NEW DELHI/MUMBAI (Reuters) – India’s central bank has ordered banks to tighten monitoring of export finance deals after investigators uncovered an invoicing scam they suspect is part of a multi-billion-dollar scheme to exploit Western financial sanctions against Iran.
Although the Reserve Bank of India’s ruling made no mention of the scheme that targeted UCO Bank, an RBI source familiar with the matter said it was related to a probe into the suspected misuse of up to $3.2 billion in export advances paid out by the bank.
“Banks should exercise proper due diligence and ensure compliance with KYC (know your customer) and AML (anti-money laundering) guidelines so that only bonafide export advances flow into India,” the RBI said in a circular to banks posted on its website on Monday.
Under a provision in US sanctions law, Iran can accumulate oil export revenues with its Asian buyers and use the funds to buy essential imports. According to sources familiar with the investigation by the Enforcement Directorate, a group of nine Iranians who entered India on student visas set up shell companies in a provincial city to tap into these funds held at state-owned UCO Bank.
Under Indian rules advances for exports, or for the re-export of goods imported into India, should be covered within 12 months by proof that an actual delivery is made.