Bill discounting frauds

Bill discounting fraud refers to a type of fraud in which a fraudster presents himself/herself as a genuine, profitable customer before a bank by using a company. After that the company will regularly and repeatedly use the bank to get payment from one or more of its customers and thereby give the bank the picture of a desired customer. Since the customers in question are part of the fraud these payments are always made. They will also actively pay any and all bills raised by the bank. Eventually, when the bank is happy with the company, the company will request the bank to settle its balance with the company before billing the customer. Even after this, the fraudulent company will carry on business along with its fraudulent customers and the unwitting bank. When the outstanding balance between the bank and the company is sufficiently large, the company will take away the payment from the bank. Subsequently the company and its customers will disappear leaving no-one to pay the bills issued by the bank.

Some major bill discounting frauds:

ABC Cotspin Private Limited

The Enforcement Directorate (ED) had attached properties worth Rs 14.5 crore of Gujarat-based textile export firm ABC Cotspin Pvt Ltd for defrauding two banks of Rs 804.49 crore by availing bill discount facilities in 2014-15 against Letters of Credit (LCs). The agency attached two immovable properties -- one at Regent Chambers in Nariman Point in Mumbai and the other at Nikumbh Complex in Ahmedabad -- worth Rs 14.50 crore. The properties had been attached against the amounts remitted outside India and the action was taken under Prevention of Money Laundering Act. ABC Cotspin siphoned off Rs 79.49 crore out of India on the pretext of false imports, which never took place.

In 2018, the ED had launched an investigation into the case against the firm, its director Ashish Sureshbhai Jobanputra, his wife Preeti and others, based on a Central Bureau of Investigation (CBI) FIR registered in 2015. In March 2016, the CBI also issued a red corner notice against the fugitive businessman, who along with his family left India and settled in the United States just after the fraud. Inquiries against Jobanputra are also contemplated under the Fugitive Economic Offenders Ordinance 2018. The Directorate officials had identified Jobanputra as the mastermind in the fraud. Jobanputra and his firm ABC Cotspin are accused of hatching a criminal conspiracy along with the officials of a Bank of Baroda (BoB) branch in Ahmedabad and a State Bank of India (SBI) branch in Gondal city in Gujarat to defraud the banks of Rs 804.49 crore by availing bill discounting facilities from these branches against LCs of prime banks. The company is accused of causing losses to the tune of nearly Rs 374 crore to the BoB and Rs 430 crore to the SBI by presenting over 400 bills of lading, manufactured internally at different points of time in 2014-15.

?Modus operandi:

• During the investigation, it was found that, Jobanputra, without making any genuine export, got prepared and signed the export documents like commercial invoice, certificate of origin, certificate of quality, certificate of quantity, phytosanitary certificate, packing list, bills of exchange, request letter to SBI for discounting the bills.
• He also got prepared bills of lading by shipping agents like Seamax Logistics, Far Sailing Shipping Company and United Container Lines, and presented those to SBI and BoB.

?Loopholes/Lapses:

• The investigation revealed that the bank officials of SBI and BoB discounted the export bills without proper scrutiny, without ensuring that the shipping bills were issued by the customs authorities, which is mandatory.
• The bank officials also discounted export bills on the basis of LCs issued by Industrial and Commercial Bank of China, which was restricted.

Systemic Improvement:

• The senior bank officials must review loans and advances periodically to strengthen the internal control over such cases.
• Monitoring of systems and MIS generation has to be strengthened. Housekeeping and internal control of banks also have to be strengthened.

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