Banks to refer export default cases to ED: RBI

Banks should run checks on clients for compliance with KYC and anti-money laundering rules; doubtful cases and should be referred to the ED

With a rise in chronic cases of exporters failing to execute orders on time, the Reserve Bank of India (RBI) has asked banks to rope in the Enforcement Directorate (ED) to further investigate such defaults.

Although an RBI circular issued on Monday made no mention of any bank, news agency Reuters quoted unnamed central bank sources as saying it was related to a probe into suspected misuse of up to $3.2 billion in export advances paid out by Kolkata-based UCO Bank.

A UCO bank official told Business Standard the bank was assisting the ED, but declined to divulge details.

“We have observed that some of the exporters are receiving advance payments but their exports are remaining overdue for a long period. This is not restricted to Iran. We have been discussing this issue informally even before the RBI released the circular,” said a senior official of UCO Bank.

Under a provision in the US sanctions law, Iran can accumulate oil export revenues with its Asian buyers and use the funds to buy essential imports.

Reuters also quoted ED sources as saying a group of nine Iranians who entered India on student visas set up shell companies in an Indian city to tap into these funds held at UCO Bank.

UCO Bank’s chairman and managing director Arun Kaul and executive director Jai Kumar Garg were not available for comments.

RBI asked commercial banks to efficiently follow up with exporters to ensure performance of orders, including shipment in case of goods, within a stipulated period. Banks should run checks on clients for compliance with know-your-customer (KYC) and anti-money laundering rules. doubtful cases and clients who are chronic defaulters should be referred to the ED, RBI said.

The banking regulator also asked banks to tighten monitoring of export finance deals after investigators uncovered an invoicing scam they suspect is part of a multi-billion-dollar scheme to exploit Western financial sanctions against Iran.