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PNB Scam

Why India needs a powerful think tank in economic intelligence to stop Niravs & Mallyas

Whether it’s Vijay Mallya, or former IPL boss Lalit Modi, or diamond merchants Nirav Modi and Mehul Choksi, the tribe of white collar criminals on the run is growing.

, ET Bureau|
Feb 25, 2018, 10.15 AM IST
Govt must hire a reputed IT firm and put in place an intelligence gathering software.
It was early 2008. The then chairman of the Central Board of Direct Taxes (CBDT), R Prasad, wanted to link all securities transaction tax (STT) data to the personal computers in his North Block office. As it turned out, the data — amounting to 81 GB — was humongous for the time, and the technician politely refused the chairman’s order, saying it would only result in the computers crashing.

Had it been thoroughly mined, the data on STT, a direct tax introduced in 2004 and is payable on the value of securities transactions done through stock exchanges, would have possibly given key intelligence leads to the income-tax department on a platter.

Prasad says nothing much has changed in the last 10 years, and the Rs 11,300 crore Punjab National Bank fraud case, in which diamond merchants Nirav Modi and Mehul Choksi allegedly duped the bank before fleeing the country, is as much a failure of intelligence sharing as it’s a case of connivance, greed, faulty audit and laxity on the part of the banking regulator, RBI.

“Does the Central Economic Intelligence Bureau (CEIB) or any other agency have a robust IT system to handle intelligence data gathered from across the country? The government must hire a reputed IT firm and put in place an intelligence gathering software. If an economic crime is committed in a far-flung town, it should automatically get recorded in the central system,” Prasad told ET Magazine.

The CEIB, which Prasad refers to, was created way back in 1985 to coordinate with law enforcement agencies and prepare dossiers of tax evaders, violators of economic laws, white collar criminals, etc. Not just that, according to the agency’s revised charter of 2003, the CEIB is the official think tank among the intelligence agencies on issues relating to economic offences.

The Bigger Picture
But a reality check of the CEIB’s office in Delhi will tell you that it’s too small an organisation to be a national think tank in economic intelligence. Yes, the agency has a handful of outstanding officers; its director-general Mitali Madhusmita, for example, is a senior Indian Revenue Service (Income-Tax) officer. But a team of 40-45 employees, with only 10 of them officers, can’t track economic frauds and white collar crimes from across the country. It does not have an IT system that automatically registers each and every eco-nomic crime committed in every nook and corner of the country. Nor does it receive the RBI’s inspection reports, which are considered critical to analyse bank frauds, like the one in PNB.


Like most other investigative and intelligence agencies, the CEIB does receive data of suspicious bank transactions as provided by the Financial Intelligence Unit, and its DG attends meetings of the committee of large value bank frauds chaired by the secretary of the department of financial services, an arm within the Ministry of Finance. It also receives data from 30 Regional Economic Intelligence Councils (REICs) that are located in most Indian states.

But the bigger point is, despite being the nation’s apex coordinating agency on economic intelligence and the one that acts as the secretariat for the FM-chaired Economic Intelligence Council (EIC), the CEIB does not really have enough bandwidth to deliver results.

The only other agency that’s mandated to be a think tank in economic intelligence gathering is the Directorate General of Goods and Services Tax Intelligence (DGGI), but its mandate is limited to tax evasion alone. It’s not a new organisation, but a replacement of the earlier Directorate General Central Excise Intelligence (DGCEI) after the GST came into force in 2017.

Sharing Information
The problem, however, is not a lack of apparatuses but in the sharing of specific intelligence inputs among a dozen agencies that at times work in silos. The challenge is to spot new trends in economic crimes and deploy effective deterrence. After all, if the finer details of frauds like the one committed by Nirav Modi and Co are not analysed and counter-measures deployed, it will recur, maybe as a variant.


While agencies like the Central Bureau of Investigation (CBI) and the Enforcement Directorate (ED) are considered high-profile as they handle big and sensitive cases and also raid, investigate and prosecute, and are thereby in the spotlight, there are many lesser known entities such as the Economic Offences Wings of the state police and REICs which at times receive early leads on what could later turn out to be big scams.

Then, there are specific agencies such as the Narcotics Control Bureau (NCB) for drugs-related offences and the Directorate of Revenue Intelligence (DRI) for customs-related offences, which too occasionally receive information unrelated to their domain and hence need to be passed on to agencies concerned. For example, if a state police team finds American dollars while raiding a store hoarding cannabis, it’s no longer just a case of seizure of narcotics.

It may well be a bigger money laundering case which only the ED can decipher. But what if that information is not passed on to ED because of the laxity of state police or, possibly, turf battle. But once there’s a central computer system that automatically registers inputs, it will raise red flags.

ET Magazine spoke to two economic sleuths from two economic investigative agencies, two former CBDT chairmen, an ex-chairman of the Central Board of Excise and Customs and a former CBI chief to put together this story. They all agree on one thing: the chor (thief ) is still ahead of the sipahi (soldier), just like in the fable. Though intelligence sharing does take place, there are instances when key information gets stuck due to turf battles or perceived notions that the information is too sensitive to be passed on. Also, the government machinery is too slow to adapt to new technology and that’s where tech-savvy fraudsters easily beat the slow sarkari machinery.

“As far as the recent PNB fraud is concerned, questions are being raised about the conduct of many: the bank’s employees, the bank’s auditors, the Reserve Bank of India, the Comptroller and Auditor General and even income-tax department officials, particularly the assessing officers of Nirav Modi… but the present system can’t act as a deterrent,” says an economic investigator, not wishing to be named.


The government, of late, has stepped up the coordination mechanism among various agencies, but it is still case-specific.

For example, the government in April 2016 constituted a multiagency group comprising the officers of CBDT’s investigation division and foreign tax and tax research division, enforcement directorate, financial intelligence unit, RBI etc, but its mandate is limited to coordinating investigation in cases related to Indians allegedly having undisclosed foreign assets and whose names appeared in the leaked documents called Panama Papers.

As economic crimes by Indians abroad are increasingly getting recorded, India now posts IRS (Income-Tax) officers in Income Tax Overseas Units in New York, London, Tokyo, Paris and Dubai, and IRS (Customs and Central Excise) officers in the US, UK, Singapore, Russia, Brussels et al. But India still needs to strengthen its influence globally and arrest the recent trend of white collar criminals fleeing the country after committing crimes here.

Whether it’s the owner of the now defunct Kingfisher Airlines, Vijay Mallya, or former Indian Premier League boss Lalit Modi, or diamond merchants Nirav Modi and Mehul Choksi, the tribe of white collar criminals on the run is only growing.

“What Nirav Modi has done is nothing less than financial terrorism by robbing money from honest taxpayers. India needs to coordinate better with international agencies so that no civilised nation gives shelter to such financial terrorists,” says DR Karthikeyan, former CBI director.

India needs to preempt such crimes as well. The focus should be on quality intelligence sharing and checkmating the offenders before they even make the first move to escape.

Here are 10 agencies, other than CEIB & DGGI, either gather economic intelligence or investigate, or do both:

1. Enforcement Directorate: Year of Establishment (1956)
Administrative Ministry: Department of Revenue, Ministry of Finance

  • To investigate and prosecute money laundering offences and confiscate proceeds of crime under PMLA
  • Enforces provisions of FEMA and take action against persons or entities involved in international hawala transactions
2. CENTRAL BUREAU OF INVESTIGATION: Year of Establishment (1963)
Administrative Ministry: Department of Personnel

  • To investigate economic offences and important conventional crimes such as murders, kidnapping, terrorist crimes, etc., on a selective basis
  • To undertake the role in international cooperation relating to mutual legal assistance and extradition matters
Administrative Ministry: Department of Revenue, Ministry of Finance

  • To analyse and disseminate information relating to suspect financial transactions.
  • To collect cash transaction reports, suspicious transaction reports, counterfeit currency reports and non-profit organisations’ transaction reports, mainly through banks
4. DIRECTORATE OF REVENUE INTELLIGENCE (1953 as Central Revenue Intelligence Bureau)
Administrative Ministry: Department of Revenue, Ministry of Finance

  • To collect, analyse and disseminate information (mainly smuggling) that violate customs laws, and guide investigation and prosecution
  • To keep liaison with foreign countries, Indian Missions, INTERPOL (through CBI) on anti-smuggling matters

Administrative Ministry: Ministry of Corporate Affairs

  • To detect and prosecute white collar crimes, frauds
  • To investigate complex cases of interdepartmental ramifications and those with public interests mainly in monetary misappropriation

Administrative Ministry: Ministry of Home Affairs

  • To investigate and prosecute scheduled offences, in particular offences under the Unlawful Activities (Prevention) Act, including financing of terrorism
  • To maintain a database of all terrorist-related information and share it with the states and other agencies
Administrative Ministry: Ministry of Home Affairs

  • To coordinate actions by Central and state government offices under the Narcotics Drugs and Psychotropic Substances (NDPS) Act 1985, Customs Act, Drugs and Cosmetics Act
  • To undertake counter measures against illicit drug traffic under international conventions and protocols
Administrative Ministry: Ministry of Home Affairs

  • To function as a repository of information on crime and criminals
  • To assist investigators in linking crime to the perpetrators
9. CENTRAL BOARD OF DIRECT TAXES: DG-Investigation (1963)
Administrative Ministry: Department of Revenue, Ministry of Finance

  • To deal with investigations to detect tax evasion and carry out operations such as surveys and searches.
  • To create deterrence against tax evasion

10. STATE POLICE AGENCIES - Economic Offences Wings (Different years for different states)
Administrative Ministry: State governments

  • To operate specialised units within each state police to combat economic offences
  • To investigate serious economic offences and those having inter-state ramifications, and guide district police on matters related to financial crimes
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