NSEL crisis: Probe indicates money laundering violations

PTI New Delhi | Updated on March 12, 2018 Published on September 29, 2013

In a fresh twist to the NSEL payment crisis, regulators now suspect that large-scale money laundering might have taken place through the exchange and the funds involved in such activities could be much more than the reported default amount of Rs 5,600 crore.

Those under scanner include many brokers, their HNI clients and some top officials of the National Spot Exchange Ltd (NSEL).

It is suspected that the necessary safety mechanism required to check money laundering activities could have been missing in their conduct, thus permitting large-scale movement of funds for illicit gains and the quantum of the money involved is feared to be at least a few billions dollars, sources said.

Although NSEL and its activities do not fall under SEBI’s jurisdiction, the capital market regulator has been looking into the matter for possible violation of rules governing brokers, portfolio management activities, insider trading, listing agreement, fraudulent and unfair trade practices, and the norms for promoter entities for stock exchanges.

Initial investigations have suggested violations on the part of certain brokers, as also many of their clients, including high networth individuals and corporate bodies, who are active in different segments of capital markets, sources said.

Under SEBI regulations, brokers and other entities operating in the market are required to put in place strong checks against any money laundering activities, but these safeguards could have been either compromised or completely missing in this case, they added.

NSEL was promoted as a spot trading platform for agriculture and other commodities, but soon it is suspected to have begun providing trade in complex forward financial products.

Its promoter entity FTIL has also set up commodity exchange MCX, as also the country’s newest stock exchange MCX-SX.

The group has two listed entities, FTIL and MCX.

A possible collusion between the exchange officials, brokers and clients, including HNIs and politically connected entities, has already come to the fore in the NSEL matter that is being probed by multiple agencies and regulators.

Preliminary investigations conducted by SEBI and inputs from other regulators and Government Departments suggest that some brokers were offering structured financial products to their HNI clients under some portfolio investments schemes for high returns of 10-20 per cent.

The brokers are believed to have been working in close coordination with some top officials at NSEL, as also certain other group entities, while many of the clients could also have been in the loop about such structured products being in contravention of the extant norms, a senior official said.

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Published on September 29, 2013
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