ED searches Deloitte, BSR offices in IL&FS money laundering probe

The Enforcement Directorate (ED) on Wednesday carried out searches at Mumbai offices of two audit companies — Deloitte Haskins and Sells and KPMG-affiliated firm BSR & Associates — in connection with a money-laundering probe into alleged financial irregularities at IL&FS, a senior official told Business Standard. 

The searches were also conducted at the office and residences of former partners of these two audit firms responsible for statutory audit of IL&FS Financial Services (IFIN), a group company of IL&FS, who filed for bankruptcy in 2018.

This is following the Supreme Court order setting aside a Bombay High Court verdict that quashed an SFIO probe against the two companies, paving the way for action against them under the Companies Act and allowing the National Company Law Tribunal (NCLT) to take forward its enquiry against them.

The ED had initiated the money-laundering probe into the alleged financial irregularities at IL&FS in 2019 after the federal agency took cognisance of a Delhi Police Economic Offences Wing (EOW) FIR filed against IRL, ITNL (group companies of IL&FS), and their key managerial personnel (KMPs).

The ED also took cognisance of a complaint filed by the SFIO against IFIN and its officials. 

According to ED, statutory audit of IFIN has been made by Deloitte Haskins & Sells LLP between FY09 and FY18 and by BSR & Associates for FY18.  

“Udayan Sen (CA) and Kalpesh Mehta (CA) were the engagement partners of Deloitte Haskins & Sells LLP and N Ganesh Sampath was the partner of BSR & Associates. Both audit firms were appointed by IFIN to make statutory audits and identify errors, omissions, and irregularities in books of accounts of the company and to ensure financial statements of the company are in compliance with widely accepted accounting rules,” the ED said. 

The agency’s findings showed that both auditors were aware of funding provided by IFIN to defaulting borrowers through their group companies repeatedly. The auditors were also aware of the NPA of IFIN, suppression of provisioning of NPA, non-write-off of loan loss investments by IFIN and other dubious and illegal practices being adopted at IFIN through the coterie of the KMps of IFIN. 

“The auditors, despite being aware of all the dubious and illegal practices adopted by the KMPs of IFIN for their own personal illegal gain, did not report the same despite being statutorily obliged to do so,” the ED said. 

This led to the auditor conniving and colluding with the key managerial personnel of IFIN to conceal material information and in knowingly and fraudulently falsifying the books of accounts and financial statements from FY14 to FY18, the agency findings said.

The ED is of view that the auditors deliberately and knowingly did not report the true state of affairs of the company and helped in ever-greening of loans availed IL&FS Group, which resulted in causing loss to the creditors of the company who had lent and invested in the NCDs of the company. 

Sen, Mehta, and Ganesh were accused in the complaint of SFIO.