The operations of shady multi-level marketing (MLM) companies — which operate what are popularly known as pyramid or ponzi schemes — have come under the regulatory scanner with shady MLM companies mushrooming across the country and duping investors. Many firms posing as MLM agencies for consumer goods and services have been actually mobilising large amounts of deposits from the public with promises of ridiculous returns of 120 per cent and repayment of prinicipal within a year.
In a circular, the Reserve Bank of India has alerted banks that in cases where accounts have already been opened in the names of the marketing agencies, retail traders and investment firms, the banks should undertake quick reviews. “Wherever large number of cheque books has been issued to such firms, the relative decision may be reviewed,” it said.
With many MLM companies recently using the banking technology to dupe investors, the RBI said, “banks should be careful in opening accounts of the marketing/trading agencies etc. Especially, strict compliance with KYC (know your customer) and AML (anti-money laundering) guidelines issued by the RBI should be ensured in the matter.”
The banking regulator also named seven MLM companies (Fine India Sales Pvt Ltd, Lakshya Levels Marketing, Eve Industries, Trident Advertising & Trade Links Pvt. Ltd, Super Life Link Distributors, Lue Brain Education Society and Manya Mantra Marketing). “These firms and their agents had reportedly promised very high returns on deposits and lured common people to part with funds in the name of certain investment/deposit schemes,” the RBI said.
The Reserve Bank of India has asked banks to tighten the internal policy for fraud risk management and fraud investigation function as the incidence of frauds in Indian banks has been showing an increasing trend, especially in housing and mortgage loans, credit card dues and internet banking. “It is a matter of concern that instances of frauds in the traditional areas of banking such as cash credit, export finance, guarantees, letters of credit etc remain unabated,” the RBI said a year after the surfacing of the global financial crisis.
In a circular, the Reserve Bank of India has alerted banks that in cases where accounts have already been opened in the names of the marketing agencies, retail traders and investment firms, the banks should undertake quick reviews. “Wherever large number of cheque books has been issued to such firms, the relative decision may be reviewed,” it said.
With many MLM companies recently using the banking technology to dupe investors, the RBI said, “banks should be careful in opening accounts of the marketing/trading agencies etc. Especially, strict compliance with KYC (know your customer) and AML (anti-money laundering) guidelines issued by the RBI should be ensured in the matter.”
The banking regulator also named seven MLM companies (Fine India Sales Pvt Ltd, Lakshya Levels Marketing, Eve Industries, Trident Advertising & Trade Links Pvt. Ltd, Super Life Link Distributors, Lue Brain Education Society and Manya Mantra Marketing). “These firms and their agents had reportedly promised very high returns on deposits and lured common people to part with funds in the name of certain investment/deposit schemes,” the RBI said.
ASKS BANKS TO TIGHTEN FRAUD RISK MANAGEMENT
The Reserve Bank of India has asked banks to tighten the internal policy for fraud risk management and fraud investigation function as the incidence of frauds in Indian banks has been showing an increasing trend, especially in housing and mortgage loans, credit card dues and internet banking. “It is a matter of concern that instances of frauds in the traditional areas of banking such as cash credit, export finance, guarantees, letters of credit etc remain unabated,” the RBI said a year after the surfacing of the global financial crisis.
From RBI
Adherence to KYC/AML guidelines while opening and conduct of the accounts of Multi Level Marketing firms
RBI/2009-10/158
UBD. CO. BPD. PCB.Cir. No.9/12.05.001 / 2009-10
September 16, 2009
The Chief Executive Officers of
All Primary (Urban) Co-operative Banks
Dear Sir/Madam
Adherence to KYC/AML guidelines while opening and conduct of the accounts of Multi Level Marketing firms
It has come to our notice that certain firms posing as Multi Level Marketing (MLM) agencies for consumer goods and services have been actually mobilizing large amounts of deposits from the public with promise of high returns. The names of some of these firms are:
Fine India Sales Pvt. Ltd.
Lakshya Levels Marketing
Eve Industries
Trident Advertising & Trade Links Pvt. Ltd.
Super Life Link Distributors
Lue Brain Education Society
Manya Mantra Marketing
2. The representatives of the above firms had opened accounts at various bank branches at different locations in the country and numerous small cash deposits were being made in those accounts. The firms and their agents had reportedly promised very high returns on deposits and lured common people to part with funds in the name of certain investment/deposit schemes. These funds, running into crores of rupees, were being pooled at the Principal Accounts of the MLM firms and the funds were eventually flowing out of those Principal Accounts for purposes apparently illegal or highly risky. These firms had managed to get very large number of cheque books issued from the banks and they have, in turn, issued to the depositors, post dated cheques for small amounts representing future interest dues and deposit payments. The small depositors were depositing the money in the accounts of MLMs at places far away from the places where the accounts were actually opened which was facilitated by Core Banking Solution (CBS) offered by the banks. Since the operations of the firms are essentially deposit taking activities involving unusually high returns, the ongoing repayments of interest and deposit amounts in respect of existing deposits would depend on continuous and uninterrupted flow of fresh deposits with increasing volumes. Therefore, at some stage, the flow of deposits is bound to be stifled and post dated cheques tendered thereafter would bounce, due to inadequate funds available in the accounts.
3. Some of the above firms were advertising their deposit schemes through websites. A few such website addresses are:
http://www.alaskaindia.net/business_plan.html
http://www.fineindia.net/
Preliminary reports reveal that the names of the banks, where the MLM firms or their agents were maintaining accounts were getting associated with such operations of MLM firms. This has potential reputational risk for the banks, especially in the event of the firms failing to repay the depositors. Incidentally, as it appears, during personal contacts with the prospective depositors some of these MLM firms or their agents had used the name of the banks where they had accounts.
4. In view of the above, we advise that banks should be careful in opening accounts of the marketing/trading agencies etc. Especially, strict compliance with KYC and AML guidelines contained in circulars UBD.CO.BPD (PCB) No. 1/12.05.001/2008-09 dated July 02, 2008 and UBD.PCB. Cir. 30/09.161.00/2004-05 dated December 15, 2004 issued by RBI should be ensured in the matter.
5. In cases where accounts have already been opened in the names of the marketing agencies, retail traders, investment firms, the banks may undertake quick reviews. Wherever large number of cheque books has been issued to such firms, the relative decision may be reviewed in the light of the following:
Whether the cheque books have been issued to customers on the basis of their express request and after following the internal processes laid down in the matter.
Whether the number of cheque books is consistent with/matching the profile of the customers as also their nature of business operations.
6. Even where the volume of transactions/profile of the customers apparently justify the number of cheque books issued, special ongoing monitoring of the operations in the accounts of such types of firms should be made especially if large volumes of small cash deposits are being made in those accounts and withdrawals are being made there from, through cheques written for small amounts, either across the counters or through clearing. In respect of such account holders banks may, in specific cases, call for the data from the account holders on the number and aggregate amount of post dated cheques issued. The data/information so collected should be analysed in select cases to rule out the possibility of the firms being engaged in deposit taking activities. Certain indicative parameters for selecting accounts for further scrutiny and action are the bunching of dates of the post dated cheques, the uniformity in the amounts of cheques etc. These data should be analysed together with data on cash deposits of small amounts on previous distant dates resembling the deposit contracting/mobilizations dates in terms of similar bunching and uniformity of amounts.
7. Please acknowledge receipt. Also, unusual operations noticed during the above review may be immediately reported to us and other appropriate authorities, such as, Financial Intelligence Unit (FIU-IND), Department of Revenue, Ministry of Finance, Government of India, Hotel Samrat (6th Floor), Chanakyapuri, New Delhi - 110 021.
RBI/2009-10/158
UBD. CO. BPD. PCB.Cir. No.9/12.05.001 / 2009-10
September 16, 2009
The Chief Executive Officers of
All Primary (Urban) Co-operative Banks
Dear Sir/Madam
Adherence to KYC/AML guidelines while opening and conduct of the accounts of Multi Level Marketing firms
It has come to our notice that certain firms posing as Multi Level Marketing (MLM) agencies for consumer goods and services have been actually mobilizing large amounts of deposits from the public with promise of high returns. The names of some of these firms are:
Fine India Sales Pvt. Ltd.
Lakshya Levels Marketing
Eve Industries
Trident Advertising & Trade Links Pvt. Ltd.
Super Life Link Distributors
Lue Brain Education Society
Manya Mantra Marketing
2. The representatives of the above firms had opened accounts at various bank branches at different locations in the country and numerous small cash deposits were being made in those accounts. The firms and their agents had reportedly promised very high returns on deposits and lured common people to part with funds in the name of certain investment/deposit schemes. These funds, running into crores of rupees, were being pooled at the Principal Accounts of the MLM firms and the funds were eventually flowing out of those Principal Accounts for purposes apparently illegal or highly risky. These firms had managed to get very large number of cheque books issued from the banks and they have, in turn, issued to the depositors, post dated cheques for small amounts representing future interest dues and deposit payments. The small depositors were depositing the money in the accounts of MLMs at places far away from the places where the accounts were actually opened which was facilitated by Core Banking Solution (CBS) offered by the banks. Since the operations of the firms are essentially deposit taking activities involving unusually high returns, the ongoing repayments of interest and deposit amounts in respect of existing deposits would depend on continuous and uninterrupted flow of fresh deposits with increasing volumes. Therefore, at some stage, the flow of deposits is bound to be stifled and post dated cheques tendered thereafter would bounce, due to inadequate funds available in the accounts.
3. Some of the above firms were advertising their deposit schemes through websites. A few such website addresses are:
http://www.alaskaindia.net/business_plan.html
http://www.fineindia.net/
Preliminary reports reveal that the names of the banks, where the MLM firms or their agents were maintaining accounts were getting associated with such operations of MLM firms. This has potential reputational risk for the banks, especially in the event of the firms failing to repay the depositors. Incidentally, as it appears, during personal contacts with the prospective depositors some of these MLM firms or their agents had used the name of the banks where they had accounts.
4. In view of the above, we advise that banks should be careful in opening accounts of the marketing/trading agencies etc. Especially, strict compliance with KYC and AML guidelines contained in circulars UBD.CO.BPD (PCB) No. 1/12.05.001/2008-09 dated July 02, 2008 and UBD.PCB. Cir. 30/09.161.00/2004-05 dated December 15, 2004 issued by RBI should be ensured in the matter.
5. In cases where accounts have already been opened in the names of the marketing agencies, retail traders, investment firms, the banks may undertake quick reviews. Wherever large number of cheque books has been issued to such firms, the relative decision may be reviewed in the light of the following:
Whether the cheque books have been issued to customers on the basis of their express request and after following the internal processes laid down in the matter.
Whether the number of cheque books is consistent with/matching the profile of the customers as also their nature of business operations.
6. Even where the volume of transactions/profile of the customers apparently justify the number of cheque books issued, special ongoing monitoring of the operations in the accounts of such types of firms should be made especially if large volumes of small cash deposits are being made in those accounts and withdrawals are being made there from, through cheques written for small amounts, either across the counters or through clearing. In respect of such account holders banks may, in specific cases, call for the data from the account holders on the number and aggregate amount of post dated cheques issued. The data/information so collected should be analysed in select cases to rule out the possibility of the firms being engaged in deposit taking activities. Certain indicative parameters for selecting accounts for further scrutiny and action are the bunching of dates of the post dated cheques, the uniformity in the amounts of cheques etc. These data should be analysed together with data on cash deposits of small amounts on previous distant dates resembling the deposit contracting/mobilizations dates in terms of similar bunching and uniformity of amounts.
7. Please acknowledge receipt. Also, unusual operations noticed during the above review may be immediately reported to us and other appropriate authorities, such as, Financial Intelligence Unit (FIU-IND), Department of Revenue, Ministry of Finance, Government of India, Hotel Samrat (6th Floor), Chanakyapuri, New Delhi - 110 021.
The state Crime Branch on Wednesday claimed to have busted a multi-crore scam involving fake marketing companies and chit funds. Police said they have frozen bank accounts worth Rs 107 crore and arrested one person in this connection.SP (Crime Branch) Santosh Bala said sleuths from the department had arrested Saroj Kumar Samanta (30) from Akandi in Balasore district's Singla police station area on Tuesday.
"Samanta had been running a fake company, Dream Achiever, since April 14 by hosting a website www.dreamachiever.in. Though he was operating the company from Balasore, he had given a Delhi address," the SP said.
DSP (Crime Branch) Pramod Kumar Panda, who led the investigation, said Dream Achiever duped public by promising them to triple their money within a year. The trick had worked and around Rs 4.46 crore was deposited into the accounts of Dream Achiever within a short span of time. "The scheme came with offers for prospective investors, who were promised special discounts for introducing two other depositors," Panda said. The Crime Branch investigation came in the wake of several complaints lodged with Balasore police by money losers. After a preliminary investigation, SP (Balasore) Rekha Lohani had handed the case over to Crime Branch.
"As many as six cases have been registered in this connection. We are also inquiring into the involvement of banks in the racket without whose help such companies can't flourish. Besides, efforts are on to nab the promoters of other such organizations," the officer said. The Crime Branch has so far zeroed in on as many as seven such fake companies and chit fund organizations, which had been duping people by using accounts in reputed banks such as ICICI Bank, Axis Bank, IDBI Bank and SBI. Officers said a total amount of Rs 107 crore have been frozen in 11 accounts held in branches of the banks in several cities, including Bhubaneswar, Balasore, Kanpur, Delhi and Mumbai.
"The companies whose accounts have been frozen include Trident Advertising & Trade Link Pvt Ltd, Fine Indisales Pvt Ltd, Eve Industries, Lakshya Level Marketing Pvt Ltd, Lui Brail Educational Society, Many Mantra Marketing Services Pvt Ltd and Dream Achiever," Panda said. "Apart from these seven, many such companies are operating in and outside Orissa and the total money involved in the racket will be more than Rs 1,000 crore. Orissa's share will not be less than Rs 150 crore," he added.
Recently, the Reserve Bank of India had warned all nationalized and private banks not to have accounts of as many as 10 such companies, including six that are already under the Crime Branch scanner. The other four are Alaska India, Superlife Linked Distributors, Star Consultancy Pvt Ltd and Seashore Funds Management Pvt Ltd.
An RBI memorandum on July 11 had advised not to allow these 10 companies and organisations to open accounts with them. "These MMCs are opening accounts without complying with Know-Your-Customer (KYC) norms and Anti-Money Laundering (AML) Act. Innocent people are being trapped by fraudulent schemes launched by such unscrupulous persons and companies," the memorandum read.
"Samanta had been running a fake company, Dream Achiever, since April 14 by hosting a website www.dreamachiever.in. Though he was operating the company from Balasore, he had given a Delhi address," the SP said.
DSP (Crime Branch) Pramod Kumar Panda, who led the investigation, said Dream Achiever duped public by promising them to triple their money within a year. The trick had worked and around Rs 4.46 crore was deposited into the accounts of Dream Achiever within a short span of time. "The scheme came with offers for prospective investors, who were promised special discounts for introducing two other depositors," Panda said. The Crime Branch investigation came in the wake of several complaints lodged with Balasore police by money losers. After a preliminary investigation, SP (Balasore) Rekha Lohani had handed the case over to Crime Branch.
"As many as six cases have been registered in this connection. We are also inquiring into the involvement of banks in the racket without whose help such companies can't flourish. Besides, efforts are on to nab the promoters of other such organizations," the officer said. The Crime Branch has so far zeroed in on as many as seven such fake companies and chit fund organizations, which had been duping people by using accounts in reputed banks such as ICICI Bank, Axis Bank, IDBI Bank and SBI. Officers said a total amount of Rs 107 crore have been frozen in 11 accounts held in branches of the banks in several cities, including Bhubaneswar, Balasore, Kanpur, Delhi and Mumbai.
"The companies whose accounts have been frozen include Trident Advertising & Trade Link Pvt Ltd, Fine Indisales Pvt Ltd, Eve Industries, Lakshya Level Marketing Pvt Ltd, Lui Brail Educational Society, Many Mantra Marketing Services Pvt Ltd and Dream Achiever," Panda said. "Apart from these seven, many such companies are operating in and outside Orissa and the total money involved in the racket will be more than Rs 1,000 crore. Orissa's share will not be less than Rs 150 crore," he added.
Recently, the Reserve Bank of India had warned all nationalized and private banks not to have accounts of as many as 10 such companies, including six that are already under the Crime Branch scanner. The other four are Alaska India, Superlife Linked Distributors, Star Consultancy Pvt Ltd and Seashore Funds Management Pvt Ltd.
An RBI memorandum on July 11 had advised not to allow these 10 companies and organisations to open accounts with them. "These MMCs are opening accounts without complying with Know-Your-Customer (KYC) norms and Anti-Money Laundering (AML) Act. Innocent people are being trapped by fraudulent schemes launched by such unscrupulous persons and companies," the memorandum read.
Private insurance company agents and multi-level marketing (MLM) companies misusing Referral scheme
The Insurance Regulatory and Development Authority (Irda) has expressed its concern over the referral programme prevalent among insurers. According to a senior Irda official, some private insurance company agents and multi-level marketing (MLM) companies are misusing the scheme.
Though the concept was authorised by Irda, it believes agents riding on the new concept are not following the procedures properly.
The referral programme was a new concept started by private insurers some two years ago to facilitate sale of insurance policies by the existing agents, who in turn, reach out to prospective clients through an informal understanding with local networks. The informal sub-agent, in turn, gets a portion of the commission from the authorised agent.
Irda has come across cases where sub-agents have reportedly missold the policies since they are not properly trained. Irda is worried about such misselling of policies, said the official.
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