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Income - Tax Department investigating Citibank fraud case
March, 09th 2011

The income tax department is probing the source of deposits of 20 high net-worth customers affected by the 400 crore fraud at Citibank's Gurgaon branch.

The investigation directorate of the department has initiated enquiries in this regard, the minister of state for finance, SS Palanimanickam, informed the Rajya Sabha on Tuesday. He also said that the enforcement directorate was investigating if the case involved money laundering.

The move also puts some corporate houses, such as Hero Group, OKS Sapan Tech and Satyam Auto, under the scanner of the income tax department, which will be looking for tax evasion. The employee fraud, involving transactions of around 400 crore, was detected last December. Investigations into the scam are being led by Harayana Police.

Citibank had said earlier that it was 'in the process of working towards a fair compensation' for impacted customers. According to police, corporates such as Delhi-based Hero Group had invested 200 crore in the account of the main accused, Shivarj Puri, while 100 crore had been invested by individuals.

Other companies named include OKS Sapan Tech and Satyam Auto. The Hero Group had issued a statement saying its exposure to the scam was just 28.75 crore and that investments were made by its entities. Police had later arrested Sanjay Gupta, associate vice-president of Hero Corporate Services, on charges of forging documents and criminal conspiracy.

An enquiry had also been initiated by market regulator Securities and Exchange Board of India (SEBI) into the possibility of share price manipulation and involvement of brokerages. Puri had invested the money in five major brokerages, including Religare, Okaya and Bonanza. According to the finance ministry, a forensic audit has also been initiated by Ernst & Young at the initiative of Citibank. The bank has conducted an internal investigation through Citi Security and Investigation Services.

The RBI has conducted a special scrutiny of the related accounts at Citibank, Gurgaon (branch) and other connected accounts at other banks.

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