex-NSE chief Chitra Ramkrishna was accused of several major lapses at NSE, which is the largest of the stock exchanges in India, and accused of making monumental decisions on behalf of the organisation under the influence of a Himalayan Yogi. She was later arrested for the charges pressed against her on March 6, 2022, and was eventually sent to a seven-day CBI custody on March 7, 2022.
As far as the reports go from the CBI sources, the Himalayan Yogi has been identified to be the former Group Operating Officer (GOO) of NSE, Anand Subramanian, who has been recorded with evidence of over 2,500 email exchanges with Chitra.
In order to reveal some more details regarding the case, the investigating agency requested the court for some questioning and confrontation with Chitra. This led to the questioning of Chitra Ramkrishna with her former aide, Anand Subramanian by her side, however, this shockingly didn’t dig up more mud, instead, Chitra refused to recognise him.
As per the reports, the controversial appointment of Anand Subramanian as the Chief Strategic Adviser and his later elevation to the Group Operating Officer and Adviser to the MD were all prompted by the mysterious guru.
This was the NSE co-location case that involved Ex-CEO and MD Chitra Ramkrishna. It was curious to see that people at such a high latitude of responsibility and authority fall prey to some gurus. And who knows if the guru is a legit person or a mere proportion of fake images, or mirages created by the fraud minds.
Chitra Ramkrishna and Mr Subramanian were found guilty of deep corporate governance frauds, which led to their denial from the exchange and the market for three and two years respectively.
They were also ordered to pay a hefty penalty of crores. This case, which can also be a script for a movie, was a very interesting case. This shows how people at the top of some institutions can really be cunning, as opposed to their stature and the magnitude of responsibility that they have to bear.
FAQs
Who is Chitra Ramkrishna?
Chitra Ramkrishna is the Former CEO and Managing Director of the National Stock Exchange (NSE), who is currently identified as the center of the co-location case scam of NSE.
What has Chitra Ramkrishna done in the co-location scam case?
The former CEO and MD of NSE, Chitra Ramkrishna has been charged with some major governance lapses at the NSE by SEBI. She has been accused of taking some major decisions under the influence of a Himalayan Yogi.
Who is the Himalayan Yogi?
The CBI sources have identified this Himalayan yogi to be none other than Ramkrishna’s former aide and Former Group Operating Officer at NSE, Anand Subramanian. According to reports, the decisions of Ramkrishna were influenced by the Yogi.
Who is Anand Subramanian?
Anand Subramanian is the Ex-Group Operating Officer of NSE and the Former Chief Strategic Adviser and an Adviser to the MD of NSE. He is the one who is currently discovered to be the Yogi in the co-location scam.
What is co-location?
Co-location is a term that designates dedicated spaces in the exchange building, which are positioned next to the exchange servers. Co-location spaces witness high-frequency and algo traders who can place their systems or programs.
In co-location facilities, a third party can lease a rack/server space along with other computer hardware. These facilities extend a wide range of infrastructures like power supply, bandwidth, and cooling, which greatly helps in setting up servers and storage of data.
What is the co-location scam of the NSE?
The NSE Co-location scam is the recent market manipulation at the National Stock Exchange, which involves several top officials of the NSE including Chitra Ramkrishna and Anand Subramanian.
Who is the first woman MD and CEO of the National Stock Exchange?
Chitra Ramkrishna was the first woman MD and CEO of the National Stock Exchange.
Why was Chitra Ramkrishna arrested?
Chitra Ramkrishna was arrested by CBI on 6 March 2022 in the NSE co-location scam.
What is the current update regarding the co-location scam of NSE?
The former NSE Chief Chitra Ramkrishna has been arrested on March 6, 2022, and has been sent to a seven-day CBI custody on March 7, 2022.
Money is the basic set of resources everyone needs. While there are two methods to make money, one is through hard, slow and honest work and the other is by duping people fast, people tend to choose the second. In this world where everyone wants to afford things fast it has been increasingly seen that people are trying to find shortcuts to everything. This, of course, is not the right thing to do. You cannot get rich tomorrow, by any means.
It is true that you need money to be stable and all. People all over the world try hard to amass as much as they will be needing in future. However, some notorious humans try to dupe the rules and regulations that are made to safeguard the integrity of the nation. They try to avoid taxes illegally, try to amass much money that is either illegally earned or hidden and transported by any means. This article talks about that issue, which has money as the epicentre.
The conflict of money laundering in this world. We will first develop a little understanding of what money laundering is and then we will discuss what has been the cases that had the largest impact on the world. This article will end with precautionary measures. Read on to learn something about the loophole called money laundering.
Money laundering can be defined as some window dressing that is done to the ‘money’, to make it appear as if it was legitimately earned. It is to ensure that illegally earned money (Or even black money) looks white and pure and looks legitimately earned. It is done with some tweaks to prevent any issues that might happen in any future transactions. Thus, Money laundering makes the illegally acquired money look as if it has been obtained genuinely.
This method can be used for more than one purpose like it can be used to change or hide the nature, location, source, situation and even the movement of criminal activity. It makes the proceeds that are earned from illegal activities look legitimate and legal.
In simpler terms, laundering is the process by which hides or converts illegally earned income. It helps criminals get away with getting their money a clean and clear image. The process of money laundering is a huge criminal behind all that is wrong in the world. It provides a safe and secure passage for all the proceeds that one can earn with bad works. Any activity that is illegal, wrong and criminal is effectively hidden by the means of money laundering.
It can be drug trafficking, or even as much heinous as terrorist funding, laundering makes it look legitimate and legal. Thus, the process of money laundering is something that converts the money (from any criminal activity) to money from a legitimate source, thereby maintaining the credibility of the money earned.
Laundering is a serious crime and is done in probably every country in the world. Not only is it illegal but it is also immoral. It is such a serious problem that it encompasses both the white-collar and the street-level criminals. The roots of this business run deep in many parts of the world.
How Does Money Laundering Work?
The process of money laundering is super important for tricksters and all the criminal organisations all over the world. It is their only way on which they can rely to get their illegal money in a legitimate manner.
They are so reliant on this method that they are even ready to pay a lot of money in return for laundering money for them. This is how much they are ready to launder their illegal money. This process is not often easy, it has to be done with precise work of hands.
Anything wrong here or there can demolish the whole organisation. To avoid any errors and issues, there are different phases through which it happens. There can be many illegal ways to launder money but some points in the process are always the same and constant. We here will discuss those three common touchpoints which are common in most money laundering cases –
There are three predictive points and those are –
Placement
This is mostly the first step in a money laundering process. The first is always the entry of illegal money into the system. As soon as illegal money is placed in a tight spot, it becomes necessary to layer it with a protective genuine financial system or to cover them in legal ways.
Layering
Layering refers to the layering that is needed to cover the fingerprints on the notes, not exactly but similarly to a criminal investigation. Layering is layering the money with various transactions and accounting or bookkeeping tricks. Any accounting loophole that can hide the source of the unaccounted money, is useful here. Not to mention that it is done by experts having good knowledge and bad intentions.
Integration
The cash that is laundered through layering it with multiple accounts and transactions are now withdrawn. It is withdrawn in order to return the proceeds to the original criminal that will look like legitimately earned money. This is the integration of money in one place.
All these three methods are the most commonly seen and mostly seen/abbreviated steps in the money laundering process. But it is here to note that there can be more steps than just these three. There can be more layers and more routes by which money is integrated.
Common Methods of Money Laundering Used by Criminals
Exports
There can be Exports that are faked multiple times, in fact, it is one of the common ways criminals do this. A fake export can look like the money is legitimate and is travelling to some other country or province in some official manner. It was very frequently used in Europe in recent years.
Stock Markets
Another unsaid method is via investing the money out. Stock Markets are the major regulator of money supply and the money can be hidden behind this big money machine. Anyone can purchase shares, stakes to bonds from stock market brokers in any part of the world. Noting that the Stock market has a ubiquitous approach in all its workings, more money can be transported and invested in these money markets. Stock markets capitalise on the transaction and make it look legitimate.
Expensive Paintings
If you are a Hollywood fan, then this method would be quite familiar to you. It is evident in movies that gangsters buy some expensive art to cover the money that they have. Thus, Antiques and paintings that are ridiculously expensive can be used too. Hide money or even turn the illegal black money into legitimate white money.
Electronic Means
Then comes the smart modern way of pulling out money laundering. That is, by Electronic means. It has become increasingly easy to transfer money to each other’s wallets. This has not to mention also eased the hard work of money launderers. Now you can just transfer money with a click of a button or a few taps. Electronic means provides a wonderful and magical opportunity to exchange money without revealing its true identity or form.
If you are a modern thief, this trick would come in really handy. Criminals can convert real money to untraceable digital money, which is super hard to trace. That illegal or black money can also be stored in a cloud of games and rewards. It can be distributed through auctions and sales through gambling websites.
Cryptocurrency
If you move ahead in technology and money transactions, you will hit a block. That block is no other than the blockchain. As the world of cryptocurrency rises, so do the concerns of money management all over the world. It is forecasted that it will become extremely easy to get away with black money in the form of cryptocurrencies. What can be worse? They are not even regulated with one organisation, it is power in the hands of people and what if they fail to manage the power. Although there are proper ledgers at place working overnight to record all the transactions, it still can be hard to track individuals involved in the theft.
Up till now, we have all learnt that money laundering is a complex process and can include many forms and types. This calls for some real study on scams that the world has witnessed already. Let us now discuss which tricksters (read criminals) were able to dupe the national security laws of money laundering. This is the history that saw some of the biggest cases of money laundering in the world –
HSBC
HSBC was one of the top firms that showed signs of money laundering. The organisation was tried by the senate. It came under the limelight in the year 2012 when the United States Senate triggered a search in its operations.
On further investigations, it was found that they were breaking AML laws. AML here is Anti-money laundering laws. It was found that the entity HSBC was found to be guilty of the following frauds and illegal activities.
Firstly, they offered banking services to clients hailing from Saudi Arabia, even after knowing the fact that the clients had contacts with terrorists. HSBC sanctioned money transactions from Iran and North Korea without raising any sort of ticket that signifies any issue with those transactions.
HSBC let a subsidy of them having relations with a Mexican counterpart go, even when that counterpart had ties with drug trafficking. HSBC ignored all the risky factors and let the relationship with such a threat of an organisation go without any issue.
The reports say that an estimate of about 881 million Dollars was laundered in summation. This was a huge amount and the entity was banned from any workings for the foreseeable future. HSBC was a reminder that every entity has to be regulated so that it runs according to the lines seated by AML laws. HSBC was fined $1.9 billion dollars for laundering money.
BCCI (Bank of Credit and Commerce International)
The name BCCI is an acronym for Bank of Credit and Commerce International. It is a name now long forgotten. It was however not the same in history. In the mid 19s, BCCI was the seventh-largest private bank in the world. In the mid-1980s the bank was found to be involved in some really serious business of money laundering and even drug smuggling.
BCCI was found with sums of money that were in billions in criminal profits. The name that is forgotten now is estimated to have hidden and laundered a sum of almost 23 billion dollars. This much money was laundered and the bank made a name for itself in the black market of thieves and money launderers.
It is reported that the bank was too picky of its clients, it had relations with some really big names in the industry. BCCI has been reported with relations with Saddam Hussain (Former military dictator of Panama Manuel Noriega) and Palestinian terrorist leader Abu Nidal. By 1990 BCCI was entangled in its own corporate structure and ran into obscurity. That was when the time came for its investigation.
The US Senate report says that Price Waterhouse started an investigation on this matter. The credit and commerce bank shut down its operations even before the investigations were completed.
Even after an early shutdown, the bank owed hefty amounts of fines due to the AML (Anti-money laundering) laws it broke. It was also reported that the CIA (Central Intelligence Agency) user accounts listed on the BCCI, to fund Afghan Mujahideen during their war with Russia (The soviet union) in the 1980s. On the land of money laundering accusations, the Bank of Credit and Commerce transferred about 20 billion dollars in money laundering
Nauru
Nauru Island
Nauru is the name of a tiny pacific island. It is about 1100 miles away from the coast of New Guinea. The place might be small and dingy but it is quite an epicentre of money laundering. This small land has been the go-to place for the highest-profile of criminals and gangsters. In the late 1990s, Russian criminal gang lords laundered about 70 billion dollars through banks that were registered in Nauru. Those banks were mostly called ‘Shell’ banks.
Shell banks are the banks that exist only on paper and nowhere else in real life. They cannot be traced on a map, nor do they have any physical office/branch in real life. Nauru even allowed those banks to record transactions without naming the people behind those transactions. This was done to incentivise more and more transactions. The small land of the Nauru coast of Australia turned into a shell corporation heaven for the Russian mafia. The place is now only known for being a money-laundering favourable place after being a natural resource hotspot.
After the US treasury found out about the illegal money business going on in Nauru, they imposed heavy sanctions on that land. Only to surprise, it was found that the penalties were even more than the penalties imposed on Iran (Another laundering place).
With factors like those of Shell Banks, and recording money transactions without account names, cooked all this hassle. All of the factors above made Nauru a safe place for money launderers. The island has been blacklisted and all the shell banks that were once there, are deregistered on the spot. Since 2001, Nauru has taken steps to clean up its act and has accepted financial aid from Australia.
Standard Chartered
Standard Chartered is one of the biggest banks in the world. This humongous financial institution was accused of helping out the Iranian government to launder an amount of about 265 billion dollars. This huge amount was reported to be laundered as there were not enough/sufficient checks at places. This lack of governance of checks and looks made this big money to be transported illegally.
When it was investigated and regulated by concerned authorities, the organisation paid about 350 million dollars in fines in 2012. Standard Chartered also paid 350 million dollars again in fines and settlements in 2014 for not improving their AML (Anti-money laundering) face and compliance with the assigned rules. After that, they improved their AML sector within the organisation and since then, it has been on a check.
Pablo Escobar
All the Pablo fans out there, do you know how big that criminal was. Pablo Escobar, the most successful criminal ever known to known history. He was so rich and had money in such amounts that it is said once, he spent 1000 dollars in a consecutive week on rubber bands which were used to hold up the bundles of cash that he had. Not to mention, his business was drugging and although the business was illegal, he was a master of the trade.
He was so good at the drugs business, it is reported that he once in time-controlled about 80 per cent of the world’s drugs business (Cocaine trade). With such a hold over the most profitable business, he had loads of money. And because of that, he was forced to make more ways to launder his money to look legitimate. He was so into money laundering that probably the epicentre of his business was just that, ‘Cash Laundering’.
The recipe that he followed in getting all the money back to himself was simple. He paid bankers some bribe to which they returned the favour by turning his black cash into legitimate money. In 1989, reports say that his personal fortune was worth about 9 billion dollars, which made him the seventh richest person in the world at that time. He died in a gunfight in 1993 with Colombian authorities.
Wachovia
It is now a part of Wells Fargo, Wachovia was among the biggest banks in the United States in the 2010s. The bank was found to have allowed drug cartels in Mexico to launder close to US$390 billion through its branches during 2004-2007. The drug cartels had one job specific to money laundering. They laundered money (Proceeds) that came from selling drugs in the United States to the other side of the Mexican Border. Then, they used money exchangers to deposit the money into their bank accounts in Mexico.
“Wachovia’s blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations,” said Jeffrey Sloman, the federal prosecutor. Yet the total fine was less than 2% of the bank’s $12.3bn profit for 2009. On 24 March 2010, Wells Fargo stock traded at $30.86 – up 1% on the week of the court settlement.
At the Mexico border, the requirements were not clear and regulated which added to the money laundering situation. The regulatory requirements with regard to the source of funds were not on par with current standards. Later on, the money that was transported to Mexico was roped in back to Wachovia’s accounts in the US. The total money laundered by this bank amounted to 390 billion dollars.
Now you must be thinking about what happens if the situation is not controlled, and that is a legit question. If money laundering is not stopped, it can raise havoc. How? Let us find out –
When some money is unaccounted for and lies around in society, it can be used for any purpose. The intentions can be constructive as well as destructive. Depending on the purpose, it can create a ruckus for the society we live in.
As we all know, money can be used as an incentive for many things, it can be an incentive for good things, hardworking and it can also be an incentive for bad things for society. In that situation, the social and political cost of such money can be severe.
In addition to that factor of thought, money laundering can weaken society as a whole. It can lower the boundaries of social and collective ethical standards. In developed countries, it can be efficient and effectively used in terrorism and any sort of destructive activity or behaviour.
On the other hand, if unaccounted money or money laundering is in an underdeveloped country then it can be serious damage to the progress of the country and the integrity of such a nation. For example, those examples can be disastrous in the second most populous nation, India.
What are the Precautions for Money Laundering?
There can be precautions as well for this money laundering influence. These precautions can lead to a safer environment for all, the government and the citizens. Let us discuss some of the precautions that are advised by experts and are worth a read –
Tax Evasion
First of all, the process of one laundering starts from the intention of tax evasion. At the heart of the issue is hiding the income to save some pennies of taxes. This has to be completely stopped. Tax evasion has to be stopped in all steps of production to consumption. This will help make people aware of the monitoring. This will also reduce significant money movements from one place to another.
Local governments should be held accountable for the money management of an area. They have to be fully authorised as well to do their duties on full throttle. For this purpose, the government and the media can work hand in hand to be more effective in maintaining the secrecy of sensitive topics.
Reducing Tax-free Earnings
The private sector has to be regulated as well. Cartels should be prevented and any sort of underground economy should come to an end. This can be done by reducing the tax-free earnings as much as possible in nature. This can be hard for developing countries, as they rely on taxes for development but they can do small changes as well.
AML(Anti-money laundering)
Businesses can protect themselves by strictly accounting for all the transactions as well as adhering to the AML(Anti-money laundering) norms. For which they can use the AML software available in the market such as Sanction scanner and many others available throughout the internet.
AML (Anti-money laundering) Initiatives
Throughout the article, we have mentioned something called AML, we did mention it but what it is actually? Anti-money laundering is a set of initiatives that rose to global prominence in the year 1989. They were formed by a group of companies and countries who were concerned about the issue. It is an entailing part of the Financial Action Task Force (FATF). The mission of which is to prevent and control the money transactions that are unrecorded and benefit from money laundering all around the world. In October 2001, following the 9/11 terrorist attacks, FATF expanded its mandate to include combating terrorist financing.
Another important organisation that controls the fight against money laundering is the IMF or the International monetary fund. Just like the FATF, the IMF also runs on a mission of preventing money laundering as they assert influence on countries and corporations to act according to the accepted international standards.
Laws like these are effective and work in a manner that prevents market manipulation, trade in illegal goods, corruption on public funds and even tax evasion on a global level (large scale).
Laundering is a serious crime and is done in probably every country in the world. Not only is it illegal but it is also immoral. It is such a serious problem that it encompasses both the white-collar and the street-level criminals. The roots of this business run deep in many parts of the world. With this rooted problem, it can be a serious hindrance to the development of countries and even corporations at a smaller level.
There are many international corporations like the FATF (Financial Action Task Force) and IMF (International monetary fund) trying to influence these numbers. Reading the history of money laundering, it is threatening that it can happen today too. In this world where we talk about decentralised currency as the new currency. It is going to be hard to prevent such happenings in today’s world. It does not just harm corporations and societies but even the society and constituents of society.
FAQ
How does money laundering cash work?
The money that needs to be laundered is carried into foreign bank accounts in small amounts and then is transferred back to where it came from.
What is the most common way to launder money?
The most common ways to launder money is investing in gold, investing in stocks or transferring money to foreign bank accounts.
Is laundering money illegal?
Yes, Money laundering is illegal as the laundered money can be used for illegal activities.
The initiation of every Ponzi scheme starts with a promise of unusual and supernatural returns. We all know that there are no ‘get rich quick schemes, they are a hoax. If you see or hear about these schemes, you should quickly assume that every quick rich scheme is someone else getting rich from (off) your money. Even then too, people fall for these tricks.
You too must have somewhere or sometimes must have seen these, a friend or a relative coaxing you to follow a trend in marketing, direct selling or some network marketing thing. You must have heard about these, but never thought too seriously about them, now is the time. This is the article about the same unsaid industry, we will find meanings, laws and eventually reveal how they operate. Read on to find if these are real or a mere Ponzi scheme?
Direct selling is a type of distribution channel used by global brands and not just that, it is used by small and medium-sized brands too. It is a retail channel that they use for that matter.
Small companies and even entrepreneurial companies use this method to market the product that they have to offer to the general public. As the name suggests, it is direct and strictly consumer focussed. Direct selling enables all types of goods and services, that includes expensive jewellery and low selling products like cookware, everyday used cosmetics, items used in a. Houses like housewares, energy and insurance supplements and more and more. Tupperware is a great example of one of the leading direct selling companies in India.
Tupperware Direct Selling
The direct selling channel avoids all the middlemen in between a product selling cycle. The model is to offer a broad retail channel in a slight differentiating way. It is not only about getting a great value-adding product and getting it in the hands of a consumer, but more than that.
This model of business is primarily sold with the hope of business minds people will take on this venture. Every Indian who is entrepreneurial in his thinking capacity takes up this work of direct selling, it is a form of a low startup with low overhead costs. Thus, this business model while eliminating the middleman helps the business-minded person take on and build his/her own venture of selling and building business.
Having said that, we can claim that these people who work under this umbrella and ubiquitous sort of academy work on their own. They not only work with their time, but they also affiliate it with the company that uses the personal channel, this retains the freedom to run the business on their own terms.
This opportunity of running their own business is often regarded as the most lucrative opportunity that makes people get into the Direct Selling business. Thus, the main or the focus point of direct selling is the affiliate income that one can generate from the parent company. The purpose or goal of volunteers or joiners is only one and singular in nature.
The purpose or goal above all the work is to forge personal relationships with prospective customers. Anyone can be a prospective customer if he/she fulfils the need or want of the product or the designation, whatever the executive finds easy off.
Product Demonstration
Consultants have to build and forge relationships with clients/customers mainly through face to face discussions and demonstrations. In this time when social media is predominant in quite every field and the walls between industries are defusing, it is easy to go with.
For people at this age, direct selling is an easy market shift and a go-to strategy for marketing their products and generating customers with networking. This method is more looked at as a better and effective way of selling than that of traditional marketing of advertisements or securing shelf space.
Speaking of direct selling, it is quite famous in foreign and abroad countries. In India, the concept is relatively new than that of abroad. When we discuss direct selling, MLM is just the other round of it. The full form for MLM is Multi-level marketing, we should discuss it at this point to make it count on our path of learning about new marketing and distribution channels.
Multi-Level Marketing – Connecting networks
This might seem a new term to many but it is not new at all. Although the concept of direct selling and multi-level marketing is still in the early stages of growth, the concept is widely accepted and has a lot of users in India (The second most populous country in the world). If any of the concepts find a place here, it will most probably generate huge returns.
The term Multi-level marketing refers to a strategy that is operated and equipped by some companies. By some companies, we mean companies that dominantly are direct sales companies, in the field of any product or service.
Difference Between Multilevel marketing and Direct selling
MLM and direct selling may seem the same but there are some differences that are key to the definitions and working of both models. In a multi-level marketing strategy, the existing members try to promote and sell the products that the parent company offers to other individuals. Not only this selling aspect, but it also has the faculty to bring in and add on new recruits to the business.
The head is known as the distributor and is responsible for adding members and networks. The distributors are paid some percentage of the sales that their recruits (newly added) people make. These new recruits make and become what we call the distributor’s network or down team. These recruits are encouraged and motivated to make sales and as an outcome of those sales, earn money.
Multi-level marketing is a legal thing but there is one aspect that is added to it and is illegal by its nature. The illegal aspect is known to the world as “pyramid schemes”.
Do Multilevel marketing Companies Make Money?
It is reported and there are many actual proofs to prove this, that companies operating with this strategy earn a handsome amount. Multi-level marketing companies often generate billions in annual profits. However, these profits that they earn accrue to the majority of the workforce (who are constituents).
Often referred to as MLM participants. Out of all the distribution made, only a little profit is shared with individuals who are at the top tier of the MLM pyramid scheme. The fact that only the top tier people earn a handsome amount then becomes a new strategy of marketing for itself.
Multilevel Marketing
These earnings by those at the top tier in leadership are advertised and marketed in seminars and conferences. This sort of emphasis on the earnings of a few top earners motivates the new joiners. This in turn creates an illusion of financial indolence and the financially successful nature of the job. These small amount of earners are the marketing face of the MLM company that helps in generating more workforce under the whole organisation.
This pyramid scheme of MLM marketing makes people win companies with wrong assumptions. More and more distributors join the scheme with unrealistic and abnormal returns in earning margins. These sorts of earnings in real reality are just theoretical and merely improbable.
Multi-level marketing, as previously mentioned, holds few top individuals as evidence of how it can lead to success and great financial earnings. This top shining tier of the brand is not what the issue with the scheme is. The issue is about a whole new perspective and dimensional shift.
The multi-level business model depends on the failure of the majority who fails in this pursuit of financial independence. They either fail to earn even a little or worse, they inject their own money from their own pockets to join and even then fail to earn a little amount, forget the unnatural amount. This is the main locus point of the business model at any MLM based company.
Volunteers who inject their own money into MLM becomes the reason why these companies become big and earn big in numbers, out of the received money from people, the MLM corporation only shares a little sum with the top tier participants.Thus, to enable the whole multi-level marketing organisation to work, the largest or majority of participants must operate at loss.
Only when those at the lower level of hierarchy operate in loss, the uppermost level of the MLM pyramid can derive their abnormal earnings. Those earnings then are emphasised and overemphasised by the MLM company to all other new joiners and this encourages them to participate at a financial loss.
We can clearly see that MLM or multilevel marketing is just about selling empty dreams to people who are unaware. The hope of high returns and easy income leads people to fall for these Ponzi schemes. In fact, this method of selling empty dreams is the focal point of their business model. The whole organisation is built on selling fake and empty hopes that appear really shiny.
Selling Dreams of Financial Independence
Sales Pitch Presentation
The main and even the primary face of an MLM company is the sales pitch. The sales pitch is obviously not the products and services. The products or services that the multilevel marketing company offers are only to the edge, or are just a fake face that they wear.
The products or services are largely peripheral to the MLM marketing model. Rather than a valid and sensible sales pitch, the company offers free confidence to the participants. The goal of that hyped up confidence is the promises of fake promises.
They have all sorts of techniques that they use to lure young people into the pyramid scheme. They will lure people with hopes of a “luxury lifestyle” or a lifestyle that you deserve. The basic sales pitch is that of financial independence and that all your dreams will come true.
You get the designation of “Independent distributor” and everything seems so good. You are hyped up by fellow young entrepreneurs and people would call you a ‘business partner’. MLM marketing companies don’t just sell you the idea of some financial and monetary benefits, they do more than that. MLM companies sell you dreams, that is what is known to us as “Selling the dream” in the real world.
We now know that Multi-level marketing people lure you to join by showing proof of income of the topmost tier level of the pyramid. One should not take that emphasised earning amount as a basis of hope for the same future earning prospects.
Structure of a Multi-level marketing Company
We looked at the business model of multi-level marketing, now let us see that in action. An MLM company mostly operates with the same structures as the business models.
Once a person is recruited in the scheme, by hook or by crook, they are given a designation of independent non-salaried participants. They can be known as many names, it can be associates, business owners, agents and whatever more that builds confidence.
Once they are boarded, they are authorised to distribute products or services that the company makes. Once they start selling the products and get some revenue from the company, they get some share of the income generated by the sales. It is here to note that they are just rewarded their share of the immediate retail profit from the customer and not downlines. The compensation paid is through a predefined compensation plan that is based on the products sold with the volunteer’s own efforts.
After this simple transaction, business owners or those independent distributors try to develop their organisations by either building an active consumer network, who buy directly from the company or they recruit newcomers. This starts a new chain of independent distributors who also build their network base. This expands the whole organisation at the overall level.
This is the basic structure of a multi-level marketing company.
Pyramid Scheme – The illegal scheme
A pyramid scheme is the formal name given to the same effect that we read up till now. A pyramid scheme is a scheme (and scam) that is based on a hierarchical setup of marketing networks. It is illegal by the way in every place of the world. The most famous pyramid scheme is nothing but a clean and clear Ponzi scheme.
Every new recruit who is recruited makes up the base of the structure and provides funding for the operations of these big scams. The funding that these innocent people provide become the abnormal return that the top tier of executives gets.
A pyramid scheme usually does not include selling off anything or any product or even service. It is based on the inflow of cash by new entrants, it is based on these additional investors that want to earn abnormal returns. Those are the very people who lose up the invested money to the people who are at the top of the pyramid. This means that multilevel marketing schemes are not classified as pyramid schemes and are not necessarily fraudulent if a product is being sold at the place.
In India, there was a lot of scope for direct selling by business people. The reason is the fact that India is an immensely populous country. Moreover, here the average age is about 28 years, which is relatively younger than even most of the developed countries. Here we will discuss a report about the Annual Survey of India’s direct selling industry in 2011-12.
India’s Direct Selling Industry
“At a time when most businesses faced a downturn, direct selling has recorded a significant increase in gross sales in back-to-back quarters of the current fiscal,” said IDSA chairperson Rini Sanyal
A new report by industry body Indian Direct Sellers Association (IDSA) said the sector saw 53 lakh, new entrants of direct sellers and consumers, in the first six months of the present financial year. Let us discuss some statistics for the Indian Direct selling, it is here to be noted that these reports are from the latest published survey of yr 18-19.
The Indian Direct Selling Industry stood at around INR 1,30,800 million in 2018-19 growing at approximately 13% from INR 1,16,700 million in 2017-18. The industry showed a Compounded Annual Growth Rate of approximately 16% growing from INR 83,085 million in 2015-16 to INR 1,30,800 million in 2018-19. Amway continues to be the leading Direct Selling organisation with global revenue of USD 8.8 billion in 2018. Avon Products IncHerbalife, Infinitus and Vorwerk along with Amway comprise the top 5 Direct Selling organisations in 2018 based on their global revenue.
Growth of Sales in India’s Direct Selling Industry
The straight-line graph is simply the CAGR that the India Direct Selling Industry provided in the following years. CAGR here means compound annual growth rate, The Indian direct selling industry produced a cagr returns of about 16 percent. 16 percent is even greater than what most equities offer (About 12-14 percent is given by equities). This growth even surpasses the equities market in India. We can see why this is a growing investment area for investors.
The total sales of the Direct Selling Industry in India grew to INR 1,30,800 million (INR 13,080 crores) in 2018-19 from INR 1,16,700 million (INR 11,670 crores) in 2017-18 registering a ~13% year-on-year growth in the sales. The Direct Selling Industry showed a CAGR of ~16% from 2015-16 to 2018- 19. These figures include the sales of 21 members of the Indian Direct Selling Association (IDSA) and the non-member Direct Selling entities.
India’s Direct Selling Sales by Product Categories (2018-19)
The share of IDSA members in the total sales of the Direct Selling Industry in India stands at approximately 60% as compared to the 40% share of non-members in 2018-19. Wellness products (which include products such as weight management supplements, meal replacement bars & drinks etc.) contribute more than half of the Indian Direct Selling Sales by IDSA members.
This is followed by cosmetics and personal care (which include products such as cosmetics, skincare, fragrances etc.) which contributes more than one-fourth of the sales by IDSA members during 2018-19. The Indian Direct Selling Industry’s contribution to the exchequer stood at around INR 2,500 crores in 2018-19. The number of active direct sellers (i.e. those who have ordered at least once in the last 3 months) in the country was around 5.7 million growing at ~6% from 5.4 million in 2017-18.
We can see that wellness products are the most used and directly sold products. However, the government did something related to this big industry in India.
The Government of India has banned companies from pyramid and money circulation schemes. The government brought out new rules and regulations for such a type of business marketing model, these are strict and needed to be followed. It is forecasted that these new rules will separate some entities, like that of Amway, Tupperware and Oriflame from operators that are likely to be called Ponzi in nature and feature.
According to the new rules, Direct sellers must have at least one physical location as their registered office within the country. They moreover, have to make a public declaration that they are not involved in any pyramid scheme or any sort of money circulation scheme as per the Consumer Protection (Direct selling) Rules 2021, notified by the Ministry of Consumer Affairs, Food and Public Distribution.
The first noted pyramid scheme was coaxed by Charles Ponzi (Italian-American) in 1919. He founded the Securities Exchange Company that year with the promise to investors of doubling their money in about 90 days. As this scheme continued to attract new puppets, he used that money to pay the earliest investors to double their investment. As the company came to light, Ponzi was bringing in $1 million a week.
Direct Selling Rules and Guidelines 2021
The Ministry of Consumer Affairs, Food and Public Distribution, and the Department of Consumer Affairs have made strict and clear rules for direct selling, Multi-level marketing and pyramid schemes in India.
They have struck guidelines that have to be followed by every company that tries to include direct selling as a mode of their product distribution. Here in the article, we will get to know what are these rules and guidelines that companies have to follow in order to directly sell their products,
These guidelines may be called the Direct Selling Guidelines 2021. These are issued as guiding principles for State Governments to consider regulating the business of Direct Selling and Multi-Level Marketing (MLM) and strengthen the existing regulatory mechanism on Direct Selling and MLM, for preventing fraud and protecting the legitimate rights and interests of consumers.
Conditions required for every Direct Selling entity (Guidelines 2021)
These Rules shall apply to all goods and services bought or sold through direct selling, all models of direct selling, all direct selling entities offering goods and services to consumers in India, all forms of unfair trade practises across all models of direct selling and also to a direct selling entity which is not established in India but offers goods or services to consumers in India.
Existing direct selling entities need to comply with these rules within 90 days from the date of publication of these rules in the Official Gazette.
The direct sellers, as well as the direct selling entities using e-commerce platforms for sale, shall comply with the requirements of the Consumer Protection (e-Commerce) Rules, 2020.
Direct selling entities and direct sellers are prohibited from:
Promoting a Pyramid Scheme or enrol any person to such scheme or participate in such arrangement in any manner whatsoever in the garb of doing direct selling business;
Participate in money circulation schemes in the garb of doing direct selling business.
Rules provide for Monitoring by State Government.–– For ensuring compliance with these rules by direct selling entities and direct sellers, every State Government sets up a mechanism to monitor or supervise the activities of direct sellers and direct selling entities.
The Rules provide for certain obligations upon Direct Selling Entities which inter alia include:-
Incorporation under the Companies Act, 2013 or if a partnership firm, be registered under the Partnership Act, 1932, or if a limited liability partnership, be registered under the Limited Liability Partnership Act, 2008;
Should Have a minimum of one physical location as its registered office within India.
Make self-declaration to the effect that Direct Selling Entity has complied with the provisions of the Direct Selling rules and is not involved in any Pyramid Scheme or money circulation scheme;
Have a prior written contract with its direct sellers in order to authorise them to sell or offer to sell its goods or services, and the terms of such agreement shall be just, fair and equitable;
Ensure that all its direct sellers have verified identities and physical addresses and issue identity cards and documents only to such direct sellers;
Create adequate safeguards to ensure that goods and services offered by its direct sellers conform to applicable laws;
Be liable for the grievances arising out of the sale of goods or services by its direct sellers.
Every direct selling entity to provide the following information on its website in a clear and accessible manner
Registered name of the direct selling entity; registered address of the direct selling entity and of its branches; contact details, including email address, fax, landline and mobile numbers of its customer care and grievance redressal officers;
A ticket number for each complaint lodged through which the complainant can track the status of the complaint;
Information relating to return, refund, exchange, warranty and guarantee, delivery and shipment, modes of payment, grievance redressal mechanism and such other information which may be required by the consumers to make informed decisions;
Information on available payment methods, the security of those payment methods, the fees or charges payable by users, the procedure to cancel regular payments under those methods, charge-back options, if any, and the contact information of the relevant payment service provider;
The total price of any goods or service in a single figure, along with its break-up price showing all compulsory and voluntary charges, including delivery charges, postage and handling charges, conveyance charges and the applicable tax;
Provide correct and complete information at the pre-purchase stage to enable buyers to make informed purchase decisions, No direct selling entity shall adopt any unfair trade practice in the course of its business or otherwise and shall abide by the requirements specified in any law for the time being in force.
A direct selling entity and a direct seller shall not induce consumers to make a purchase based upon the representation that they can reduce or recover the price by referring prospective customers to the direct sellers for similar purchases.
Clause 8: Prohibition of Pyramid Scheme & Money Circulation Scheme
No person or entity shall promote a Pyramid Scheme, as defined in Clause 1(11) or enrol any person to such scheme or participate in such arrangement in any manner whatsoever in the garb of doing Direct Selling business.
No person or entity will participate in the Money Circulation Scheme, as defined in Clause 1(12) in the garb of Direct Selling of Business Opportunities.
Quick Points to Remember (according to the Direct selling rules 2021)
Both Direct sellers, as well as the direct selling entities using e-commerce platforms for sale, shall comply with the requirements of the Consumer Protection (e-Commerce) Rules, 2020.
Both Direct selling entities and direct sellers are prohibited from promoting the Pyramid Scheme or money circulation scheme.
State Government to set up a mechanism to monitor or supervise the activities of direct sellers and direct selling entities.
Well laid down duties and obligations for both direct selling entities and direct sellers to safeguard the interests of consumers.
Direct selling entities are to be liable for the grievances arising out of the sale of goods or services by their direct sellers.
It is quite clear and evident till now that pyramid schemes are illegal and they are banned specifically in ‘clause 8’ of the Direct Selling Guidelines 2016 and then in the updated versions of the Direct selling guidelines 2021. We can clearly see that our ministry of consumer affairs has clearly shut the case for “Multi-level marketing” and any sort of money circulation schemes.
The reason behind this is that these schemes are based on hopes of supernatural profits. In real life, there is nothing as easy as money. Innocent people who volunteer who fall for these types of schemes are misguided into investing their hard-earned money and they lose even that. It is to be noted that the latest guidelines (for direct sellers) were released on the 28th of December 2021, this article is based on those press releases.
Watching all the issues that ‘Pyramid schemes’ brings to the table, it has been banned and prohibited by the law. But we all know that clever people always find loopholes and then continue to run these schemes of direct selling and money circulation.
Most of these clever executives follow a pyramid scheme in the name of “Selling a product”, which is just a mask to protect the real predator. The products are super cheap and are of no use, these products are just used to legalise the otherwise illegal business of pyramid schemes. It is a loophole and we alert our readers not to fall for these “Get rich quick” schemes.
FAQ
Why is MLM bad?
Many people who join MLM in the hope of getting rich quickly end up losing all the money they invested and leaves them in debt.
What is an MLM example?
MLM is a business model where companies recruit sales representatives to sell their products who work full- or part-time. Tupperware is an example of MLM.
What is the biggest MLM company?
Amway is one of the biggest MLM companies with a revenue of 8 billion dollars as of 2019.
