Of Hawala and Halal

Raids on meat exporter Moin Qureshi and former CBI head Amar Pratap Singh may put the spotlight on several former ministers, current ones and political middlemen. 

By Shantanu Guha Ray

On a balmy February morning this year, the income tax department swooped on a palatial home of an influential meat exporter on the southern fringes of the capital. It had to conduct a raid to establish that the owner was involved in illegal transfer of cash from India to Britain via Dubai and France. The raid party worked on a tip-off from the British Revenue Intelligence Authority in London.

Before the raid, IT department had done its homework and taped hours of conversation between the owner and other influential people. Hence, they were sure they would find disproportionate assets worth hundreds of crores of rupees. Eyewitnesses claim that the IT officers were initially hesitant. After all, the owner was one of Delhi’s most influential networkers. He seemed to have a hotline to the entire UPA-II cabinet, and was certainly not a small-time tax evader.

After a 20 minute wait, the officers sweet-talked their way into the portico. Once inside, their eyes gawked as the interiors looked like the proverbial Xanadu, a hill-top resort of princess Narda and Mandrake the magician, the 1934 comic characters created by Lee Falks, who also created Phantom. The flooring of the 25,000-square-foot home was of local marble, and the rooms were full of Empire-style tables. There were Venetian-glass pendants, gold-leaf mirrors, Italian urns and benches inspired by 18th-century French designs. The officers were told that the home was designed by the Paris-based Jean-Louis Deniot, a global interiors’ star.hawala3

The raid began. There was chaos, as residents and staff refused to cooperate and threatened to call “powerful contacts”. Eventually, the six-seven-hour search yielded “highly incriminating documents”. Within a few hours, the IT officials put the owner, Moin Qureshi, a meat exporter and fondly called “God” by his friends because of his proximity to the rich and famous, on the list of hawala suspects. Probably for the first time, “God”, who has family roots in Uttar Pradesh’s Rampur, famous for scissor knives and home-bred hounds, looked vulnerable.

The officers told Qureshi that they had recorded over 350 hours of conversation he had with politicians, trouble-shooters and corporate chieftains that pointed at a huge trail of illegal cash movement from India to Europe. Qureshi was informed that there would be more raids on his offices, and at the homes of his senior employees. The IT officers seized over Rupees 6 crore in cash and 20 lockers that were in the name of Qureshi’s employees. Qureshi admitted the lockers with huge amounts of cash belonged to him. But he did not say if he owned the cash; it triggered speculation that he may have held the money that belonged to politicians and businessmen. Finance ministry officials alleged that Qureshi had evaded taxes to the tune of Rupees 157 crore.

The news made great copy for the Bharatiya Janata Party (BJP) during the election campaign, especially as Qureshi was believed to be close to UPA-II ministers. At a rally in Uttar Pradesh, Narendra Modi, now the country’s prime minister, called it “India’s biggest hawala scandal”, and added that the “tapes (of conversations) would put a number of (UPA-II) cabinet ministers and corporate captains to shame.”

This was only the beginning. Among Qureshi’s friends was a senior politician in BJP, who got a key cabinet portfolio in the new government, and a middleman, who has handled cash for other BJP politicians. It was turning out to be a scam that could take both the Congress and BJP down. This was possibly the reason that BJP did not go hammer and tongs against the meat exporter during the election campaign.

Qureshi was in close touch with former Congress minister Matang Singh, who recently courted trouble when he received Rupees 62 crore from West Bengal chit fund scamster Sudipto Sen, but failed to transfer the shareholding of his news channel to the latter. The channel was sold to industrialist and Congress MP Naveen Jindal. The Company Law Board ordered a probe into the sources of funds of both Matang Singh and Jindal.Hawalahawala2

Speculation was rife that Qureshi, who was to finance a movie by director Muzaffar Ali and launch his daughter Pernia in Bollywood, could have benefitted when realtor Ponty Chadda was murdered by his brother. Chadda was his neighbor in capital’s Chhatarpur, which has huge farm houses. They were friends, and both hailed from neighboring towns in Uttar Pradesh. Both shared their network among politicians, and Qureshi allegedly helped Chadda to pump huge sums in Dubai’s realty.

The IT department also raided Amar Pratap Singh, former director of the Central Bureau of Investigation (CBI) and now a member of the Union Public Service Commission. Singh, who was known as an honest officer during his CBI tenure, handled hottest potatoes, such as coal block allocation scam and 2G spectrum scandal that sent former cabinet ministers and CEOs to Tihar jail. Singh was CBI chief from 2010 to 2012; his wife Shabnam is the daughter of Congress politician Mohsina Kidwai.

IT officials alleged that Qureshi worked as a middleman for Singh and accepted bribes that were paid to settle sensitive cases handled by CBI. The meat exporter transferred the money through hawala to accounts in Dubai, and eventually in London. More than two months after the raid, there were reports that the IT department had accessed Black-berry Messenger (BBM) exchanges between Qureshi and Singh.

Initially, Singh termed the messages as “innocuous’’ and “non-incriminatory’’. How-ever, when the BBM messages were published, they revealed that Qureshi asked for Singh’s help in connection with a project linked to a top industrialist, to get security clearance from the Intelligence Bureau director, and to reach out to former cabinet minister Kamal Nath for a golf club membership. Singh leaned on Qureshi to buy items for his house like carpets, furniture, garden umbrellas and spectacles.

Troubled and shocked, Singh rushed to the then finance minister, P Chidambaram, who curtly retorted that investigations must continue. In a brief telephonic conversation with India Legal, Singh confirmed the raid but refused to comment further. Sources said Singh’s name cropped up after they recovered his official letterheads and visiting cards as well as attested copies of his identity cards during the Qureshi raids.

India’s biggest hawala scandal is getting murkier and murkier. “I have no comments to offer on an ongoing investigation,” says KV Chaudhary, a top investigating officer of the Central Board of Direct Taxes. He adds that the Directorate of Revenue Intelligence (DRI) has joined the probe, which means it would expand across the country’s borders to other cities like Dubai and London.

Reports indicate that Qureshi tried to contact the current CBI director, Ranjit Sinha. A portal, http://www.fashionscandal.com, reported Qureshi attended film producer Bunty Chawla’s daughter’s wedding and told friends he would come out clean from the hawala mess. “I am untouchable. They can’t touch me. The income tax department has no proof against me,” the portal quoted an inebriated Qureshi telling his friends.

Despite economic reforms over the past two decades, hawala has thrived. At the heart of it, it is not very different from normal banking; a settlement process to circumvent banking regulations. “It has never stopped, it will never stop,” says a former DRI head. The official, who spoke on conditions of anonymity, explains that at the bottom of the illegal business is compelling business logic.

Consider the case of the minimum export price (MEP) that the government has imposed on basmati rice. It implies that no exporter can sell below the MEP. Ironically, while the MEP is $900 per ton, the global market price is $700. How can the Indian exporter ask buyers to pay a higher-than-market price? How can the former continue to compete in the international market? This is where hawala helps.

The exporter’s invoice is for a higher price, which is paid by the buyer. Once the money has come into India, the difference between MEP and market price, i.e. $200 per ton, is funnelled back to the buyer through hawala. Similar is the case with metal exporters, who often indulge in over-invoicing of their transactions. The finance ministry and RBI have blamed hawala for inflated export data.

Recently, Rajvardhan Sinha, additional commissioner of the economic offences wing of the Mumbai Police, tracked movement of almost `100 crore from Mumbai to Dubai through hawala. It seemed to be related to the `5,574 crore payment crisis at the National Spot Exchange Limited (NSEL). “The huge cash withdrawals point at hawala transactions,” Sinha said in an interview in Mumbai. He said a forensic audit team had checked the accounts and other documents of Anand Rathi Commodities Ltd, an arm of the brokerage firm, Anand Rathi Financial Services Limited.

A spokesman of Anand Rathi Financial Services said in an e-mail reply: “We have, and will always extend complete co-operation and assistance to the regulator in their investigation, putting all our efforts and diligence to get our clients’ money recovered.”

“We cannot solve such cases overnight, it will take a long time. We need inputs, especially from Dubai banks,” Sinha explains. He adds that NSEL investors, whose cash was trapped in the crisis, had to wait till investigations reached a logical end.

“We suspected this. Most of the borrowers in the NSEL crisis were shell companies purposely used to launder money abroad or locally,” says Ketan Shah, an investor, admitting it will be a long haul before investors could get their money back. “And the delay is only because cash has gone out of India through hawala. Tracking it is a herculean task,” Shah says in an interview to India Legal in Mumbai.

Hawala is used to get around currency controls in various countries, including India. The rupee is not fully convertible. Thus, it’s impossible for Indian traders to hedge their currency transactions. But leading international banks in Singapore, London, Dubai and Hong Kong offer non-deliverable forward contracts in the rupee that are designed to wriggle around Reserve Bank of India’s controls.

Once the contract expires, the difference between the contract exchange rate and the prevailing spot market rate is paid either to the trader or the bank. If the trader has to pay the bank, he or she has to use the hawala route and dummy companies abroad to send the money out. It is an offshore market, hence out of RBI control.

“It is a system that works through brilliant minds, and trust,” quips a senior communications person with one of India’s leading infrastructure group. He remembers an incident during his days at a top advocacy firm, when he got the global CEO of South Africa’s Rand Corporation to meet Delhi’s biggest hawala trader. The visitor, an Afrikaan with Dutch origin, was in for a shock when he entered the two room apartment of the hawala trader in Delhi’s crowded Daryaganj neighborhood.

In one room, there was gold and silver, stacked in boxes and gunny bags holed by rats and, in the other room were bundles of cash, stacked against the wall with markings notifying the amount in each of them. “The Afrikaan was zapped when told that the person sitting across the table kept track of both cash and bullion movement in a small diary with a half broken pencil,” says the communications professional. “He should have been with Morgan Stanley. The diary must be very vital, right?” said the visitor.

The tell-tale signs of hawala are all over the place and in every sector. Consider this:

  • In Delhi, there are over 100 big money launderers, each with a daily business of  20-30 crore. In Delhi alone, illegal transactions are to the tune of  500 crore every day. 

  • Mumbai, Kolkata, Kochi, Ahmedabad and Delhi account for the bulk of hawala transactions. The daily deals are estimated at `5,000 crore and the annual figure is pegged at `18,25,000 crore.

  • In India, 35,000 tons of illegal gold and 200,000 tons of silver is sold every year.

  • Nearly 40 percent of real estate deals are in black and bulk of the money is routed through hawala.

  • Routinely, cash is laundered by manufacturers of tobacco products.

  • Diamond and gold merchants are heavily into round tripping, whereby domestic funds come back into India as foreign investments through tax havens. This may account for 25 percent of annual FDI inflows.

Ajay Agnihotri, a retired finance ministry director, describes the first huge hawala case that made the headlines in the 1980s, and which proved that such cases tend to lose momentum because of political and other interferences. This happened when Amrit Lal Seth was arrested and the DRI found foreign exchange, imported liquor, gold and silver, and a diary that had names of ministers, bureaucrats, lawyers, businessmen and judges. He knew several Bollywood personalities and encouraged a top Hindi journalist to pen a classic soap opera, Hum Log, for Doordarshan.

However, Seth walked free on August 1, 1986, when the then chief justice of India, Prakash Narain, concluded that there was no evidence against him. The DRI pushed the government to file a special leave petition and fight the case again, but in vain. “No one could get to the bottom of the case. In India, some hidden pressures always prevent the biggest investigations,” rues Agnihotri.

“Nothing can happen, and nothing will happen in hawala cases because everyone is a part of the gravy trail. In most cases, investigations are delayed or hushed up,” explains Vineet Narain, a journalist whose investigations in the mid 1990s led to the arrest of SK Jain, a businessman. During the search of Jain’s residence, a dairy was recovered that mentioned payments of around $18million. The names of the recipients were in initials, which allegedly matched those 115 top politicians and bureaucrats.

“How can you track and monitor hawala when it has become a part of the country’s system? The system encourages hawala, and stops investigations because the business must continue,” says the former DRI head. He adds that during his tenure as the DRI head, hawala was routine; cases were acted upon and eventually ignored because of “external pressures”. Agrees former Delhi police commissioner BK Gupta, who adds that the key to controlling hawala revolves around path-breaking investigation.

“If investigations take their logical course and put people behind bars, we could see some action on hawala cases. But somehow that does not happen, cases drag on for years and then the courts lose interest,” says former Delhi police commissioner Neeraj Kumar. He explains it would be unfair to put the blame on a single agency but admits that the involvement of multiple agencies slows down an investigation process.

In fact, over the years, the illegal hawala has morphed with white economy in such a manner that most deals are merely shades of grey. Hawala seems seamlessly attached to legal trades.


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